Undervalue your trust business at your peril

Automatic sharing of tax information has moved a step closer after the G-20 nations agreed to take a consistent approach to sharing tax data among themselves. This was based on the Common Reporting Standard recently articulated by the Organisation for Economic Co-operation and Development (OECD). According to director of the OECD’s centre for tax policy and administration Pascal Saint-Amans, a global standard will put “an end to banking secrecy”. 

Precisely what a truly global standard might look like remains the subject of debate, given the number of multilateral and bilateral agreements in place or being negotiated. 

We might (and indeed should) express the need for a level playing field. 

There is a legitimate concern about the administrative and regulatory burdens placed on the financial services industry as a result of these initiatives. As fiduciary services providers, we might have principled objections to the manner in which interests held in trusts are categorised as part of these frameworks – proposed amendments to the EU savings directive, which seek to widen its scope to include discretionary trusts provide an example. 

What should be clear to all of us, however, is that there is an irreversible momentum. There should also be universal agreement that a more transparent international tax system is a healthy aspiration.

Trust providers need not fear this new environment. Those who continue to market solutions engineered to ‘work around’ the tax and/or reporting framework prevailing in individual jurisdictions will, I hope, be taking a hard look at their business models. The life cycle of these solutions must be open to serious doubt and it is questionable whether they are really serving the interests of their clients and their beneficiaries by continuing to support them. 

Every day, I see and hear examples of the succession planning and wealth preservation benefits that appropriately designed and maintained structures are delivering to our clients and to generations of their families. In modern parlance, this truly is our value proposition as an industry. 

Value, of course, is different from price. I find it disheartening to hear that some international private banks are prepared to empty their trust proposition of value by giving a trust away as a means of capturing assets under management. Those trust providers who sell their services cheaply or are ready to cave in to clients’ demands on fees are not just hurting themselves – they are, I believe, undermining the validity of the structure itself and the value proposition of the industry as a whole.

This is not resentment from a provider that openly aims to run a profitable enterprise – we fully understand that we operate in a competitive environment. However, a trust business that aims to get a client on its books at any cost is undermining the value of what they offer. In turn, this undermines the relationship with the client – a relationship that might otherwise last for generations.

A trust company that is profitable can invest in people, expertise, systems and infrastructure, all for the longer-term benefit of those it serves. Indeed, it is my conviction that a trust company’s approach to pricing is indicative of the strength of its long-term commitment to its business and its customers. 

To clarify, I have no objection to a client who looks to negotiate a favourable pricing arrangement – that is their prerogative. Mine, however, is to articulate the fact that cheapest is not always best, and can be counterproductive. 

 

Martin Hall is managing director, head of wealth planning services at Coutts 

Coutts writes a regular blog for Private Client Adviser