Zedra Trust Company (UK) Limited · DRN-6174926

The complaint J is a Trust. Its complaint was made in 2023 by its beneficiaries, and it is represented by one of them (‘B’). The complaint is about Inheritance Tax (‘IHT’) planning advice in 2007 to set up J, followed by professional trustee services to J, both performed by Zedra Trust Company (UK) Limited (formerly Barclays Bank Trust Limited/‘BBTL’). B says the advice to set J up as a Discretionary Trust (‘DT’) with a retained professional trustee was unsuitable, that BBTL/Zedra mismanaged the DT’s portfolio, and that the terms applied, and deductions connected, to its withdrawal from the arrangement were unreasonable. Zedra disputes the complaint. It says the parts of it that happened more than six years before 2023 are out of time. It affirms entitlement to the withdrawal related deductions, and it says it discharged its professional trustee role as agreed with J’s settlor, as defined by the deed for J, and as defined under the Trustee Act 2000. What happened The DT’s portfolio began with a capital value of around £260,000, sourced from a transfer of some assets from the settlor’s pre-existing investment portfolio. Other than a £20,000 payment to a beneficiary, the portfolio remained invested. B’s summary of the portfolio’s performance, based on the valuations disclosed following the complaint, refers to a valuation of around £303,300 in June 2022 (representing growth of £63,000 (excluding the capital payment) over 15 years, or 1.6% growth per year). He says this is poor growth, and that it shows a failure by Zedra to manage the portfolio properly, to achieve the sort of growth the settlor sought and to achieve an outcome that was in J’s best interest – and/or it shows a disproportionate adverse impact of fees/charges on growth. B’s main arguments are – root causes can be found in the use of Zedra as a retained professional trustee (its annual charge added a layer of costs that impeded growth, a non- retainer fee-based arrangement would have avoided that) and in the lack of transparency into the portfolio between 2007 and 2023 (neither the settlor nor the beneficiaries knew about the impact of costs on performance during this period); an exploited conflict of interest appears to have determined the fund selections over the years; only Barclays’ managed funds were selected during BBTL’s time as trustee, then they were switched to Zedra’s managed funds after BBTL became Zedra; third-party funds that could have performed better were not considered or used; there was no active investment management in the portfolio; and there was no Capital Gains Tax (‘CGT’) management in it. The dispute over Zedra’s withdrawal from the arrangement – its retirement, in 2024, as trustee – relates to a 3% fee deducted in order for it to do so, at the beneficiaries’ request. B says it was a discretionary fee that should not have been applied, because of the absence of a legal basis to do so and because of the circumstances that led to the request. The matter is also about a dispute over the contents of the associated deed of retirement and the cost deducted by Zedra for its production. B says the cost could have been mitigated

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if Zedra simply worked with the draft deed the new trustees presented to it, as opposed to insisting on having its lawyers prepare, at cost, a fresh draft, and that the indemnity clause it sought to include in the deed was unreasonable (because it goes beyond the indemnity provided for in the original deed for J). B has presented, in support of the allegations in the complaint and as expert evidence, a statement/letter of 5 February 2024 from a Chartered Financial Planner with a specialty in Trusts (‘the expert’). One of our investigators looked into the complaint. She concluded that it has been made in time, but she took the view that it should not be upheld. She noted that the 2023 complaint happened more than six years after J was set up, but she found that the complaint is within the regulator’s three years time limit (beginning from when the complainant knew or ought to have known of cause for complaint). She identified that the DT’s portfolio’s performance is one of the main causes for complaint, that the portfolio’s statements had not been sent to the J’s settlor before she passed away in 2021, and that they had not become available to J’s beneficiaries until after Zedra’s disclosures after the 2023 complaint. For these reasons, the investigator concluded that the complaint was made within the three years time limit/within three years of awareness of cause for complaint. With regards to merit, she considered that the DT recommendation was not unsuitable for the settlor’s IHT planning objective, and she acknowledged that B does not say it was, instead he says the use and costs of a retained professional trustee in the arrangement was unsuitable. She disagreed. She said the details of Zedra’s professional trustee service were transparent to and agreed by the settlor, and there is no evidence that she did not wish to use such a service or that she was unaware of its 1.35% annual service fee. With reasons, she also was not persuaded by B’s claims about mismanagement and about the deductions made in connection with Zedra’s withdrawal from the arrangement. B disagreed with this outcome and asked for an Ombudsman’s decision. