The quality and efficiency challenge

Monday, 01 October 2012
The importance of high-quality trust administration and the possible benefits of outsourcing.

While the provision of advisory services to clients on how to use trusts effectively may focus many businesses’ attention, the need to deliver high-quality trust administration has no less importance. Advisory services may lie at the glamorous end of the trust service spectrum, but without sound trust administration client service may be adversely affected and even future business lost.

Trust administration does not stop the moment the official documents have been drafted and the related trust set up. It continues for the life of the trust. The impact of even a marginal improvement in administration efficiency over such a long period should therefore not be underestimated.

It is essential for quality trust administration teams to have good knowledge of trust issues and trustee responsibilities for the smooth management of trusts. It is worth highlighting some of the skills and knowledge a trust administration outfit should possess. They include:

  • full knowledge and understanding of the terms of the trust and the general law
  • knowledge of the interests of each and every potential beneficiary
  • the ability to accurately and effectively record trustee decisions
  • keeping up to date with changes in the law and taxation of trusts
  • full awareness of the obligations and duties imposed on a trustee and where breaches can arise
  • sound knowledge of investments and the relevant legislation
  • provision of annual accounts to trustees or beneficiaries reporting the value of the trust fund and transactions during the year; and
  • ensuring tax returns are filed and liabilities paid throughout the duration of the trust.

The experienced trust team will be fully versed in these and other areas. Without sufficient administration, one is unable to appropriately advise trustees, so the potential for a breach of trust is increased.

Trust administration today

Just as many other areas of business have evolved, trust administration has come a long way. Gone are the days of trust accounts being completed by hand or data being laboriously manipulated in spreadsheets. Gone, too, are the days of manual tax calculations and the completion of returns. Instead, trust administrators have access to specialist trust accounting software systems enabling them not only to create year-end accounts and returns efficiently, but also to file tax returns quickly online. The efficiency of trust administration is improved by these advances, and so is the accuracy of the information produced.

There are several specialist trust software systems on the market. They provide a platform for the bookkeeping of accounting records, trust information management, and trust accounts and tax return production. These systems allow information to be recorded immediately and reported as and when required. There is clearly a cost in having these systems in terms of licensing and staff training. However, where businesses provide administration for a large book of trust funds the costs will generally justify the investment in software.

Procuring a trust system is only the first step in providing efficient trust administration. As with all systems, they require constant investment, in the form of system development and staff training to ensure that they are used to their full capacity. Changes in legislation or tax reporting will usually be followed by system updates. Meeting these changes and using software to full capacity ensures that the efficiencies and benefits from these systems are maximised.

Trust software systems have existed for a long time now, and they too have developed to a phenomenal level so that data entry is now limited and exchanged for the automatic posting of data. These systems allow a better place to record data and speed up data input, as well as verifying the accuracy of information entered. The availability of comprehensive securities data feeds significantly improves data management. A robust data feed virtually eliminates the need for manual investment data entry. These feeds facilitate the downloading of fast, reliable and high-quality data transfer into software systems, providing both historical and up-to-date prices for a full range of stocks. In addition, they can generate automatic entries for dividends, rights and bonus issues, and other corporate transactions globally across each trust client.

The elimination of manual data entry using such a feed saves time and improves efficiency. Furthermore, it provides an accurate third-party test on information contained in the statements received from asset managers. Not only is the accuracy of information improved, but also the reporting functionality, which is beneficial to clients.

Trust accounts can now be completed very quickly after the year-end, and tax returns made ready for submission at any time. Through the automation of data and reporting, the annual trust compliance process can be simplified, standardised and streamlined to ensure maximum efficiency for trust administration processers and ultimately the client.

A question that faces many businesses is whether the time and investment in achieving a streamlined trust administration service fits into their plans and the business’s strategy. If the answer to this is no, outsourcing could be a viable option.

Outsourcing as a driver of business development

Outsourcing is now an established and mature business model, long applied, particularly to accounting functions such as payroll administration. It is also highly appropriate in the private client arena for trust administration.

As the private client market has become more competitive, firms are increasingly seeking new ways to gain an advantage and enhance business development. Client retention and development have become even more significant in today’s competitive market.

Advantages can be gained by outsourcing the back-office trust administration functions. By using a specialist service provider, the business’s attention can be placed more firmly on the activities that add value to clients and that support the future growth and development of the business.

Outsourcing benefits

Many benefits can flow from outsourcing activities, reduced costs being one of those most frequently identified. Lower costs are achievable because a high-quality trust administrator will have leading systems and processes and highly trained specialist staff. They are therefore likely to be able to achieve significant process efficiencies. Cost savings bring obvious bottom-line benefits for businesses, and some of the cost savings achieved through the outsourcing of trust administration could be invested in new business development activities or core roles that have a direct impact on client service.

Those process efficiencies also result in a higher quality of trust administration. A high level of process automation, for example, not only saves time, effort and cost, but also increases the accuracy and reliability of management information. Trust accounts and other accounting and tax information can be provided as and when agreed with firms, to meet clients’ needs. In trust administration, with its complexities and compliance requirements, using a quality service provider can make sound strategic sense. Not only does it provide the quality of service clients expect, but it also provides peace of mind to those running businesses that their compliance responsibilities will be properly met.

Support for business development

Though reducing costs and enhancing service quality are valuable contributors to business success, outsourcing goes further in terms of supporting business development. One key advantage of using an outsourced trust administration provider is that they can offer a flexible and scalable service. A business can therefore set out to attract new clients confident that they will have the back-office support they need. They are also freed from concerns about achieving the optimal timing of recruitment or carrying over capacity in anticipation of future growth.

Liberation from routine administration tasks and supervisory duties can release time to pursue new business strategies or follow through on established strategies more thoroughly. Survey research among users of outsourced services has found that most believe outsourcing enables them to implement ideas, strategies and change at a faster and more controlled rate.

Outsourcing myths

Control is an important issue. While those unfamiliar with outsourcing models could assume that outsourcing might lead to a loss of management control, the opposite has been found to be true. A 2003 survey by consultancy Accenture, for example, found that 86 per cent of participants though outsourcing gave their organisation more control over strategic business results in a range of critical areas, such as shareholder value and revenue.

Another fear can be that outsourcing exposes businesses to the risk of losing clients. On the contrary, clients should note the high quality of information they receive in trust statements and accounts, and the reliability and efficiency with which trust tax affairs are handled. In doing so, their loyalty to their business should only be strengthened, not least because the business retains full control of the face-to-face relationships with their clients.


We live in a litigious era, where contentious trust issues can and do arise. Trustees see little value in receiving trust accounts a year after the period ends. How does this enable them to guard against the misappropriation of funds? They need timely information to meet their trustee responsibilities and mitigate litigation risks.

Timely information is demanded by trustees’ advisors to advise trustees on how to maximise planning opportunities is difficult.

It is therefore vital to ensure that trust administration teams are adequately resourced and that continuous investment is made into their development. Trust administration requirements continue to evolve, and so too should the capabilities of the people charged with meeting those requirements.

This level of professionalism is a big commitment, yet one that must be faced if the interests of clients are to be respected and protected. Outsourcing can be a solution. By turning to specialists in trust administration, firms gain access to the high-quality administrative functions their clients expect, while freeing their own resources to focus on value-adding business activities.

Author block
Raj Kataria

Raj Kataria TEP is a Trust Consultant at Chantrey Vellacott DFK.

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