At Rawlings Bolton, we understand the complex landscape of regulated financial services in Australia. We believe that appointing an independent trustee can significantly elevate investor confidence and help investment managers maintain the highest standards of ethical practices in their managed investment schemes. In this article, we will delve deeper into six essential reasons to consider appointing an independent trustee, providing detailed examples for each reason.
1. Safeguarding Investor Interests
Independent trustees play a pivotal role in protecting investor interests. Given their autonomy from an investment scheme’s management, they can objectively oversee critical decisions. This separation helps mitigate potential conflicts of interest that may arise from the involvement of an investment manager’s internal personnel in trustee functions.
Example: An investment manager may be inclined to invest in a company in which they have a personal stake. An independent trustee, as a neutral party, would be vigilant in identifying such a conflict and prioritise investor interests in their decision-making.
2. Managing Conflicts of Interest
Independent trustees serve as a safeguard against conflicts of interest. They are better equipped to make unbiased judgments, particularly in scenarios involving related-party transactions or changes in investment strategy. This impartiality protects investors and fosters fairness.
Example: A related-party transaction may involve the investment manager’s affiliated companies offering services to the investment scheme at inflated prices. An independent trustee can objectively review such transactions and ensure that they are conducted at arm’s length, safeguarding investor interests.
3. Enhancing Transparency
Independent trustees reinforce transparency by ensuring that the managed investment scheme adheres to reporting and disclosure standards. Transparency offers investors clear insights into the scheme’s performance, risks, and compliance, thereby fostering trust and confidence.
Example: An independent trustee may require the investment manager to disclose details on investment strategy changes and their potential impact on the scheme’s risk profile. This additional layer of disclosure helps investors make more informed decisions about their investment.
4. Regulatory Compliance
Australian financial regulations emphasise the role of trustees in managed investment schemes. Independent trustees ensure compliance with the Corporations Act and other regulatory guidelines, mitigating legal and reputational risks for the scheme.
Example: Should the investment manager not follow prescribed investment limitations, an independent trustee would monitor and step in to correct non-compliant actions, thus ensuring regulatory adherence and reducing the risk of penalties.
5. Risk Management
Effective risk management is critical to the success of any investment scheme. The unbiased perspective of independent trustees allows for more rigorous risk assessment and mitigation strategies, preventing undue concentration of risk and potential losses.
Example: If a scheme’s portfolio has significant exposure to one particular sector or asset class, an independent trustee can objectively assess the associated risks and work with the investment manager to diversify the investments, ultimately improving resiliency and performance.
6. Governance and Accountability
Independent trustees bolster governance standards within a managed investment scheme. By adding an additional layer of accountability, they ensure that the scheme operates in the best interest of investors.
Example: Independent trustees often review the investment manager’s performance within predetermined benchmarks or industry standards. This evaluation process holds the investment manager accountable, promoting efficient and responsible management of the scheme.
Expertise and Confidence in Your Financial Partnership
With an independent trustee, investment managers gain access to a wealth of expertise, due diligence, and an unbiased point of view. At Rawlings Bolton, we can help you navigate the process of selecting and collaborating with a trusted independent trustee, ensuring your managed investment scheme benefits from their valuable insights.
Contact Stav Sotiriou today at [email protected] to discuss how our expertise in delivering tailored financial solutions can optimise your managed investment scheme.