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I have reached the same conclusions expressed by the investigator. I find that the complaint has been made in time, but, on balance, I am not persuaded to uphold it. Jurisdiction (Time Limits) The regulator’s Handbook contains rules on the time limits for complaints. They are set out in the Dispute Resolution (‘DISP’) section of the Handbook. DISP 2.8.2 R says – “The Ombudsman cannot consider a complaint if the complainant refers it to the Financial Ombudsman Service: (1) more than six months after the date on which the respondent sent the complainant its final response, redress determination or summary resolution communication; or (2) more than: (a) six years after the event complained of; or (if later)

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(b) three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint; unless the complainant referred the complaint to the respondent or to the Ombudsman within that period and has a written acknowledgement or some other record of the complaint having been received …” Therefore, we cannot consider a complaint referred more than six years after the complaint event or, if later, more than three years after the complainant knew or ought reasonably to have known there was cause for complaint. In the present case, the question of awareness of cause for complaint applies to J’s settlor up to the point she passed away, after that it applies to J’s beneficiaries. The complaint is about the 2007 advice from BBTL/Zedra, about its professional trustee role between 2007 and 2023/2024, and about the events from around 2023 onwards that eventually led to Zedra’s retirement in 2024. Therefore, some of the complaint events happened within six years of the 2023 complaint (and some even continued thereafter), but some also happened more than six years before the complaint. The six years time limit applies to the events that happened in the six years between July 2017 and the July 2023 complaint, so they are in our jurisdiction and can be addressed. For the earlier events I have considered whether (or not) the three years time limit covers them. The complaint was primarily prompted by the beneficiaries’ collective view that the DT has been mismanaged, causing alleged underperformance and incurring allegedly avoidable costs in its portfolio – this then led to their additional view that part of the initial advice was unsuitable. Therefore, their awareness of cause for complaint is the same as their awareness of the alleged problems in the DT’s portfolio. That awareness could only have existed with knowledge of what was happening in the portfolio over the relevant period, especially how its investments were performing and the effects of costs on that performance. I have not seen evidence that information on the portfolio was routinely shared by BBTL/Zedra with J’s settlor between 2007 and 2021 (when she passed away), so I do not have grounds to conclude that she knew or ought reasonably to have known of these complaint matters before or by 2021. Available evidence shows that disclosures about the portfolio, including about its valuations and performance over the relevant period, first became available to the beneficiaries following a pursuit for information begun by B in 2022 and culminating in the 2023 complaint. In the above circumstances, I am satisfied that J’s settlor had no knowledge of cause for complaint, up to her passing in 2021, and that J’s beneficiaries had no such knowledge prior to B’s 2022 pursuit and the 2023 complaint. I also consider that there are no grounds on which either ought reasonably to have had such awareness during these times. The 2023 complaint happened within three years of B’s pursuit, so the complaint is within the regulator’s three years time limit, and is in time. Merits The advice Zedra gave J’s settlor was broadly defined by a detailed Settlor Profile (‘SP’) document completed at the meeting with her, and agreed/signed by her, on 6 June 2007. A copy of the completed SP was then sent to her on 12 June 2007. I have not seen evidence that she disputed its contents at the time, so I consider them to be reliable. The information I summarise next is derived from those contents.

