FINANCIAL SERVICES & PENSIONS: Conflict killers.

(From The Lawyer)

Pension trustees often face conflicts of interest, but tools exist to help them manage such situations and protect their decisions. Arshad Khan reports on the best solutions

Pension trustees are facing increasing scrutiny over the potential conflicts created by their outside loyalties. But it is unrealistic to expect individual trustees to leave behind their other duties, roles and loyalties entirely while acting as trustees. In the modern world, conflicts cannot be avoided. They can, however, be managed. So long as trustees are aware of the potential for conflict and know what is required of them as trustees, they can still carry out their trustee duties.

What is the key problem?

The key legal difficulty for trustees is that the law does not allow them to put themselves in a position where their duties to beneficiaries conflict with duties owed to another principal or with their personal interests.

While there has been concern expressed about company directors who are also trustees, there is no clear demarcation between directors and other senior employees of the company. It is more important, from a legal perspective, to consider the substance of the duties owed by the individual concerned to the company, whether as a director or as a senior employee. A senior employee may owe similar duties of confidentiality, loyalty and acting in the best interests of the company as a company director. The same would be said of partners of law firms, who are also trustees of the firm's pension scheme in relation to their duties to their fellow partners. Moreover, the position of a partner in a law firm may be more acute than that of a company director, because they will have a personal financial concern in the profit of the partnership.

Why is managing conflicts important?