Selecting the right trustee

When Bob Dylan said The Times They Are A-Changin’, I very much doubt he was referring to the fiduciary industry but it turns out that he was quite right!  The ‘Fiduciary Times’ They Are A-Changin’ and have been doing so at quite a pace in the last 15 years.  These changes have ranged from the obvious such as, ensuring full and relevant KYC information is held on the deemed controllers of a fiduciary structure,  ensuring that tax advice is held across the jurisdictions in which a structure has touching points, ensuring that tax filings are made correctly and on a timely basis, that information is shared on an inter-governmental level to combat tax evasion, ensuring transparency in terms of asset ownership and, of course, the continued thorough and rigorous regulation of the fiduciary industry. 

There have also been significant changes in relation to the ownership of fiduciary companies, with a myriad of ownership structures now existing which were simply not around 15 years ago.  Fiduciary companies are now held as direct investments by private equity firms, a number are directly listed businesses, a few are investments in traded funds, there is a resurgence of independently owned companies and, of course, there are the bank owned trust companies.  The independent and the bank owned models are arguably considered the two more traditional ownership models and can be further broken down as there are significant differences which exist within each model. 

An independently owned fiduciary company will typically be owned by individuals working in the business or it may alternatively form part of a larger organisation such as a law firm or an accountancy firm (the parent firm may have built up and sold their trust companies a number of times over the years).  An independently owned firm may also only provide fiduciary services, or it may be attempting to generate ancillary revenues through offering investment services, treasury services, legal services or even tax services (most probably not with the same expertise as the firms who concentrate far greater resources on these areas).   

The bank owned model can also be split into two camps.  There is the traditional model which is very conservative in terms of the planning implemented and the assets it is permitted to hold (often these are restricted to the bank’s own products and the governing deeds and structures being very uniform and not bespoke in nature).  The second model is less common, but much more flexible as it holds a wider variety of assets and utilises the whole of market for solutions with a mindset which is akin to an independent trust company. 

Clearly a fiduciary company’s ownership structure is a factor when selecting a trustee; however what else should a family be looking at beyond this? 

A fiduciary company will ideally be owned by a shareholder that is able to provide the financial resources required to run an independently minded, multi-jurisdictional, compliant, modern trust business that has sufficient scale to avoid internal conflicts.  Given the stringent regulation and evolving legislative landscape already mentioned, it is important that the fiduciary company is built on a robust risk and compliance infrastructure and that it has the scope to operate as a standalone fiduciary business.

Other important criteria that should be considered by a family when selecting a trustee include: the trustee’s professional indemnity insurance (the value of the trustee’s professional indemnity insurance should be reflective of the assets it holds in its structures as too many companies are underinsured); the quality of staff (are they qualified, experienced and have they been with the trustee for an extended period of time); the trustee’s track record and reputation (have they frequently been involved in litigation, or fined by the regulator and do they provide consistently high levels of service); the value of the assets under administration (a wealthy family will not want their trust assets to form a significant part of the trustee’s assets under administration); the diversification of the assets held (what type of assets does the trustee hold, are they experienced in holding the assets being settled on to trust); the medium to long-term plans of shareholders (are the shareholders going to hold the shares for another 20 years or are they planning to exit the business in the next 5 years in order to realise a return); what is the trustee’s budgeted growth for the year (if it is in high teens, or greater, then it is likely the trustee’s client base is going to be under considerable fee pressure to meet budget); is there an internal succession plan to ensure longevity of relationships (is there a succession plan in place for when senior members leave to ensure client relationship and business continuity); is there a proper process for selecting the best investment adviser, accountant and lawyer; fee transparency (what are ALL the associated fees for a structure’s administration); is the business private client focussed or is private client revenue a small percentage of their fiduciary revenues (they may be more focussed on fund administration or corporate work).. 

Each ownership structure will have its advantages and disadvantages which should be carefully considered by a family and their specialist advisors.  The unique nature of a family’s circumstances will mean some ownership structures may be more suitable to certain families than others.  At the most rudimentary level, the suitability depends on a family’s estate and succession planning requirements and the value, and nature, of the assets being settled onto a fiduciary structure. 

As an example, an ultra-high net worth family, whose members are resident around the globe, may wish to implement a bespoke estate and succession plan, consisting of assets which are internationally located (of a tangible and financial nature).  Typically, such a family will want their selected trustee to have experienced, suitably qualified, fiduciary specialist employees, comprehensive legal, compliance and risk departments, a robust IT infrastructure (to safely maintain data and provide administrative efficiencies) and, very importantly, indemnity insurance which is reflective of the value of the assets being settled onto trust.  In this instance a trustee, with an independent mindset, significant resources (IT, specialist staff, offices etc) to invest in the business and a large indemnity insurance policy may be suitable.  So, a bank owned model may prove to be even more attractive should the family wish to consider suitability based on its fiduciary merits alone, with possibility of accessing alternative banking solutions proving to provide an additional competitive advantage.

Despite their differences each ownership model shares common industry challenges, and these have driven considerable industry consolidation amongst independents who have desperately tried to bolster their bottom line and diversify their business.  On the bank owned front, we have witnessed banks either divest of their trust businesses altogether or they have narrowed their fiduciary offering to only hold conservative financial assets for families in what are considered low risk jurisdictions. 

It is however impossible to generically state that one type of fiduciary offering is more suitable than the other, and only naivety would prompt someone to do so.    Given the magnitude of the decision to appoint a trustee, it’s important that informed decisions are taken by a family when establishing a trust.  Families must not be shy to ask a new trustee, or their existing trustee, direct questions along the lines of the matters discussed within this article.  Who knows, a family’s final decision may be quite different from their initial inclination once they have asked these questions.….

IMPORTANT INFORMATION

This document has been prepared to assist clients who are considering creating a trust (in either the Island of Jersey or Mauritius).  It is intended to provide a quick overview to the establishment and administration of offshore trusts and the benefits of estate and succession planning. It is not intended to be comprehensive in its scope and it is highly recommended that a client obtains both legal and tax advice (as may be appropriate) prior to the establishment of a trust and any proposed transfer of assets.

These services are provided by Standard Bank Offshore Limited’s subsidiaries in the Island of Jersey and Mauritius. Standard Bank Offshore Trust Company Jersey Limited is regulated by the Jersey Financial Services Commission, to provide corporate and trust services. Registered office address is Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ and registered in Jersey under No 9153.

Standard Bank Trust Company (Mauritius) Limited is regulated by the Financial Services Commission, Mauritius, to provide corporate and trust services and does not fall under the regulatory and supervisory purview of the Bank of Mauritius Registered office address is Level 9, Tower B, 1 Cyber City, Ebene, 72201, Mauritius and business registration number: C06021609

The above entities are wholly owned subsidiaries of Standard Bank Offshore Group Limited whose registered office is Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ. Standard Bank Offshore Group Limited is a wholly owned subsidiary of Standard Bank Group Limited which has its registered office at 9th Floor, Standard Bank Centre, 5 Simmonds Street, Johannesburg 2001, Republic of South Africa.  The Standard Bank of South Africa Limited, an authorised Financial Services Provider (FSP number 11287).