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She was accompanied at the meeting by a relative and by, it appears, the adviser for her Barclays investment portfolio. The meeting was held in her home and lasted over an hour. She was in her mid-70s, receiving mainly pension income (plus some investment income). Her total income exceeded her outgoings, so the surplus accrued in her bank accounts. The total value of her liquid assets, excluding her home, was around £450,000, and she had no liabilities. Her objective was IHT mitigation, including “… to ease the Inheritance Tax burden on her beneficiaries …”, “… to create a fund from which help can be made available to her beneficiaries should the need arise”, “… Flexible financial provision for family members … without the assets forming part of their respective estates for IHT”, and “To make a gift that has potential to grow in value outside [the settlor’s] estate through continued investment in the Stock Market”. The settlor expressly confirmed, in the SP, her understanding of the main aspects of the advice provided to her. The list she agreed in this respect included – ‘the irrevocable nature of the Trust Deeds’, ‘the implications of current taxation laws on Trust selected’, ‘holdover relief where applicable and the potential loss of CGT value on death’, ‘all fees and costs that will be incurred in relation to the Trust’, ‘that they have the option to seek their own independent legal advice at their own expense’, and ‘the need to survive for seven years after placing assets into the settlement to achieve the Inheritance Tax savings (unless the trust is created by deed of variation)’. She also confirmed receiving the Trust brochure, information pack and terms and conditions. On 11 June 2007 BBTL followed up the meeting (and SP) with an advice letter to the settlor that concentrated more on its services as professional trustee, which she had agreed to use. Again, I have not seen evidence that she disputed the contents of this letter at the time, so I consider its contents to be reliable. The letter repeats reference to the Trust information pack, in which information sheets included one on BBTL’s investment policy and one about the exclusion of legal, tax or financial advice from its [IHT planning advice and professional trustee] services. With regards to the latter, the letter says a discussion was held about the settlor taking independent legal and/or tax advice, but she considered it unnecessary. In terms of suitability of the recommended DT arrangement, and in summary, the letter essentially said the DT achieved all aspects of her objective and the capital value outlay was affordable for her. It said despite the loss of investment income from the transferred assets, she still maintained an overall surplus income, and if she had a future need for long term care, BBTL considered that proceeds from the sale of her home could address that. The letter also explains the CGT holdover service the settlor agreed to use. In this respect, she was informed about a trade-off she would be making by transferring the relevant assets from her investment portfolio into the DT’s portfolio. She was told – holdover relief allowed her to do so at the cost values of those assets (not their values, with gains, at the time) so she was able to avoid an immediate CGT liability (by deferring that liability); had she not placed the assets in the DT and had they remained in her name no CGT would apply if they continued to be held to her death; but the opposite will be the case because of the transfer into the DT; however, CGT in this respect will be mitigated through the use of the trustees’ annual CGT allowance. The letter says the settlor considered, on balance, that the trade-off was worthwhile for the sake of achieving her IHT planning objective, and because there would be an element of CGT deferral within the DT as well as the possibility of multiple CGT allowances being applied when the DT came to an end.

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Thus far, I am satisfied with the contents of the SP and advice letter as evidence that, on balance, the DT arrangement recommended to the settlor was suitable for her IHT planning objective and for her profile. The arrangement stood to achieve each element of her objective – it was geared towards taking the portfolio of assets outside her estate, the portfolio would be IHT free after she survived seven years in the arrangement (there is information that confirms she was in good health at the time and had no reason to believe she would not survive this period), the assets also sat outside the beneficiaries’ estates but there was flexibility (reflected in the letter of wishes associated with the DT) to determine when they received their respective benefits, and the assets remained invested as she wished. In terms of affordability, the assets that were transferred from her personal portfolio to the DT left behind liquid assets of around £190,000 in value within her estate and in her name, which she continued to have access to. She also continued to maintain a surplus income. I now turn to suitability of the professional trustee aspect of the arrangement, which B has made focused arguments about. He says the additional layer of