I recently attended the STEP Alpine Conference in Interlaken, where leading private client professionals discussed the advantages and potential pitfalls of appointing trust investment managers.
Trustees today oversee increasingly sophisticated investment structures, including private investments, family businesses and digital assets. While professional investment managers are commonly appointed, delegation does not remove a trustee’s fiduciary responsibilities. Many disputes arise not from poor investment performance itself, but from failures in oversight, governance, diversification or documentation.
This article highlights several common investment “traps” trustees should avoid.
Delegation Does Not Remove Responsibility
Trustees may delegate investment functions to professional investment managers, but they remain responsible for ensuring the delegation is prudent, properly documented and actively supervised.
Before appointing an investment manager, trustees should assess the manager’s experience, regulatory status, reporting capabilities, risk management approach and suitability for the trust’s objectives. Investment mandates should clearly define investment parameters, reporting obligations, benchmarks and risk limits.
Importantly, trustees cannot delegate core fiduciary accountability, even where day-to-day investment decisions are outsourced.
Failing to Monitor Investments
Delegation does not eliminate the duty to monitor.
Trustees should regularly review portfolio performance, asset allocation, risk exposure and compliance with the agreed mandate. Benchmarking and contribution reporting are important tools for assessing whether the investment strategy remains appropriate.
Poor performance alone is not necessarily a breach of duty. However, persistent underperformance, unexplained deviations or market events should prompt trustees to seek explanations and document their responses carefully.
Underlying Companies and Anti-Bartlett Clauses
Many trusts hold shares in underlying companies, particularly within family structures. Trust deeds often include anti-Bartlett clauses intended to limit a trustee’s duty to supervise company management.
However, such clauses do not provide complete protection. Trustees may still be expected to act where there are clear warning signs of misconduct, insolvency or serious governance failures.
Where family members act as directors, trustees should consider enhanced governance protections such as independent directors, reserved matters or stronger reporting obligations.
Failure to Diversify
Diversification remains a central principle of prudent investment.
The appropriate level of diversification depends on the purpose of the trust, but trustees should always consider and document concentration risks. Excessive exposure to a single asset, sector or jurisdiction may create liability if losses occur.
Trustees should also periodically review and rebalance portfolios to ensure allocations remain consistent with the trust’s objectives and risk profile.
The Trustee’s Ongoing Duty
Modern trusteeship requires active engagement with investment governance and risk oversight. While investment managers play an important role, trustees remain ultimately responsible for acting prudently and in the best interests of beneficiaries.
Across all investment structures, the key themes remain consistent: proper delegation, clear documentation, active monitoring, sensible diversification and careful management of risk.
*George Economides, Vice Chairman of Totalserve
