You are Who You Hire

I recently received a letter from a son of an important client asking about the possibility of a summer internship. Many people get these requests and it can be a delicate situation. However, it dawned on me that I don't need to make excuses....the trust industry has no use for the inexperienced. Other than meaningless clerical work (which is what most internships are anyway), everyone from the lowest paid staff to the most senior executives have to have skills derived or developed from previous relevant employment. Virtually no one steps into the trust industry fresh out of school or from a totally unrelated field. Unless you are an accounting or legal firm, there is little to no room for fresh graduates. So for all you considering a job or career in the trust business as your first job, forget about it.

What skills or experience do you need? Glad you asked.....Let's break down a typical trustee operation. As a minimum you need 2 roles filled: a planner/designer and a administrator. Obviously it could 1 person, but as the volume, complexity and scope of the case increases, you could develop literally 100, specialist sub-roles.

The Planner/Designer - here is someone that has the technical know-how of how to apply the use of a trust to meet the client's needs. Often the face of the business. Consider a relatively simple question and often a trigger point for the "sale" of a trust: How does a trust help avoid probate? Any moron who can read could recite the answer from the Q&A section of your sales brochure/manual. Is that enough? What most people fail to recognise is that Q&As, manuals, even legal opinions are often condensed, distilled and gloss-overs of all the material things involved. When facing a sophisticated client or their knowledgeable advisor, the good Planner must know a multitude of things from testacy, heirship, probate, death taxes to estates to bank regulations on accounts of deceased persons to transfer of ownership of anything from real estate to Ming Dynasty vases. It really would take a lifetime of education and work experience to get a firm handle on things. Simply put: you need to know the rules before you can understand how to break them. It is somewhat ironic in that if the Planner is successful and puts you and others in a probate avoidance trust, then what would he really know about the probate process? Would you not wonder about a single marriage counselor?

In real life, probate is just one of the many icebergs the Planner must be able to navigate his client through, there are other icebergs like tax, spendthrift heirs, pickering partners, commercial reality, regulatory environment, etc., that affect the simplest of plans. If the Planner lacks knowledge or experience in width or depth of the issues, then the likelihood of a mis-sell or bad plan increases...exponentially. We all would love our Business Development people to go out and sell a hundred trusts a month, but how many of those trusts may blow up in your face down the road? Sometimes no business is better than bad business.

Of course, it becomes a daunting task to find people with all the necessary skills and expertise, as well fitting within your payroll budget, so you need to recognise where you have strengths, where you have weaknesses and have access to qualified help. Do you go for the gold plated or solid gold? For some roles, gold-plated is all you need. Unfortunately, it is far often that it is in hindsight and after the proverbial shit has hit the fan that you recognise that you should have went for solid gold intsead. Sometimes it is a simple as making a referral to a probate lawyer. Other times, it is hiring a in-house probate lawyer. Perhaps some business tie-in or sub-contracting?

Planners also need to know about trust instruments, that means trust deeds and trust law. A trust deed may contain some say 30 clauses or provisions. The Planner typically only works on about 5 of those clauses. Does that 20-something on the street trying to sign you up for the credit card know anything about the terms and conditions (that page of fine-print that you can't read without a microscope) of the card or do they just tell you about potential bonus points and reward gifts? Sometimes, Planners can get away with knowing a little as the need for a credit card, or the brand name of the issuing bank or simply reward gifts are enough to get people to sign up. Other times, the Planner need to know the T&C inside out as they will be challenged by a sophisticated buyer. Clearly most banks don't care about their front-line as evidenced by the number of young men and women they have on the streets, and that is because they know (or think they know) what their risk of failure is. It is an acceptable loss. Do you know what your risk is and can you cope with a failure?

Very few people actually draft trust deeds as most trustees "buy" their trust deeds from trust lawyers. But most trustees will be asked to "tailor" or amend parts of the trust deed to make it more suitable for some cause. Still, the Planner needs to know whether their trust deed will actually serve the purpose it was intended to. You will be surprised at how many times people have used the "wrong" or incompatible trust deed. Here, modern technology has made people complacent and even negligent.
No reads deeds anymore, they rely on the cover page and footers to identify it as being correct. It never occurs to them, nor feel it is their responsibility, to ensure the contents are correct. Today, most trustees have, sometimes nothing more than glorified data entry clerks, input names and addresses into the blank fields of templates and the document is generated by computer. I would be willing to bet you could replace any consecutive 19 words (so as not to affect spacing) with: "Nothwithstanding any other provision in this Deed the Trustee shall not be entitle to receive any form of remuneration." and it would go unnoticed. Then there are countless follies where people have made incomprehensible or unenforceable changes to the trust. There are cases where people have essentially converted trusts of one type, say irrevocable, to revocable by making ludicrous changes. Other times, the trust, or parts of it, become null and void because of incomplete thinking. The unexpected occur and you end up at a dead end. Typical failures often involve giving some power, duty or right to a third party, without successor rules, so when that person dies, those powers/duties/rights die with them. So do you trust your Planner or do you have some in-house counsel or do you go external?