ongoing costs created by this aspect was unsuitable for the arrangement, given that more cost-efficient alternatives could have been considered. I understand the point, but a trust arrangement requires a trustee(s). As I have already found that the DT was suitable for the settlor’s objective and profile, it follows that I am also satisfied that the requisite appointment of a trustee was equally suitable. The settlor did not have to appoint a professional trustee, she could have used a non- professional who, depending on the circumstances, might have performed the role at no charge/cost. It does not appear that B objects to the use of a professional trustee. Instead, his arguments seem to be about the alternative types of professional trustees (for example, a lawyer or an accountant) that could have been used, and about the fee related terms of such use. I do not find it unreasonable for the settlor to have preferred and/or been advised to use a professional trustee. A non-professional could have been cheaper, or might have come at no cost, but a professional is generally regarded as offering knowledge, experience and expertise in trust management and, for some of them, in understanding investments that a non-professional is regarded unlikely to have. Therefore, there is potential added value in appointing the former. The settlor’s DT was invested at the outset. The assets initially moved into its portfolio were pre-existing holdings in Barclays shares and in a Barclays Balanced Distribution fund. It is not difficult to see why the settlor could have preferred a professional trustee to oversee the DT, given that its portfolio was to continue being invested in the markets. I also have not seen any evidence that there was a viable non-professional trustee alternative available to her who could offer the same or comparable level of knowledge, experience and expertise that a professional trustee could. I do not say or suggest that a professional trustee is always or automatically to be considered suitable for a trust that holds investments. Each case will turn on its facts and circumstances, but in the settlor’s case, for the above reasons and for the reasons I continue below, a professional trustee was a reasonable choice. It is also not difficult to see why the settlor could have preferred, or at least accepted the recommendation of, BBTL as the professional trustee for the arrangement. I note the potential for a conflict of interests that could be perceived in BBTL advising on the DT arrangement and then being appointed the professional trustee within it. However, the existence of a conflict of interest, on its own, does not automatically amount to a

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wrongdoing. The issue to consider in this case is if any such conflict was mismanaged and/or if it affected J’s best interests. I have not seen evidence of either. The arrangement needed a trustee and, as I find next, the settlor probably had reasons to prefer BBTL. I repeat, the investments moved into the DT’s portfolio were pre-existing Barclays holdings. They were from the settlor’s personal Barclays investment portfolio. She already had a longstanding relationship with Barclays and it appears that her Barclays adviser (associated with her Barclays investment portfolio) was even present during the meeting with BBTL (which, at the time, was a Barclays Bank Plc subsidiary). In these circumstances, I find that the settlor probably sought a form of Barclays based continuity in service between her personal arrangement and the separate DT arrangement, and that using BBTL as a professional trustee, for these reasons, was not unreasonable. This brings me to the fee terms that B objects to. Having found that the use of BBTL’s services was not unreasonable, it somewhat follows that the terms of those services and the associated trust deed were to be considered and agreed by the settlor as they were. That is what happened. She considered and agreed those terms of service. It is not clear why she did not wish to seek independent legal advice on BBTL’s proposition, but that appears to have been the decision she made. As I said above, the 6 June meeting happened in her home and lasted over an hour, and she was accompanied by a relative, so it does not seem likely that she would have been under undue pressure in her considerations. I do not consider that the terms, as a whole, were inherently unreasonable in the circumstances. Overall, I am not satisfied that there are grounds to say BBTL did something wrong in its retainer-based fee terms or in the settlor’s agreement to those terms. The idea that the settlor might have been able to achieve non-retainer based terms with another provider of professional trustee services might be true, but it does not automatically mean the BBTL fee terms she agreed were unsuitable. The same applies to the idea that she might have achieved lower fees altogether elsewhere. The point is that she did not seek to go elsewhere, probably for the reasons I considered above. In terms of BBTL’s/Zedra’s ongoing role as professional trustee in the DT’s portfolio, the SP confirms the following – “Trustees’ Investment Policy Statement: The fact sheet was explained to and left with [the settlor]. She understands