ZEDRA Managing Director Ashley Cox discusses the drivers for consolidation in the Trust industry
Inevitably when discussing the trust industry in Jersey, the subject of the consolidation of trust providers on the Island comes up – whether that is going to be an ongoing theme and benefits and drawbacks arising from that. This is of course intrinsically linked to the new ownership of the business concerned and the strategy adopted – it can be dangerous to generalise.
It is a fact that the costs associated with running a trust company have increased significantly in recent years and the cost of ensuring regulatory and legal compliance, in particular, are much higher. The pace of change seen in the financial services industry and the global spotlight on the fiduciary
The pace of change seen in the financial services industry and the global spotlight on the fiduciary sector in particular, often driven by wider political will, has ensured that continual investment in a business’ Compliance function, in its policies and procedures and the effective implementation of those is a must.
This is exacerbated by the often significant cost of IT solutions to support, for example, the reporting required under FATCA and the Common Reporting Standard. There is literally no room for compromise and to fail in these areas can have catastrophic implications for clients, for the firms themselves and for those who run them.
This increase in costs and the wider burden associated with operating in a highly regulated industry has proven too high for some of the smaller (and not so small) fiduciary firms on the Island and this has led to their acquisition by some of the larger trust and corporate businesses.
Acquisitions such as these (provided integration is managed effectively – no small hurdle), can provide economies of scale in terms of the investment needed to operate, the critical mass needed to grow and develop a business and the robust process and procedure needed to continue to operate in a compliant and commercial manner. All of this can only benefit clients, beneficiaries and employees.
It is not just cost that has driven consolidation. We have seen the banks operating on the Island, and especially those with a UK / US connection, take a hard look at their global businesses with a view to identifying those that are core to strategic plans and are scalable but also with an overriding objective of simplifying the global business and eradicating perceived risk associated with complexity.
Trust companies are complex businesses and their clients and beneficiaries have complex needs – that does not fit well with the strategy being adopted by many of the banks and so we have seen a spate of trust companies being sold off by banks or consolidated in fewer jurisdictions.
It is invariably the case that consolidation driven by cost and broader strategic direction will continue. Whilst it is likely that there will continue to be a place for niche providers focussing on specific clients or asset types, the end result of this consolidation is much larger, often global, independent trust companies with owners that have the capability to invest in their business. Critical to the success of these new businesses is successful integration, clear strategic direction and commitment to the client – getting this right is not easy.
A lot of focus has been placed on the increase in private equity ownership of these businesses and the perceived benefits and drawbacks that flow from this. Private equity owners are making an investment and like any other investor they will expect to see a return over their investment time horizon. The expectation of increased fees and a ruthless focus on cutting costs / staffing levels is often cited and perhaps for some that
The expectation of increased fees and a ruthless focus on cutting costs / staffing levels is often cited and perhaps for some that is true with the corresponding impact on clients / client service. One of the benefits of a change in ownership can be an increased focus on commerciality and these firms can benefit from the expertise, process and procedure that the new owners can bring to the table along with a commitment to invest in the business to drive growth.
The investment time horizon is also the subject of much debate and concerns are expressed in relation to what might be perceived as a short-term approach driven by the likely duration of the investment and the need to maximise that investment in the comparatively short term.
A change of owners in the near term may well drive a different strategic direction and that may, or may not, benefit clients and employees. What it does tend to create is a level of uncertainty and effort devoted to reassuring clients and employees and backing up words with actions is time well spent. Notwithstanding that, it is the case that some clients will look for a service provider who is able to demonstrate long term ownership and a commitment to a client-centric strategy over an extended period of time.
Consolidation, and dare I say it increased regulation / Compliance, will also drive opportunity. With an increasing tendency for trustee service providers to be global, large and independent it is important to be able to differentiate ones firm in the global market. The critical mass and expertise that larger, independent firms might have can mean that trustee service providers are able to offer clients a broader palette of solutions to meet their increasingly complex and global needs across multiple jurisdictions. Having areas of expertise within the business can add real value to clients and to the business concerned and especially where those “specialisms” have a high barrier to entry or are complex – doing the trickier stuff well and in a compliant manner will help to differentiate a service provider.
Compliance will drive providers out of the market but it will also help to differentiate those that remain. Clients are more alive than ever to the complexity and obligations associated with the global drive for transparency driven by FATCA, CRS, the 4th Money Laundering Directive etc. and the need for a service provider to get this right. This should be a pre-requisite for those operating in the financial services industry but to demonstrate that to clients and business partners daily will instil the confidence needed.
So is consolidation a good thing? Yes, provided that clients have a choice in terms of service provider and that remains the case in Jersey. In a world of constant change, that will not change anytime soon.
Ashley Cox is the Managing Director of ZEDRA Jersey. He has worked in the financial services industry for almost 30 years. Over the past three decades, he has gained vast experience working for a global client base and has held senior management and leadership positions in the UK, Cayman Islands and Jersey.
Ashley specialises in the field of Estate Administration and Trustee services. He has particular expertise in relation to Estate and Wealth Planning for HNW individuals.
In June 2007, Ashley became Managing Director at Barclays Private Bank & Trust (Cayman) Limited and then, three years later, moved to Barclays Private Bank & Trust Limited in Jersey, where he also held the role of Managing Director.
Ashley is an Associate of the Chartered Institute of Bankers (ACIB) and also holds the Chartered Insurance Institute’s Financial Planning Certificate and the Institute of Directors’ Certificate in Company Direction. He sits on the committee for the Jersey Association of Trust Companies (JATCo).