If your Planner is not an expert, will he/she be able to comprehend what the experts tell them? Or will your Planner be able to give proper instructions to counsel? Many criticise lawyers or counsel for wanting to directly contact clients for instructions. Not only is it often required for KYC these days but it's mainly so they don't have to deal with babbling idiots that re-shape or mistake what the issues/instructions really are. Of course, there are those that misinterpret and misconstrue what counsel tells them. Then again, it may be counsel that steers you in the wrong direction. Look the the recent Canadian tax/trust case of Antle and "Justice Miller reached the “inevitable conclusion” that Mr. Antle “did not truly intend to settle shares in trust…He simply signed documents on the advice of his professional advisors with the expectation that the result would avoid tax in Canada” and “[H]e knew when he purported to settle the Trust that nothing could or would derail the steps in the strategy. This is not indicative of an intention to settle a discretionary trust." [see: http://www.mccarthy.ca/article_detail.aspx?id=4807]
Paperwork only gets you so far.

The Planner is also your front line and face of your business. They need to be able to "sell". Professionals like to think they are giving advisory, technical sales, or providing value-added service but whatever their approach, the bottom line is that they must convince people to sign on the dotted line. So who do you want for a Planner? Fresh grad? That aesthetically pleasing, smooth talker or a doom-n-gloom shark or Glengarry Glen Ross salesmen or marketing professional?

Now that the structure maybe finalised, there comes the fees. Your Planner and Administrator need to be able to negotiate and ultimately collect fees. There are those that write 6-figure checks without batting an eye. Perhaps it's saving face or they really don't care as they spend more on shoes than that or they think they got a bargain and want it settled before you change your mind. Others will fight you tooth and nail for every last cent. Some will play the 60-day credit game and drag payments until the minute you send the collection agency after them. So is this a job for a fresh grad, former WTO negotiator, debt collector or an experienced Planner/Administrator?

Once the "deal" is made, next comes the client on-boarding issues. Who does this? Could be our over-worked Planner or some specialist. Although Compliance is supposedly an external function, many operations have Compliance and KYC specialists sitting within the department to help with on-boarding issues. Still someone needs to get the passport copies and run due diligence checks. Is this clerical where you can slot in a junior clerk? Or is this an important function requiring a specialist that knows a 20-seater bar/restaurant doesn't normally make US$10m in a year? Or that understands that there are no widget factories in Labuan? Which reminds me, with the boom in compliance sector, there inevitably comes a bunch of poorly qualified compliance people. They may understand AML, audits and such, but how can they be of use when they have no idea what trusts are? How can the settlor not be the UBO they ask? Aren't bearer shares always dodgy? Bet you all the bearer instruments in my wallet that you've faced some utterly novice Compliance questions this past month. God help us all.

Next comes the transfer of assets to the trust. Who does this? Sometimes, it is also the Planner, sometimes the Administrator, sometimes some specialised unit, sometimes outside help. Depends on the assets. If your dealing with cash and securities then you need someone with banking knowledge. If you dealing with real estate than you need conveyancing people. If you're dealing with company shares then you need company secretarial/share registry people. Many trustees often create teams to handle specific items. Lends to efficiency and expertise. When you have specialised teams, a danger is that they become less in-tune with the trust. To the person in bank, opening tens of accounts a day, it almost becomes habit that the UBO is the account holder. Will they put the trust company as UBO on trust account opening form? Are your conveyancing people cognizant of the quirky rules that exists regarding trusts over land that exist in some jurisdictions? Although hard to find, there are many cases involving incomplete/imperfect/erroneous asset transfers to trusts. Most are very funny.....but not if it happens to your trust. Again I refer to the Antle case where the courts found that (despite probably adequate paperwork) there was no effective transfer of assets and the required certainty of subject matter was absent. Translation: no trust existed. Oops. So do you go with a fresh grad, someone with a year or 2 of experience or a designated professional?

