Standing out from the crowd

Monday, 01 October 2012
Considering the best approach for trustees who want to differentiate themselves in a noisy world.

The marketing rhetoric trust companies have employed for many years no longer stands up in a world where settlors and beneficiaries are looking for thoughtful, efficient trust management and a deeper understanding of what trustees are doing. The boasts (by bank-owned trustees of their hefty balance sheets and by independents of their autonomy) are driven by a desire on the part of trust companies to differentiate themselves in a service-led industry where much of the ability to manage and maintain trust depends on the individual.

The debate is not learned or technical. It is practical, self-interested business-development language. No sensible bank-owned trustee company carries more assets on its own balance sheet than necessary for regulatory purposes, so scratch balance sheet as a true differentiator. Banks may have a differentiator in terms of the consequences of reputational damage, but there are sizeable, independently owned trust companies running similar risks to those that are bank-owned. The arguments of the independents around bank product-pushing and internal commissions are long past their sell-by date for trustees of any hue in the better-regulated jurisdictions.

So, if the ultimate ownership of a trust company is not a material point of differentiation, how can trust companies stand out from the crowd? On the other side of the coin, what tangible benefits can trustees offer settlors, beneficiaries and advisors?

Trust management or trust administration?

Getting fit for the future involves changing the traditional model. The model trustee has developed over time with legislation and regulation in an ad-hoc manner, bit added to bit with little consideration of the big picture. Some things, such as substance, accountability and continuity, are obvious. Beyond that we need a new starting point.

At the outset of a trust relationship little thought is given to the fundamental differences between trust management and trust administration, and this blurring of the lines is then reflected in the way the trust is looked after. The first thing a settlor should want is a clear understanding, based on the demands of their structure, of who they're choosing as their trustee: an active family advocate and guardian, or a trust administrator? They are not the same thing.

Asset managers separate and delegate their administration to focus on performance and client service. Wealth managers do the same; delegating administration to professional custodians. Has the trust industry failed to develop an equivalent model, with trust management and trust administration intertwined, because the need in relation to performance is less obvious, or because of the complexity of the associated administration? An alternative explanation is that the traditional model has evolved in the way it has because trustees have always played their cards close to their chests; business kept close is business retained – or so trustees seem to believe.

Evolving structures and systems

Real performance for trustees is about good decisions, meaningful communication and effective implementation. Real performance therefore involves trustees making sure that they always have all the relevant information immediately to hand. Yet information can be incredibly hard to find. Emails sit in personal inboxes and are not shared, administration systems show only part of the picture, and key documents are found on different drives in different systems or in dark and distant archives. Spreadsheets, too, are on different systems, reviews are not connected to the management of entities, identification and verification always seem to be the responsibility of someone else and information walks out of the office forever in the heads of departing employees. In short, systems and trustees’ behaviour have evolved on random foundations and the end result often looks haphazard to the objective eye. We have the wrong starting point.

Excellent trust administration is a fundamental part of the equation. That detail will only be right, however, if management understands the big picture and provides informed, comprehensive and effective instructions to administrators. Trust management comes first, trust administration next: pushing data input to the lowest possible level is a recipe for disaster. A trust management system needs to be owned by management.

Internally, colleagues can only support each other, and competence can only be assessed effectively, if the work done is transparent. Good management should be based on an intimate, fully documented and easily accessible understanding of the structure and its stakeholders. It is the job of directors and managers to provide clear (and auditable) direction and guidance to administrators. While there are many other pressures, how can the job be done well or efficiently without all relevant information to hand? Equally, how can others learn or question what is happening without access to the same accurate and comprehensive information? Understanding should come before anything else.

Looking externally, how are we going to convince advisors, settlors, beneficiaries and regulators that we are informed, thoughtful and efficient if we can’t convince ourselves?

Systems need to evolve to support fiduciaries who want to distinguish themselves as thoughtful trustees. Information that is all over the place should be entity-centric, allowing anyone, with the proper authority, to see everything in relation to any entity or structure – who did what and who is doing what, and why – at a moment’s notice.

Good decisions are at the heart of what it is to be a good trustee and yet, at the moment, the focus of many trust companies seems to be on creating multiple workflow processes that automate decisions from the point of first contact to the point of delivery of a product. That is fine for an administration business, but being a good trustee is not the same as being a good administrator. Trusteeship is about making good decisions; administration should be about the efficient implementation of clear and comprehensive written instructions delivered on behalf of thoughtful trustees. Let’s automate the latter, leaving trustees to concentrate on the former.

This approach generates a few questions. Is there a place in the trust world for stand-out businesses of dedicated trustees, not trust administrators, comprising people with the skills, experience, time and intimate knowledge to best serve the interests of their beneficiaries? Or is that a family office model and beyond a professional trustee? Is the administration, consequent upon trustee decisions, always best, and most cost effectively, implemented in-house? If it isn’t, hosting the administration functions in the trust company could be a conflict more real than the marketing rhetoric previously mentioned.

Access to information

Whatever the decision, good communication must follow in the trustee business and with other stakeholders. Support systems now give us the technology to communicate, both internally and externally, allowing access to relevant data on an individually defined basis. However, the way trustees currently keep their records makes this difficult to deliver. Information about the most important things is all over the place. An entity-centric approach, coupled with decisions as the dividing point between trusteeship or trust management and trust administration, will provide different options for using that information for timely and complete reporting. Online access, always controlled and defined by the trustee, is the way ahead.

The traditional trustee will be shocked at the suggestion of wider access to better trust information and records. The world of the trustee is a relatively closed one. Once a trust is set up, sharing information about trust management is not the norm, even internally. Mindsets and systems do not support a more open approach. Even legislation militates against giving reasons for decisions. Too often the focus of the trustee shifts to the next piece of new business, to trust administration in place of trust management, then to defence of the trustee’s position in place of building relationships and skills through communication and explanation.

What if there was an alternative? What if protectors, appointed by settlors to keep an eye on trustees, could actively review relevant records rather than having to ask questions based on limited, often late, information? What if advisors, having advised on a structure, could log on and see what structures the trustee has established for the conduct of the trusteeship and how well the trustee defines the administration that needs to follow decisions? What if the settlor, having been promised a thoughtful and timely approach, could log on and check? Having secure, definable, online access to relevant entity-centric records would put the cat among the pigeons. Perhaps it would also be a point of differentiation between trustees. There are many clever, successful, demanding settlors, and their advisors, who would decide to place their business with good trustees delivering transparency and thoughtful trust management. Such an approach would need to extend beyond individuals, be embedded in the strategy and culture of the trust company, and be supported by the systems of the business.

The future

Of course there are different types of trust structures and there are different types of trust business. In a noisy market, success will be found in how we set out the stall for the future. Trust businesses that are prepared to be assessed on the depth of their understanding, the quality of their decisions and the accuracy of their instructions to administrators own the future of the top-end private client trust market.

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Robert Clifford

Robert Clifford is the creator of Jersey-based Fidusys Online.

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