SSAS Next Steps – Professional Ombudsman’s Decision Mr N (PO-25984)

Following the Ombudsman’s Decision in the complaint of Mr N (PO-25984), there are a number of steps Professional Trustees should take – if they haven’t done so already – to discharge their duties as Professional Trustee and insulate themselves against complaints.

Background & Decision

The Professional Ombudsman’s decision in the case of Mr N (PO-25984) has been well publicised. In short, Mr N, Member Trustee of a Rowanmoor SSAS, invested £62,500.00 of SSAS funds to purchase a 33% share in the Dunas Beach Investment, an overseas property investment scheme. Mr N suffered loss from the investment and complained to the Ombudsman that Rowanmoor had failed to undertake sufficient due diligence in the investment.

Rowanmoor argued, amongst other things, that:

1. They weren’t required to or able to give investment advice and, essentially, they were acting as bare trustee.
2. They had advised the Member Trustee to take independent investment advice, which he had received;
3. They sent him a letter stating they didn’t approve the investment; and
4. It had conducted the requisite due diligence checks on the investment.

The Ombudsman found that:

1. Rowanmoor were not acting as bare trustee: their Trust Deed and Rules give them the same decision making power as any Member Trustee;
2. That being the case, Rowanmoor were unable to discharge their obligations to the beneficiaries by the steps they had taken to advise the Member Trustee. Rowanmoor were required to take required steps themselves;
3. Rowanmoor owed a higher Duty of Care to the beneficiaries of the Scheme due to their position as Professional Trustee (Bartlett v Barclays Bank [1990] Ch 515); 
4. Given their position as Professional Trustee, Rowanmoor had failed to discharge their Statutory, Common Law and Equitable obligations, being:

1. Take independent investment and legal advice (s. 36 of the PA 1995);
2. Obtain updated advice from time to time on the investment (36(4) of the PA 1995);
3. Ensure that the Scheme’s investments were adequately diversified (reg. 7(2) of the Occupational Pension Schemes (Investment) Regulations 2005 (SI 2005/3378);
4. “take such care as an ordinary prudent man would” when investing the assets, to act in the beneficiaries’ best financial interests and to avoid “all investments attended with hazard” (Common law notably Re Whiteley [1886] UKHL 1, Cowan v Scargill [1984] 2 All ER 750 and Learoyd v Whiteley [1887] 12 AC 727; and
5. General Equitable and Fiduciary Duty – the investment was high risk; there was a lack of regard for the Member Trustee’s wider financial interests.

The Ombudsman also said that Professional Trustees had a further overriding obligation to inform Member Trustees of their Trustee Duties under the law.

Buckles SSAS Support – Next Steps

The overriding conclusion to this case is that a Professional Trustee must discharge all of their Statutory, Common Law and Equitable obligations as a Trustee of a Scheme and cannot rely on merely advising Member Trustees. The Professional Trustee is as responsible for investment decisions as the Member Trustee who may have proposed the investment. That being the case, Professional Trustees should:

Rowanmoor had the requisite powers in their Trust Deed and Rules to stop Mr N’s proposed investment. The Ombudsman relied on those powers to determine that Rowanmoor were not a Bare Trustee. However, we cannot see a position where a Professional Trustee would be able to limit their obligations as Professional Trustee by not including those powers in the Trust Deed and Rules for Schemes. A Professional Trustee relying on the lack of those powers to dismiss a complaint would surely be dismissed by the Ombudsman on the basis that the Professional Trustee’s Statutory, Common Law and Equitable obligations override their lack of power to discharge them. Essentially, a Professional Trustee must include in their Trust Deed and Rules sufficient powers to discharge their obligations to beneficiaries of the Trust.

Step 1:

Review Trust Deed and Rules to ensure that the Professional Trustee has the requisite powers under the Trust to prevent investment decisions being made and, where appropriate, amend Trust Deed and Rules accordingly.

We do not think there’s a valid argument for a Professional Trustee to successfully argue that because an investment is low risk, the Professional Trustee’s legal obligations do not need to be discharged. It does not follow, however, that the level of due diligence required for investments should all be the same – higher risk investments will clearly have a higher threshold that needs to be met for Professional Trustees to fully discharge their duties. So Professional Trustees need both a process to discharge their obligations in full and to have an enhanced process for higher risk investments. It is only in this way that Professional Trustees will be able insulate themselves from potential claims.

Step 2:

Identify all legal obligations that the Professional Trustee must meet vis-à-vis investments.

Step 3:

Establish a process/checklist that must be followed for each investment decision as well as a system for documenting the decision making process.

Step 4:

Put in place rules into your process as to how risk is quantified in investment and what will constitute high risk. Professional Trustees may take a decision that no investments determined to be high risk by the Professional Trustee will be allowed, which will mean Professional Trustees will need their contractual documentation to be clear that the Professional Trustee’s decision on that point will be final.

Step 5:

Timetable yearly reviews of that process so it’s updated in light of most recent PO decisions.

Member Trustees need to be informed of the process so that the Professional Trustee is able to provide reason and transparency. Precedent documentation and correspondence should be put in place for that. A guide might be a good idea for the purposes of transparency. This would be both good to avoid conflict and to discharge any duty that may be imposed after the Rowanmoor decision for Professional Trustees to ensure the Member Trusteed understand their Trustee obligations.

Step 6:

Create a guide to inform Member Trustees of both your decision making process for investments (and the reasons for it) and the Member Trustees’ obligations as Trustees.

With these steps successfully followed, Professional Trustees will be able to both discharge their legal obligations and fend-off complaints successfully saving costs, time and reputational damage.

Buckles SSAS Support can help Professional Trustees regarding their legal duties, including Trust Deeds and Rules, processes, workflows and general ongoing advice.