OPERATIONAL GUIDANCE

TRUSTEE ACT 2000

POWER TO EMPLOY AGENTS AND DELEGATE FUNCTIONS TO THEM

OG 86 B3 - 24 October 2001

Purpose: This guidance looks at the powers and terms under which agents may be employed and who may act as an agent.
Please note: throughout this OG series, "the Act" refers to the Trustee Act 2000, not the Charities Act 1993.

Divisional responsibility

For action:

Charity Support Division
Investigations Division

For information:

All operational divisions

Contents

1. Power to employ agents and functions that may be delegated
2. Persons who may act as agents
3. Appointing an agent
4. Special restrictions for agents managing assets

Meaning of expressions - list of Glossary terms used in this Guidance
Index to further related information

1. Power to employ agents and functions that may be delegated

1.1 The law
1.2 The meaning of delegation
1.3 Existing discretionary investment management agreements
1.4 Arrangements with fund-raisers

1.1 The law

Section 11 of the Act sets out the powers that trustees have, in addition to any powers expressly stated within a governing document or otherwise available to trustees, to delegate certain functions to agents.

• those which consist of carrying out a decision that the trustees have taken (this reflects the default powers of delegation in section 23 of the Trustee Act 1925 which is repealed);

• those which relate to the investment of assets subject to the trust (including, in the case of land acquired as an investment, managing the land and creating or disposing of an interest in the land);

• those which relate to the raising of funds for the trust otherwise than by means of profits of trade which is an integral part of carrying out the trust's charitable purpose. In this case "trade" is defined in section 11(4) of the Act as primary purpose trading and trading where the beneficiaries carry out the work of the charity in order to fulfil its charitable purposes; and

• any other function prescribed by an order made by the Secretary of State.

Section 11(3)(d) of the Act allows for the Secretary of State to add to the list of delegable functions. There are no plans at the present time to add to this list.

The power to appoint an agent can be restricted or excluded in the same way as can the general power of investment.

1.2 The meaning of delegation

The use of the term "delegate" in this context means someone who is discharging a prescribed function (as bulleted above) on behalf of the trustees as a whole. In this case the delegate is the agent who is appointed to carry out a specific function. The agent should not be appointed or retained without a specific purpose to undertake. Providing that the power to delegate those functions (and review the delegation) is properly exercised by the trustees in compliance with the duty of care, then the liability for proper discharge of those functions rests with the agent.

1.3 Existing discretionary investment management agreements

The most immediate effect of this legislation is that case workers will no longer need to authorise trustees to enter into discretionary investment management agreements, under s 26 of the Charities Act 1993. By these agreements, trustees employ a person or firm to buy and sell investments on behalf of the charity at their discretion, in accordance with a general policy laid down by the trustees.

As most charity trustees will now have a default power to enter into such agreements, there will usually no longer be any need for us to authorise entry into such agreements. However, in entering such agreements the trustees must discharge the statutory duty of care and other provisions stipulated within the Act, as outlined in sections 2, 3 and 4 below.

The effect on those charities who have already been granted authority by Order to enter into a discretionary management agreement will be negligible. Where they wish to continue with the existing agreement they will do so under the terms of the Order. In practice they may, in any future agreement, prefer to rely on the powers in the Act.

Some charities may have entered into discretionary management agreements by virtue of powers contained in their governing documents. Again, trustees may in any future agreement be able to, and prefer to, rely on the new statutory power, though it may be the case that the explicit constitutional provisions restricts or excludes the statutory power.

1.4 Arrangements with fund-raisers

The statutory power to appoint an agent to undertake fund-raising activities has no effect on the provisions for regulating fund-raisers, and their relationship with the charity trustees, contained in Part II of the Charities Act 1992.

2. Persons who may act as agents

Section 11(1) of the Act provides (subject to the provisions of sections 12 to 14 of the Act) that the trustees may authorise any person to exercise any of their delegable functions as their agent. A "person" in this context can include an organisation with a legal personality such as a company incorporated under the Companies Acts.

Section 12 considers in more detail those persons who may or may not act as an agent. The trustees may:

• authorise one or more of their number (other than a sole trustee) to act as an agent. However, where two or more people, including trustees, are appointed as agents for the same function they must exercise the function jointly; and

• authorise someone who is also appointed to act as their nominee or custodian to act as an agent.

3. Appointing an agent

3.1 Terms under which an agent is appointed
3.2 Responsibility for selection of agents

3.1 Terms under which an agent is appointed

The trustees have the power to decide upon the level of remuneration to be paid to the appointed agent. That power is contained in section 14 of the Act.

However, it is important to remember that whilst a trustee may be appointed as an agent they cannot be paid for this work unless there is an explicit authority to do so, either in the governing document or from us.

Unless it is reasonably necessary to do so, the trustees may not authorise a person to act as their agent on terms which:

• permit the agent to appoint a substitute;

• restrict the liability of the agent or his substitute to the trustees or any beneficiary; or

• permit the agent to act in circumstances capable of giving rise to a conflict of interest.

In practice, trustees will probably find that most investment managers will decline to work for the charity unless the trustees agree to some or all of these terms. If the trustees have to agree to these terms in order to secure the services of their preferred investment manager, we will accept that this test of reasonable necessity in relation to the appointment will have been met. This is provided that the trustees have a good reason for selecting that particular investment manager, rather than some other investment manager, who would not have insisted on the inclusion of any of these terms in his or her agreement with the trustees.

The statutory duty of care does not apply to agents, only to trustees (although the agent will, of course, be subject to a contractual duty of care) . However, someone who carries out a function as the trustees' appointed agent is subject to the same restrictions as would apply to trustees who were carrying out the function themselves. For example, a person authorised as an agent under section 11 of the Act to exercise a general power of investment must act in accordance with section 4 in respect of that power. Section 4 lays down the standard investment criteria which include the requirement to review the investments, consider their suitability and consider diversification.

Where the agent is a person from whom the trustees could properly take advice if they were exercising the power themselves, that agent need not seek further advice from another person. An example of this would be where the agent exercises the general power of investment, which is subject to a requirement to take advice. The agent might be a professional investment manager with a level of expertise and ability in finance matters, and a person whom the trustees would have consulted if they had been exercising the investment power themselves. That person would have the ability to exercise the investment power without the need to seek further advice from another expert.

3.2 Responsibility for selection of agents

In our view because responsibility for the selection of an agent is personal to the trustees, the selection of an agent is not itself a delegable function within section 11(3). Any terms of an agreement with a discretionary investment manager which purports to give the manager the power to select a successor is not within the scope of the new statutory power to delegate.

4. Special restrictions for agents managing assets

Where delegable functions are also "asset management functions" additional controls apply to their delegation under section 11. The asset management functions of trustees are those relating to:

• the investment of assets subject to the trusts;

• the acquisition of property which is to be subject to the trust; and

• managing property which is subject to the trust and disposing of, or creating and disposing of an interest in, such property.

There are special restrictions at section 15 of the Act which determine how an agent may operate when dealing with asset management.

• they have prepared a statement ("a policy statement") that gives guidance as to how the functions should be carried out; and

• the agreement under which the agent is to act includes a clause to the effect that they, ie the agent, will comply with:

• the policy statement; or

• any revision or any replacement of the policy statement under section 22.

The requirement to monitor the actions of agents is considered in OG 86 B5, and specific guidance on the policy statement comprises OG 86 C2.

The following words and phrases are defined in the Glossary of Terms:

•

trustees

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