The Financial Conduct Authority has warned consumers about the mismanagement of ‘asset protection’ trust schemes.
The watchdog said it has seen cases of firms “seriously mismanaging” trusts with unsuitable investments being made by trustees.
While trusts have legitimate uses, for example in estate planning and in safeguarding the assets of children or those who are incapacitated, the FCA said there is scope for money to be misused if the trustees involved are not sufficiently competent or not acting in the best interests.
The FCA said it was possible for trust assets to be inappropriately invested, including into high-risk illiquid assets which, in most cases, are not suitable. Often, these firms emphasise the benefits of trust arrangements including shielding assets from certain claims, costs or fees such as a divorce or probate.
In a statement, the FCA said the “best way” for individuals to protect themselves 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.”
Other recommendations included reading the trust agreement carefully and making sure it sets out what the trustee is able to do with their assets, as well as ensuring the firm is regulated by a member of a professional body, such as STEP.
