Advanced Equity and Trusts Law - alastairhudson.com

investments, people wishing to invest only in pharmaceutical companies, people wishing to
invest only in oil companies, and so on).
Between the trustee and the investors will be a contract: it is this contract which sets out the
rights of the investors and the obligations of the trustee in relation to the investment of the
money invested and in relation to the calculation and payment of profits. The investor,
however, also acquire the right of beneficiaries under the trust structure. It is this trust
structure which was intended originally to provide investors with protection against the
trustee – over time, however, public policy came to believe that more stringent forms of
protection by financial services regulation and often ombudsmen were also required.
What is meant by an “investment trust”
We will use the term “investment trust” to cover any trust which is created solely for the
purposes of making an investment, or which has as one of its purposes the making of
investment. As we go through our analysis of this area we will distinguish between various
types of investment trust. We will distinguish between investment trusts which are ordinary
private trusts but which have as one of their purposes the investment of the trust property, and
investment trusts which are marketed by professional trustees to induce members of the
public to invest money with them. Ordinary private trusts have a traditional understanding of
the trustee as a fiduciary whereas trusts marketed by professional trustees are clearly intended
to make a profit for the trustee and consequently contain an in-built conflict of interest
between the trustee’s personal profits and the beneficiaries’ interests.
Among these professionally marketed trusts there are specific models of trust such as pension
funds and unit trusts which have their own statutory codes governing them. The existence of
these statutory codes make these trusts different from ordinary trusts precisely because
Parliament has thought it necessary to treat them separately. You should seek to understand
why these distinctions have been made and what the differences are.
Some key distinctions between investment trusts law and traditional trusts law
� Investment trusts have a specific statutory code (in the Trustee Act 2000) governing
all trust investment which was intended (a) to modernise the law by giving trustees
greater freedom, (b) to act as a supplement to any specific powers which may have
been included in the trust instrument, and (c) to encourage the greater use of trusts.
� Some particular types of investment trust have their own statutory codes instead of
the Trustee Act 2000. This reflects the understanding that the traditional case law
dealing with the investment of ordinary trusts is insufficient to provide adequate
redress for beneficiaries because there are often too many beneficiaries to organise the
commencement of litigation.
� Some investment trusts such as pension funds and unit trusts have specific statutory
codes, distinct from all other trusts, as a reflection of (a) the lack of expertise of
ordinary investors compared to professional trustees in making trust investment, and
(b) the social importance of these forms of trusts requiring government action to
ensure that the public is being protected from any possibility of profiteering by
professional trustees.
� The Financial Services and Markets Act 2000 provides a code for the regulation of
investment activity throughout the UK in part by creating the Financial Services
Authority. The Financial Services Authority in turn has the power to create regulations
as to the manner in which trustees can be authorised to sell investments to the public.
2. THE MANAGEMENT OF INVESTMENT ACTIVITY
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