FCA warns consumers about mismanagement of ‘asset protection’ trust schemes

We have seen cases of firms seriously mismanaging trusts with unsuitable investments being made by trustees. Find out more about harm we’ve seen and how to protect yourself.

About trusts
A trust is a legal arrangement set up to manage assets, such as property, money or shares. When run correctly, trusts can deliver good outcomes and be an efficient way to control and protect these assets.

Trusts have legitimate uses, for example in estate planning, in safeguarding the assets of children or those who are incapacitated, and in some regulated investment structures.

Harm we’ve seen from mismanagement of trusts
When you start a trust arrangement, the trustee (the people who run the trusts) is responsible for the assets you put into your trust. The trustee then has the power to decide how to invest these assets. The agreement you sign explains how your assets should be invested.

However, where the trustees involved are not sufficiently competent, or not acting in your best interests, there is scope for your money to be misused.

It is possible for trust assets to be inappropriately invested, including into high-risk illiquid assets. In most cases, these investments are not suitable. When you invest through a trust, there is also a risk that the usual protections in place for consumers are lost.

Often these firms are emphasising the benefits of trust arrangements including shielding your assets from certain claims, costs, or fees, for example in the event of divorce or probate. They may also promote high rates of return on the assets held in trust.

What you can do to protect yourself
The best way to protect yourself is to seek independent legal advice to ensure that the trust will actually work to deliver the intended protection of your assets, as well as independent financial advice to validate any proposed strategy for investing your assets before agreeing to put any money, property or assets into a trust scheme.

The advice should be truly independent. That means it should be from someone who is in no way connected to the person proposing to set up the trust for you.

In addition you should:

Read your trust agreement carefully and make sure it clearly sets out what the trustee is able to do with your assets, in particular, that the types of investments the trustee may make and the level of risk they may involve, making sure it matches your preferences. If your agreement does not set out your investment preferences in your agreement, then the default investment powers will be in place. This means that your trustee is permitted to invest your assets as they see fit, which could include investing in high-risk investments.
Check if the firm is regulated by a member of a professional body, such as STEP. If so, they should be subject to some standards of conduct, unlike non-regulated trustees.
Check our ScamSmart and InvestSmart pages for more information on avoiding scams.
Go to MoneyHelper for more information on seeking financial advisers and setting up trusts.

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