that the Trustees will continue to Invest In a ‘Multi Manager’ fund (similar to BPIM) for diversification, spread of risk and to satisfy the prudent approach that Trustees adopt.” [my emphasis] This was what the parties agreed. I understand B’s point about active investment management, but BBTL/Zedra was a professional trustee, distinct from an active investment/portfolio manager, and the afore quoted statement shows that the agreed plan was to achieve investment management of the DT’s portfolio indirectly, mainly through the use of multi manager funds. I can see why B has made the argument that he has, given that BBTL/Zedra had, in itself, absolute discretion over the DT and its portfolio. However, that discretion remained defined by the remit of its professional trustee role and the agreed investment policy statement. Therefore, it would not have been within BBTL’s/Zedra’s gift to move into full blown active investment management of the portfolio in the way that B appears to have argued or in a way that went beyond the investment policy. Evidence of the portfolio’s journey between 2007 and 2023 has been shared with us. Over these years it contained holdings in the Barclays Balanced fund that was transferred into it (which remained for some time), in a Barclays Growth fund, in a Barclays Dividend and Growth fund, in a Barclays Global Equity fund, in a Barclays Multi Asset Growth fund, and in

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Zedra Fiduciary Balanced funds (income and total return funds). The Barclays funds were multi manager funds consisting of a diversified collection of sub-funds geared towards their respective stated purpose. The Zedra funds also show diversification in the same fashion, with multiple core managers overseeing them. In addition, they all appear to have had a balanced/medium risk profile in common, which indicates a spread in exposure to risks, but also positioning for the chance of achieving a growth objective. The complaint does not call for a forensic analysis of fund management. BBTL/Zedra was a professional trustee, not a fund manager. I have looked into the DT’s portfolio’s contents over time, not to conduct such an analysis, but to consider compliance between the fund components summarised above and the Trustees’ Investment Policy agreed with the settlor (as quoted above). On balance and for the reasons given above, I do not find that the portfolio was non-compliant. We also have evidence of the annual reviews conducted for the portfolio as part of the professional trustee service, with copies of the associated review reports/records. Some of those reviews led to the switches in the funds the portfolio was invested in. Zedra has also shared a chronology of many of the review exercises that were conducted, along with informative summaries of the specific considerations and decisions made in them. It is notable that, in some years, multiple reviews (or reviews extending over multiple dates) and some “special reviews” were conducted within the same year. Overall, I consider that this body of evidence exhibits a reasonable level of ongoing and meaningful attention to the portfolio within the professional trustee service. B has made submissions about performance of the portfolio. We would not normally address a complaint about, in isolation, performance. Where performance issues have potentially resulted from unsuitable advice from, and/or mismanagement, by a firm there could be grounds, depending on the circumstances, to consider holding the firm responsible. I have not found the 2007 advice to be unsuitable and BBTL/Zedra was not an investment manager, in its usual meaning, instead it was the professional trustee. Its oversight and responsibility, pertaining to the DT’s portfolio, was defined by the agreed Trustees’ Investment Policy. As set out above, thus far I have not found that it mishandled either. Beyond these areas, performance in the DT’s portfolio would be a matter concerning the wider and general market and economic conditions during the relevant period. Those conditions were beyond BBTL’s/Zedra’s making and control, so it cannot reasonably be deemed responsible for them. Both sides have made references to the Trustees Act, which I have noted and considered. However, the purpose of this decision is not to perform a general appraisal of BBTL’s/Zedra’s professional trustee service. Instead, it is to address the specific complaint issues raised on behalf of J, which I have done above and continue to do below. I can assure the parties that I have taken on board their points about the Trustees Act, and I have been mindful of those points (and of the Act) in the consideration of my findings. B has drawn our attention to the expert’s statement/letter. The document sets out the areas the expert was commissioned to look into. It reaches a number of conclusions on those areas. In summary, it says the expert found – a lack of transparency over the investment management costs; that the DT portfolio’s performance suggests either an adverse impact from fees or investment underperformance itself; that there is confusion over tax efficiency in the DT, especially with regards to CGT management; and that there has been a lack of information provided to J’s settlor and beneficiaries.