Now that everything is in place, we embark on hopefully many years of recurring trust administration revenue. Enter the Administrator. Despite the unglamourous title, look closer at what this person does. They could be the primary relationship holder. They need to ensure the trust and its underlying vehicles and assets are properly registered, maintained, insured, performing, filings are made, fees paid, vendors are retained, records are kept, accounts are prepared, make changes where required, as well has dealing with requests from beneficiaries and settlors.....literally another million icebergs. What you really have is a CEO of an enterprise. It could be nothing more than a simple bank deposit or it could be the top of a multinational business empire.

Firstly, does the Administrator know the trust itself? Afterall, the trust deed and relevant trust law govern what can and cannot be done with the trust. Of the 30 clauses in the trust deed in my previous example, the Administrator typically deals with say 10 of those clauses. Another 3-to-5 in unusual circumstances. It should not surprise you that a large number of Administrators really do not understand the clauses they are invoking or relying upon. After all, it is rather technical legal stuff and how many have formal legal training? Do you know what the Deed of Mutual Covenant says about the what you can and cannot do with the flat your living in? Every so often, someone doesn't check the DMC and you end up making some "illegal" renovation or engage in some "illegal" usage such as running your "financial consulting" business from your spare room. Failure to follow the rules laid out in the trust deed or relevant trust law is usually indefensible negligence.

Many Administrators carry out duties based not on the rules but on what they've done in the past or some procedural manual. Most documentation prepared by Administrators are form documents, where they only have to fill out certain holes/blanks. This has lead to a generation of Admin people who understand how to fill-in-the-blank and not knowing the "whys?" or the implications. This of course means that every so often, there will a breach of trust somewhere meaning the Administrator exceeded his authority, overstepped some boundary or failed to exert some power. Not all breaches are fatal, most go unnoticed, some are repaired or resolved to everyone's satisfaction but some will bring costly litigation and reputation damage as well as topple some smaller/weaker trustee companies. So do you want a fresh grad or someone who can read and understand trust law and regulations and trust instruments?

Notice that of the 30 clauses in the trust deed, only about half are regularly used or referred to. What about the other remaining clauses? No one except the lawyers understands them. No one except the lawyers knows how or when to apply them. No one bothers to even read them except when it comes time for litigation.

Perhaps most mundane (and sometimes forgotten altogether), but someone needs to record the trust's activities. Often this is no more than a minute in the Trustees' Minute Book: "We resolve to pay Junior a distribution of $2M" or "We resolve to purchase 100 units of Bernie's Ponzi Fund". Not much skill involved right? Any first year Company Secretarial student could handle that right? 80% of time yes. 20% of the time it will take great insight and deft to put on paper the right amount of background and detail. What is the right amount? The right amount is the amount that will satisfy the courts of your lack of negligence, wrong doing or malfeasance. Say Junior had a brother who was also a beneficiary. He could sue you for breach of trust to him. How will you justify the payment to Junior? Any beneficiary could sue you for investment losses. In 3months, or perhaps 3years, maybe 20years time, you may need to explain why you purchased Bernie's fund. Do you have a reasonable explanation? Do you have the investment adviser's recommendation on file? One of the first things litigators will look at your minute book and other pieces of paper/email evidencing your deliberations and determinations. Why you did what you did may be more important in the judge's decision than what you did or the actual outcome of that action. Some mothers tell you to wear clean underwear as one day someone might see them. I tell you to prepare good minutes/records, as one day someone might see them. By the way, there is also a wrong amount of information. Recording that the settlor instructed you to purchase the funds may prove to be more disastrous than the monetary loss itself. I earlier wrote about a lawyer who detailed her bank's tax evasion in her file notes so too much detail may not be so good. The truth? Your defense attorney can't handle the truth. So, do you want a fresh grad, a company secretarial officer or a trust administrator or a former counter-intelligence operative? Great advice in the "Key Lessons" section from Robert MacRae, a partner of Jersey's Carey Olsen and participant in one of the most complex, lengthy and costly trust cases in recent times, the Alhamrani case involving JP Morgan [2007 JLR 44]: http://www.international-adviser.com/article/jerseys-epic-alhamrani-case-lever-arch-files-sheikhs-siblings-surrejoindersand-legal-precedents-1

Also tedious is keeping accounts. Take note that trust accounting is a specialty. Pick up any accounting textbook and there may be only 1 chapter out of 20 dealing with trusts. 90% of the time that distinction isn't very important. 10% of the time that could be the difference in a lawsuit or basis for making a wrong determination. What do you need to keep account of? One time deposit? Some PIC? 30000 trading transactions involving 12 currencies, valuations plus rental and tax from the house in Kensington, the sale of the condo in Miami? 12 Bentleys and their depreciation? Consolidation of the 30 companies and listed Holding Company that the trust owns 6% of? The interest payments on secured credit line the bank gave you to purchase their PIGS linked fund? What's the contingent liability when the share price falls below the strike price on that accumulator? Do the accounts need to comply with some foreign accounting standard like US GAAP? Are you sure that's capital and not income? Do you want a fresh grad, book-keeper, junior accountant, Chartered Accountant or trust administrator?

