I work for a wealth management firm and a number of our clients hold investments in various types of trusts. We have recently had queries from several clients who either have a trustee who wishes to voluntarily resign (where there would be 2 or more continuing trustees) or where a trustee has lost capacity and needs to be removed and replaced.
Usually those trusts have been set up some time ago by external providers or lawyers who will deal with any changes, however one of our financial advisers wants us to deal with these resignations/appointments ourselves in certain circumstances (such as where there is no other provider involvement), predominantly in order to keep costs to a minimum for our clients - we would not charge a client for this, whereas an external law firm would. He has provided me with various examples of forms that insurers/providers such as Prudential and AIG use for this purpose.
I am aware that under the Legal Services Act 2007, preparation of instruments relating to real or personal estate, including trust deeds and ancillary documents, is a Reserved Legal Activity. As such, I was wondering how that ties in with insurers/providers undertaking these changes by way of a standard application form.
The CII website states that "In the financial services industry many draft trust deeds and supplementary documents are offered by life assurance companies and investment companies. This has been proven to be a very helpful and highly valued service from the point of view of both advisers and their clients. Such documents are offered for no fee and are therefore not in breach of the law. "
I’ve read the relevant section of the LSA and note that Schedule 3 clause 3(7) gives an exemption where an individual carries on the activity “otherwise than for, or in expectation of, any fee, gain or reward”, however I can’t decide whether this clause would apply specifically to the fact that we would not charge for this service and it would result in no additional benefit over and above what the firm already receives from the trust OR whether there would be an argument that whilst there may not be a direct fee for undertaking the change, the company would still be benefiting from the ongoing client relationship and fees that companies receive from the trust.
Can anyone give any insight here?
It certainly appears to be the case that if you were charging for the preparation of such deeds of appointment/resignation, this would be prohibited under LSA2007. However, if such deeds were provided without charge and strictly as drafts without any responsibility whatsoever for the efficacy thereof being accepted by your firm, then I would have said that this would be permissible in the same way that it is for life assurance companies who offer similar documents.
Thanks for your response Paul, that’s really helpful. I didn’t think about the possibility of providing such deeds as drafts and that certainly gives another angle for me to consider.
I agree with Paul’s analysis. Throughout my career these ancient restrictive practices have been a nuisance, although so easily got round as to be indefensible.
First, a tax expert who was (merely) an accountant or ex-HMRC could not at one time instruct Counsel and a solicitor had to backsheet the instructions and (possibly) attend the con, all in blissful ignorance of the subject-matter (and query their PI exposure). Expediency (and, uncharitably, self-interest) eventually prevailed over antediluvian Bar ossification with direct access.
Secondly, solicitors and barristers advising on the technicalities but working for accountants had to go outside for the drafting even if, like me, they were dually qualified. In fact we did not care for the ruse of pricey advice but free drafting bundle which insurance companies can better disguise within the premium. What would a judge make of this, we mused, and indeed our insurers too. This is not good for the client as it duplicates effort if each professional does the job properly but the client’s interests appear not to deserve priority with lawmakers as clients only have one vote each. Clients must be seen to be protected, however anachronistically and superficially, and whether they like it or not.
Ideally only those who are properly qualified (and PI protected) should be legally allowed to draft any document and here is a third nonsense which I observed rigorously for many years. Only a solicitor or barrister can draft a lifetime trust, however incompetently, whereas I (while non-practising) who had drafted thousands (when I was) could not, although I could draft trusts of monumental complexity in a Will. So I supplied to a proper drafting person my very detailed drafts of lifetime trusts stunningly resembling those I would have drawn myself if permitted.
And what I say about trusts goes for drafting any Deed even though the difference now from a document under hand is just a minuscule verbal formula in the execution clause.
Ancient prohibitions are a casuistic fig leaf and a dishonest substitute for intelligent and properly targeted regulation of professional activity.
Thanks for the response Jack. These old rules/practices really are a minefield at times and don’t always make much sense any more. Whilst I’m a qualified legal executive with many years experience, because I work in-house rather than for an SRA-regulated firm I can only undertake non-reserved legal activities, even where I have prior experience with certain reserved legal activities from previous roles in private practice. So when I come across something that I’ve not yet had to do in my current role, it makes me extra cautious to ensure that I am not overstepping those restrictions.