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Overall and on balance, I have not found the added value in the letter that B appears to believe exists within it. Its findings, in as far as they are relevant to the live complaint issues, are somewhat open ended and inconclusive. The summary above illustrates this, whereby no definitive outcome is reached in two out of the four areas, those two being the subjects that remain more alive than the others in the present complaint. I do not wish to be dismissive about the transparency of costs and lack of information issues. However, it strikes me that B’s efforts and pursuits between 2022 and 2024 went a significant way towards addressing them successfully, to the point that there have since been relatively comprehensive disclosures of the portfolio’s statements, valuations and periodic records on gains and losses in its annual Capital History Reports/‘CHRs’ (relevant to CGT management). It is for this reason that I consider the other two subjects – performance and CGT management – to be more alive in the complaint. On these issues the expert drew no firm conclusions. I have already dealt with the matter of performance. In terms of B’s suspicion about CGT mismanagement, I am not persuaded that, on balance, such mismanagement has been established. Based on the available CHRs, whilst sales were conducted in the portfolio from 2008 onwards, they did not generate net gains until the period ending April 2012, from which, and up to 2024, sales continued and net gains were generated. B highlights the following statement in Zedra’s complaint response – “… investment changes have been made regularly to wash out gains to ensure that the trustees capital gains tax allowance was utilised” – and he questions its veracity on the basis that the level of uncrystallised gains (of £53,400) in the portfolio in 2023 amounted to around 85% of the portfolio’s total increase in value since inception. He cannot see how this could be the case if gains had been routinely washed out over the course of around 15 years. He also says the expert’s view is that a Life Assurance Investment Bond could have been a more tax efficient wrapper to use in the DT. As acknowledged within B’s challenge, and as I mentioned above, BBTL/Zedra had its own preferred CGT management approach, which it recommended to and agreed with J’s settlor. I have not seen grounds to say its was unsuitable, and reference to a Life Assurance Investment Bond as an alternative does not automatically mean it was. B’s point is more about whether (or not) the agreed approach was actually applied. The CHRs show the following total net gains (rounded up/down) crystallised from sales in the portfolio – £5,500 for the period ending in April 2012, £6,500 up to April 2013, £13,200 up to April 2014, £6,600 up to April 2015, £6,000 up to April 2016, £7,500 up to April 2017, £5,500 up to April 2018, £5,200 up to April 2019, £5,400 up to April 2020, £5,200 up to April 2021, £6,200 up to April 2022, and £5,600 up to April 2023. This appears to be an illustration of the agreed CGT management approach, and of Zedra’s statement (quoted above), in practice, for each of the aforementioned years. As I previously said, the sales in the earlier years did not generate net gains. It is perhaps worth bearing in mind that there was a £20,000 capital withdrawal from the DT and that there were reinvestments of sale proceeds which had their own respective gain/loss performances. These elements might potentially explain the relationships between the uncrystallised gains that B refers to and the gains crystallised in the aforementioned years and the portfolio’s overall performance. As far as his suspicion that the agreed CGT approach was not followed, on the above grounds I retain my view that this has not been established. On the matter of Zedra’s retirement, a copy of the 2007 terms agreed by J’s settlor has been

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shared with us. It includes the following – “A fee at the rate of 3.5% will be payable out of capital on the gross amount or market value (actual or estimated) of any capital funds or assets paid out or released from the estate or trust whether in the course of administration or by way of distribution to Beneficiaries or upon the Company ceasing to act in the estate or trust. A reduction to this withdrawal fee may be considered in cases where the Company believes it justifiable to do so because either the work involved has proved exceptionally straightforward or the level of responsibility is disproportionate to the amount of the fee.” [my emphasis] Therefore, the fee itself was mandatory, but BBTL/Zedra had some discretion to reduce the fee rate. In his email to us of 3 January 2025 B confirmed that the rate applied was 3%, so it appears that Zedra applied a discretionary discount from 3.5%. The points to note are that it was contractually entitled to the withdrawal fee and it even allowed a discount. I do not find a wrongdoing in its application of the fee to its withdrawal from the professional trustee role. Zedra has also given the following reasons behind the fee it applied for the drawing up of the deed of retirement and for the indemnity provision included within it – “The retirement deed is prepared by a solicitor, Zedra Legal Services who is a separate legal entity, and the £750 is their legal charges for the preparation of the deed.” “In general, trusts are often specific on their terms so it is not possible to use a replica document time after time without considering the terms of the trust and the provisions therein and adapt documents accordingly.” “… trusts are often specific on their terms so it is not possible to use a replica document time after time without considering the terms of the trust and the provisions therein and adapt documents accordingly. It is normal practice for trustees to seek release from future liabilities of a trust but there is no “standard” indemnity provision as this is often trust specific.” On balance, I consider these reasons to be broadly reasonable, and they explain why Zedra did not find itself in a position to use the deed of retirement presented by the new trustees. Section 19 of the agreed terms allowed for deductions to pay for trust related costs/charges/expenses, so it would appear that the £750 legal expense was covered under this. My final decision For all the reasons given above, I do not uphold J’s complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask J to accept or reject my decision before 31 March 2026. Roy Kuku Ombudsman

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