If the trust has cash/securities, the Administrator, in the most unadulterated scenario, has to decide where to bank, the type of accounts to open, the type of deposit/currencies to hold, the investments to make, when to buy, when to sell, when to take profit, when to stop loss. Do they understand structured products as well, if not better, than the banker/Adviser promoting them? What of the more recent socially conscious decisions? Is this investment green? Sharia compliant? So do you want a fresh grad, a trust administrator or a banker or an investment specialist or Islamic council member or Eco economist?

When you get big enough, then is there a need for an Operations person? A Treasury person? A Trading Desk? A full blown investment team? Obviously no places for fresh grads.

In a more realistic scenario, the Administrator is also given a mandate to maximize fee income and generate more business from existing trusts. That means they need to have a handle on the countless wealth products the bank offers and be persuasive salesmen too. Lest we forget they must convince you to allow them to borrow heavily on the trust funds whether warranted or prudent or not because banks make a killing on credit spreads. Leverage or die try trying. Fresh grad or Credit guy? Banker or IFA?

If the trust has property, then the Administrator, in the most unadulterated scenario, has to decide when and if to let it out, signing leases, collecting rent, paying the insurance, selling when the market is good, paying landscaping, etc... Do you want a fresh grad, a trust administrator or a property agent?

If the trust owns a private company, the Administrator, in the most unadulterated scenario, should be as any interested owner be monitoring the companies activities with a view to maximize shareholder wealth, firing incompetent directors, approving chairman salaries, attending the AGM, considering divesting, IPO, etc. Do you want a fresh grad, trust administrator, private equity expert, Sam Walton or David Webb?

Even if the trust and all its parties are strictly local, the Administrator needs to be cognizant of requirements and changes in the tax and regulatory environment. If gets really crazy when the trust and its parties or assets touch upon several jurisdictions. Where there is ownership of a listed company shares of significance (meaning exceeding some threshold such as 5% as often the case in many small, family controlled/closely held listed companies in Asia) there comes things like transaction reporting, corporate actions, etc., which the Trustee has to deal with. Sometimes, failure here means fines, sanctions and although remote, jail time. Did your trust company file the required forms with the financial regulators? Did the trust under your administration really qualify for some tax exemption? Other times, the settlor, an unknown beneficiary or a beneficiary you don't know very well could affect the tax status of the trust. So do you want a fresh grad, a trust administrator or a tax expert, compliance expert or a regulatory expert?

Since the trust has beneficiaries and often a meddling settlor, antagonist Protectors, territorial bankers, scheming lawyers, the Administrator has to deal with all these parties. Do you want a fresh grad, a socialite, a trust administrator, a family counselor/governance specialist, a ADR arbitrator or UN peace negotiator?

The purpose of many trusts, was to provide for family members before and especially after the incapacity/demise of the head of the family/bread winner/settlor. So now you need someone capable of caring for the finances of the family. This could involve a million different things from paying tuition, medical and dental bills and insurance, life insurance, kidnap & ransom insurance, security details, reimbursing guardians, paying rent, buying some accommodation or buying laptops, cars to vacations in the tropics. Some families like to set targets for beneficiaries, like they get $1M for graduating from university, $10M once they hit 35years of age, etc..Some have dates like a payment on each birthday. So now you need to get audit evidence a well have a calendar that has 100years on it. So is this a job for a fresh grad or trust administrator or family office guru, guidance counselor or nanny or domestic engineer or organizer?

That is of course if you even know who or all the beneficiaries are? Believe it or not, there are companies out there that specialize in helping trustees, executors and insurance companies find missing beneficiaries (as well as insurance coverage for trustees for the risk of not finding them). When trust draftsmen use wide terms such as "issue" or "kin" of a settlor as a class of beneficiaries instead of naming them outright (which of course has its potentially negative consequences too) then there exists the possibility of someone that there is a beneficiary and has a right to the trust fund that is unknown to the trustee. A contingent liability if you will. In Asia, there is still a generation that exists that openly have multiple wives (Example: Stanley Ho of Macau casino fame. Polygamy wasn't officially outlawed until the 1970s in Hong Kong and still permitted under Singapore Muslim law like most Islamic nations. Most nations in Asia didn't outlaw the practice until a generation or 2 ago) and of course some relations are secret or unoffical. Many settlors, never tell their children or wives or concubines/mistresses of the trust and keep it secret. Over time, the black sheep of the family run off, emigrants lose contact, disputes and hostilities mean that the "issue" that show up at your office may only be the tip of the iceberg. What do you do when Martin Guerre shows up at your office asking for his share of Papa Guerre's trust which you paid out already to his supposedly only son Frere Guerre? Job for a fresh grad, genealogist, trust administrator, private investigator or DNA specialist?

