Many banks like owning offshore trust businesses, but do bankers and trustees get on? Could the business model be improved?
Trustees have traditionally insisted on being in control of trust relationships but bankers, having built the relationship, can feel let down by trustees who fail to share information and endanger relationships with high fees and perceived high-handedness. In the end clients suffer and risks grow. As the offshore environment continues to change and the need for transparency becomes ever more compelling. Becoming fit for the future will require significant change.
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The fit between a fiduciary business and a banking parent is not always good. Bankers often feel that too much happens below the water line: inaccessible and out of sight … followed by an invoice. Trust businesses, battered by change over recent years, need to evolve to compliment the broader business.
The elements of trusteeship
Trust businesses have two elements: decisions and administration. It is the quality of fiduciary decisions (which are about comprehensive information management and judgement) and the consequent relationship management that define trusteeship. Traditional trust administration systems are generally poorly placed to manage the fiduciary decision-making process; built from the bottom up, with a focus on accounting, they tend to evolve by meeting needs driven by regulatory change and business opportunism. With a focus on administration, which needs to be about cost-efficient process, the point of trusteeship is easily missed. There is often no coherent or readily accessible management view of what is really happening in the entities under management. Who is doing what and why?
Recognising management and administration as distinct, and supporting each with the appropriate skills and systems, will deliver transparency, mitigate risk and provide new business and servicing options putting the banker in a position of knowledge and confidence.
Solving the conflicts
Trustees and directors learn from an early age that they must be in control often leading to conflicts with private bankers and indeed others. A single, secure, online trust management information system used by all, but where the fiduciaries have the sole decision-making power and control on who sees what, will replace tension with teamwork. Control does not mean ring-fencing all information despite the oft-prevailing mindset of secrecy for the sake of it.
Fiduciary decisions should sit at the core of a trust business, with decision-making supported by all relevant knowledge and guidelines about entities under management, the people involved and their roles. This knowledge should be available, checked and added to by trustees, private bankers, advisers and clients unless there are good reasons to the contrary.
A transparent approach
Administration, together with the related accounting, can only be effective if it follows clear, comprehensive and auditable instructions. If the quality of such post-decision instructions is used as a mark of management competence the business can shift from an opaque bottom-up model to a transparent top-down approach with all the consequential market differentiators.
The transparent top-down approach has other advantages too as it empowers management to own the systems that drive the business. If management take responsibility for making judgements, taking reasoned decisions and then providing clear, comprehensive, auditable hand-offs to an administration team, then anyone can access a tailored view of what is happening and why.
Such an approach has other benefits, including facilitating a single administration site supporting multiple trustee businesses. As with investment and fund management, then outsourcing trust administration and accounting becomes a thought worth thinking.
Focused, relevant, flexible, systems are now easier to build in a browser-based world. Ultimately however it is not about technology but about defining a way of working that is fit for purpose in the new world. Informed, collegiate relationships can then be maintained from the trustees to the bankers, the clients and the advisers. Transparency is the key, even for trustees.
Robert Clifford is managing director of Fidusys Online.
