NZ CFS L5 Trustee Services common mistakes
NZ CFS L5 Trustee Services · Understand the traps and how to avoid them.
Citing the Trusts Act 2019 as the source of a trustee's AML/CFT customer due diligence duties, or citing the Trustee Act 1956 for mandatory trustee duties that were actually codified in the Trusts Act 2019.
Candidates memorise statute names as a block and default to whichever Act is most familiar, without mapping each obligation to its governing statute; the Trusts Act 2019 replaced much of the Trustee Act 1956 default framework and sits alongside the FMC Act and AML/CFT Act 2009 as separate regimes.
What to do instead
Build a one-page statute-to-obligation map (Trusts Act 2019 for trustee duties, mandatory/advisory duties and modification; Trustee Act 1956 for remaining default powers and indemnity provisions; FMC Act for licensed supervisor duties and managed investment schemes; AML/CFT Act 2009 and the AML/CFT regulations for CDD, EDD, PEPs and suspicious activity). Before answering, name the statute out loud and check the obligation appears on that map.
Treating the mandatory duties in the Trusts Act 2019 as capable of being excluded or modified by a trust deed, and treating the default/advisory duties as unmodifiable.
Candidates learn that trust deeds can override statutory default rules and over-apply that principle to every duty, missing that a subset of duties is mandatory and cannot be excluded or modified (with only the limited statutory exceptions), while other duties are default duties that a deed may modify.
What to do instead
Memorise the split explicitly: list the mandatory duties and the default duties as two separate columns, and note that only the default duties are the ones a deed can modify or exclude. When a question says 'the deed says X', first ask which category the duty falls into before deciding whether the deed is effective.
Describing the fiduciary duty of loyalty as requiring the trustee to act in the beneficiary's best interests but failing to identify the specific sub-rules (no conflict of interest, no unauthorised profit, no self-dealing) and the remedies for breach.
Candidates learn 'act in the best interests of beneficiaries' as a slogan and stop there, so they cannot apply the rule to a fact pattern involving a trustee buying trust property or charging a fee.
What to do instead
For every conflict scenario, run a three-step check: (1) is there a conflict or potential conflict; (2) is it authorised by the deed, statute or informed consent of beneficiaries; (3) if not, what is the remedy (account of profits, rescission, constructive trust, compensation). Practise writing the sub-rule and the remedy in one sentence each.
Answering a question about a trustee's investment powers by applying only the 'prudent person' standard and ignoring the trust deed's investment clause, the statutory default power, and any duty to diversify or take advice.
Candidates treat the prudent person test as a complete answer because it is the most memorable phrase in the investment domain, and skip the hierarchy of sources of investment power.
What to do instead
Answer investment questions in a fixed order: (1) what does the deed authorise; (2) what does the statute default to if the deed is silent; (3) what does the prudent person standard require in these facts (diversification, advice, review, documentation); (4) what is the trustee's exposure if the investment fails. State the order in the answer so the marker can see the hierarchy.
Confusing the trustee's personal liability with trust liability, and failing to explain the right of indemnity out of trust assets and its limits (e.g. where the trustee is in breach or has acted outside power).
Candidates conflate 'the trust is liable' with 'the trustee is liable', and do not distinguish a trustee acting properly within power from a trustee in breach when applying the indemnity.
What to do instead
Write a short liability decision tree: was the act within power and honestly and properly done? If yes, the trustee is entitled to indemnity out of trust assets and is generally not personally liable to third parties beyond that. If no (breach, outside power, or personal fault), the indemnity is lost or reduced and personal liability follows. Apply the tree to the facts before writing the conclusion.
Describing beneficiary rights as a single undifferentiated bundle, rather than distinguishing the right to information, the right to be considered for distributions, vested versus contingent interests, and the right to enforce the trust.
Candidates learn 'beneficiaries can enforce the trust' and 'beneficiaries can ask for information' as separate facts but never build a taxonomy, so they cannot answer a question about a discretionary beneficiary demanding accounts or a contingent beneficiary challenging a distribution.
What to do instead
Build a four-column table: right, who holds it (vested, contingent, discretionary, object of a power), what it entitles them to, and how it is enforced. Answer beneficiary questions by locating the beneficiary in the table first, then applying the right.
Answering a conflict-of-interest question by saying the trustee should 'disclose and manage' the conflict without specifying the mechanism (deed authorisation, statutory permission, informed consent, resignation, or court direction) or the consequence of failing to do so.
Candidates default to generic governance language ('manage the conflict') because they have not learned the specific legal mechanisms available to a trustee, and generic language scores no marks against a fact pattern.
What to do instead
Memorise the conflict toolkit as a checklist: deed authorisation, statutory authorisation, fully informed consent of all beneficiaries (with capacity and disclosure requirements), resignation, independent trustee appointment, or application to the court. For each fact pattern, name the mechanism, state what disclosure is required, and state the consequence of failure.
Treating record keeping and trust accounting as administrative housekeeping rather than as evidence of compliance, and failing to state what records must be kept, for how long, and why (beneficiary information rights, tax, AML/CFT, audit).
Candidates underweight the administration domain because it feels less 'legal' than duties and powers, so they give thin answers that miss the link between records and the trustee's ability to demonstrate compliance and defend a breach claim.
What to do instead
For every administration question, answer in four parts: what record, who keeps it, how long, and what it evidences (compliance with information duties, tax position, AML/CFT CDD, or defence to a breach claim). Link at least one record type to a specific statutory or deed obligation.
Answering AML/CFT questions with generic 'know your customer' language instead of the specific obligations: customer due diligence, enhanced due diligence, beneficial ownership identification, PEP screening, ongoing monitoring, and suspicious activity reporting to the FIU.
Candidates learn AML/CFT as a concept rather than as a list of prescribed steps, and do not connect the trustee's role as a reporting entity to the specific statutory duties and the consequences of non-compliance.
What to do instead
Memorise the AML/CFT sequence as a numbered list: identify the customer, verify identity, identify beneficial owners and verify, screen for PEPs and sanctions, conduct EDD for high-risk customers, monitor ongoing, keep records, report suspicious activity. In answers, walk the list against the facts and name the obligation at each step.
Ignoring professional conduct and ethics in scenario questions, treating them as pure law questions, and failing to identify the conflict between the client's instructions and the trustee's duty to beneficiaries or the firm's obligations.
Candidates separate 'technical' from 'ethical' content and assume ethics questions are only asked in a dedicated section, so they miss the ethical dimension embedded in fact patterns about client instructions, fees, or disclosure.
What to do instead
For every scenario, add a final paragraph that checks: whose interests are in play (client, beneficiaries, firm, regulator), is there a conflict, what must be disclosed, and what would a reasonable and ethical trustee do. Practise adding this paragraph to technical answers so it becomes automatic.