If you have been successful, then there comes a time when you need more headcount. That leads us to training and succession planning. It would not surprise me if training and "explaining the rationale of what they are doing" to be the number request or complaint from your workforce. Our industry has tended to treat people as "pieces of the puzzle", a station on the long assembly line. Few know where they and their division/team stand in the big picture. Unlike an assembly line worker who can see the fruits of the labour, very few trust people know the complete story/process behind the trust they work on and almost never know if they did a good job or not. Only when there is a problem do they get any recognition. Most are extremely curious as to what others across the room are doing. Can your Planner or Administrator train up the juniors? Some people are inherently lousy communicators/teachers. Some have no patience, some have self-preservation strategies, some have gaps in their knowledge or skill set. Just what are they teaching their sub-ordinates? Are you building a team with complimentary skills and knowledge or are you hiring and training clones? Do they spread their poison and jaded views are they inspiring the next generation of leaders? See this great blog on teams by MAGDALENA MELLER:
http://breakpointhr.blogspot.com/2008/01/teams-easier-said-then-done.html Where be your Captain, O Captain John Keating?

And of course, when it all goes bad, you will need litigation support and public relations gurus to salvage what's left of your reputation.

All be told, perhaps the most important hire of a trust company is finding the right hiring manager(s). Again, no place for fresh grads.

For all you hiring managers, Head of Fiduciary Services, MDs/CEOs/Head of WM/Head and other Head of Head of Trusts out there, consider what you are hiring. Our industry requires a lot of "task oriented" or "specialist skill" people. To fill our the multidisciplinary roles we have we require a vast range of skill and knowledge. We draw in people from many professions. Do you go for the specialist, the 1-trick pony or the generalist, can-do everything candidate? When you consider these people, are you cherry picking or just picking off the (cheap) easy prey of the old, sick, weak or wounded? Are you offering safe harbour to refugees from the West or targeting talent? Are you hiring only 2 and hoping they can cover the job of a third or do you go out and actually hire 3? Things like hope, projection, growing into a role, learning and development are risks you take when you only hire 2.

Yes, the degree of skill required differs from organisation to organisation, from structure to structure offered, to market place and market demands but somewhere along the line, you need to say quality before anything else. Aim for excellence, not competence. Stop hoping they can do the job and get someone who surely can do the job. This is no different than those long suffering supporters of the Football League (or bottom dwelling Premier League) teams as any observer of English football can tell you. Clubs never seem willing to spend to acquire the good players that can get the team promoted (or prevent the team from being relegated). Thus, starts a vicious cycle of less winning, less supporters, less revenue, less spending on players, hence you have less talent with the result being less winning. Hiring cheap is great but when you ask too much from people, it ultimately comes with risk. For football clubs, that means they risk remaining uncompetitive and perhaps bankruptcy, for you it means looming catastrophe.

To put a spin on a old phrase: A dollar saved today may mean no dollar tomorrow. It takes money to make money. Consider your payroll as insurance premiums against the risk of failure.

On the flip side, especially for those in Singapore, we all know how out-of-whack the market place had become. Occasionally see this happen in jurisdictions that suddenly become "hot". The market changes too rapidly and the increased demand forces up the compensation so that it surpasses the value of people and their skills. People here with 3-years experience are now Senior Managers or SVPs, and those with 5-yrs are Executive Directors with a US$150k+ package. Without totally disrespecting them, as some have talent and skill but most often they will pale in comparison with those with similar packages or title in other jurisdictions. Most are asked to (or expected to) run when they can barely walk. So unfortunately you are over-spending to keep up with the Joneses. There are no quick fixes or cheaper alternatives for structural distortions but from a quality perspective, but you would likely have a stronger organization if you tapped into "superior" foreign labour or outsourced part of the work to another centre. Altering the staffing pyramid may be part of the solution. In football terms, get some great forward/strikers and that (could) take pressure off your backfield, so overpay in one area can allow you underpay in another. Didn't your Strategic Planning guys tell you this was coming ? Where are your Change-the-Bank/Organisation people? Get me the Project Manager! Guess you failed to hire good people there too.