The FCA has issued a warning today about the potential mismanagement of 'asset protection' trust schemes.

It said it had seen cases of firms seriously mismanaging trusts with unsuitable investments being made by trustees.

The regulator warned: “It is possible for trust assets to be inappropriately invested, including into high-risk illiquid assets. In most cases, these investments are not suitable.”

Under a trust arrangement, trustees are responsible for the assets put into the trust and have the power to decide how to invest the assets.

However, where the trustees involved are not sufficiently competent, or not acting in a consumer’s best interests, there is scope for money to be misused, the FCA said.

The FCA said: “Often these firms are emphasising the benefits of trust arrangements including shielding assets from certain claims, costs, or fees, for example in the event of divorce or probate. They may also promote high rates of return on the assets held in trust.”

There is also a risk that the usual protections in place for consumers are lost, the FCA said.

The FCA advised consumers to seek independent legal advice to ensure that the trust will actually work to deliver the intended protection of their assets, as well as independent financial advice to validate any proposed strategy for investing the assets before agreeing to put any money, property or assets into a trust scheme.

A trust is a legal arrangement set up to manage assets, such as property, money or shares.

It said trusts have legitimate uses, for example in estate planning, in safeguarding the assets of children or those who are incapacitated, and in some regulated investment structures.

When run correctly, trusts can deliver good outcomes and be an efficient way to control and protect these assets.

But it advised consumers to: “Read the trust agreement carefully and make sure it clearly sets out what the trustee is able to do with your assets, in particular, that the types of investments the trustee may make and the level of risk they may involve, making sure it matches your preferences.”

It also told consumers to check if the firm is regulated by a member of a professional body, such as STEP.

If so, they should be subject to some standards of conduct, unlike non-regulated trustees.