Unit 1.3: Fiduciary Duties, Conflicts and Decision-Making

• Topic 01

  Fiduciary Duties

  45 questions
• Topic 02

  Professional Advice and Decision Making

  45 questions
• Topic 03

  Conflicts of Interest

  45 questions
• Topic 04

  The Importance of Sound Governance and Administration

  Coming soon

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. A newly appointed member-nominated trustee assumes that, because members elected them, their duty is specifically to represent the views of the members who voted for them. Is this assumption correct?

   • A
     Yes, but only for decisions directly affecting active members, as opposed to pensioners
   • B
     Yes, provided the trust deed describes the role using the word 'representative'
   • C
     No, because once in office a member-nominated trustee owes the same fiduciary duty to the scheme's beneficiaries as a whole, not a representative duty limited to those who nominated or voted for them
     Correct answer
   • D
     No, but the assumption becomes correct once the trustee has served for more than a fixed number of years
   Explanation

   Regardless of the nomination or election process, a trustee's fiduciary duty on taking office runs to the beneficiaries as a whole, not to a subset defined by who nominated or voted for them. Key takeaway: nomination by a particular group does not create a narrower, representative fiduciary duty to that group alone.

2. Trustees are considering an investment decision. Some argue that 'best interests' should be read more broadly than 'best financial interests' whenever a scheme has both active members and deferred members with differing time horizons. Is this a correct application of Cowan v Scargill?

   • A
     No, because Cowan v Scargill ties best interests to financial return by reference to risk and return; differing time horizons between classes may affect investment strategy, but they do not convert best interests into something broader than best financial interests
     Correct answer
   • B
     No, but the distinction disappears entirely once a scheme has more than one class of member
   • C
     Yes, because best interests only equals best financial interests for schemes with a single class of beneficiary
   • D
     Yes, because the duty of impartiality overrides the best interests duty where classes differ
   Explanation

   Cowan v Scargill holds that where a trust's purpose is to provide financial benefits, best interests is normally judged by risk and return. Different time horizons across classes may affect how that financial test is applied in practice, but they do not broaden best interests into a different, non-financial standard. Key takeaway: multiple classes of beneficiary affect the application of the financial test, not its underlying nature.

3. What legal status does a person acquire the moment they take office as a pension scheme trustee?

   • A
     Fiduciary status
     Correct answer
   • B
     Employee status of the pension scheme
   • C
     Fiduciary status only once they begin exercising investment powers
   • D
     Trustee status becomes fiduciary only after completing induction training
   Explanation

   A pension scheme trustee becomes a fiduciary the instant they take office, not at some later point such as completing training or first exercising a power. Fiduciary status brings duties of loyalty and good faith that go beyond an ordinary contractual or employment relationship. Key takeaway: fiduciary status attaches from the moment of appointment, not from any later milestone.