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June, 2014
 
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  The growth of ‘on-boarding’ and ‘white-labelling’ in the fiduciary services sector – how is Amicorp partnering with private banks to meet their strategic objectives?
 
     
 

Amicorp offers two distinct business models to private banks: firstly through strategic partnering and client on-boarding; and secondly via white labelled fiduciary solutions.

The difference between the two models is substantial. With the former, a global fiduciary service provider such as Amicorp acquires an existing portfolio of trusts and clients from a financial institution – generally a private bank. With the latter, the financial institution maintains its own sales force and branding for fiduciary products, whilst engaging a fiduciary service provider to set up and manage the underlying trusts, foundations or company structures. More importantly, this also provides the financial institution with the ability to maintain a capital item on their balance sheet in the form of the shares in the white-labelled solution.

“By partnering with Amicorp to deliver trust and fiduciary services, private banks are able to refine and focus their business model. This allows them to concentrate on their core business and build assets under management. Private banks are comfortable with this arrangement because Amicorp does not offer investment advice and is not a banking competitor.” - Peter Golovsky, Global Head of Private Clients, Amicorp Group, February 2014

A developing business model

This approach is a developing business model that is likely to grow significantly in the coming years. Amicorp has extensive and recent experience in working with a number of private banks, where we have been engaged to assist from an outsourcing and portfolio segmentation perspective, as they strategically review the future of their trust and fiduciary businesses. Having successfully on-boarded a number of large trust portfolios in recent years, key to our involvement has been our capability to deploy robust engagement and governance models around client on-boarding, our expertize in global product and structuring across multiple markets and jurisdictions and our capabilities in working with our banking partners around key regulatory changes (such as Foreign Accounts Tax Compliance Act ‘FATCA’). From a FATCA perspective, Amicorp has built customized solutions for financial institutions to efficiently comply with the new FATCA regulations. These solutions are primarily focused on trusts, private investment companies and foundations and service include entity classification, sponsorship, due diligence, reporting obligations and preparing necessary forms and certificates. 

Why do we anticipate an increase?

The growing regulatory pressures in respect of compliance are leading to ever higher standards of administration and accountability – yet the costs of implementation are also creating a drag on profitability. Whilst regulatory standards have been increasing for some time, few firms have prepared themselves for the investment required.  Firms that have invested will gain market share because the business need for trust and foundation solutions is only set to grow. In addition to the regulatory environment, clients will require a broader set of structuring capabilities, rather than purely trusts and trust administration.

Some facts (Source: Scorpio Partnership June 2014)

There are an estimated 475,000 trust structures globally.
Under 5% of global HWNW clients are currently using trust structures – which seems to offer substantial growth opportunities for fiduciary service providers.
The expected annual growth of the trust market is estimated at approximately 10%.

There are three main types of trust operators with margins and profitability under pressure:

  • Bank-owned
  • Independent
  • Private equity-owned

Most trust operators are seeking to push for business “upstream” (by increasing the minimum client wealth thresholds) or “cross-stream” (by including broader corporate trust capabilities). Bank-owned trust companies are focused on the former, while independents like Amicorp focus on the latter. Traditional trusts market around asset protection and family succession planning rather than on tax planning.

Emergent trends and strategic implications for bank owned fiduciary businesses (Source: Amicorp Private Client Services, February 2014)

Trends & drivers

Implications & opportunities for global financial services groups

• Core v non core activities
• Economics and profitability
• Focus on client segmentation, service delivery and product sourcing
• Review of underlying operating models for delivery of fiduciary services
• Evaluation of what is ‘core’ v ‘non core’ from a client delivery model
• Increasing regulatory change (i.e. FATCA)
• Increasing costs of compliance
• Prevalence of open architecture platforms, to meet increasing requirements (i.e. product & solution gaps) from regulatory change and globalization of private client (UHNW) profile
• Access to jurisdictional and product expertise on a global basis
• Demand for transparency and tax compliant solutions
• Strategic partnering, outsourcing, white labeling • Exploring options around strategic partnering, outsourcing
• Banks exiting the fiduciary business (in whole, or in part i.e. select markets, select portfolios)

The demand for long-term compliant international trust structures to enable international wealthy individuals to manage their assets on a worldwide basis is set to increase. Only 5% of the High Net Worth market is estimated to be using trusts so there is clearly work to be done in raising familiarity; this is particularly the case in the Asia Pacific market.

In offering on-boarding or white labelling, some private banks will respond to cost savings, whilst others will respond to their proposition enhancement. Their reasons include:

  • By evaluating what is “core” and “non-core” from a business model perspective, private banks are increasing their focus on client segmentation, service delivery and product sourcing – thus reviewing their underlying operating models for how they deliver fiduciary services;
  • There is ever-increasing regulatory change (e.g. FATCA) and rising costs of compliance which is pushing institutions to re-assess their appetite to continue to maintain their internal fiduciary capabilities;
  • Prevalence of open architecture platforms to meet increased requirements and product/solution gaps – thereby offering best of breed trust solutions;
  • The globalisation trend of private clients and single/multi-family offices is such, that they are increasingly requiring access to jurisdictional and product expertise on a worldwide basis – combined with the ability to handle bulk transactions.  For many wealth managers it is simply not viable to offer these without a strategic partnership in specific areas of their proposition;
  • The ongoing trend of selected banks electing to exit the fiduciary business (often for the reasons listed in the bullets above) – in whole, or in part – with select markets or select portfolios;
  • “Disruptive events” (e.g. M&A in the banking sector and banks exiting a market), which result in trust portfolios being offloaded or outsourced;
  • Demand for 24/7 delivery and access to an increasing number of fiduciary solutions;
  • Searching for a solution offering flexibility, which goes beyond bankable assets and includes real estate, operating businesses, etc.; and
  • Providers, chief among them Amicorp, which can offer a robust internal control environment surrounding data security and integrity, subject to regular audit (external and internal), with no instances of non-conformances.

All these developments are positive, but while we also see continued consolidation in the trust industry we expect very few valuable acquisition opportunities. This is why on-boarding and white labelling appears to be the best way forward for some providers to grow their business.

What do clients expect from the on-boarding process?

Clients do not expect change from an on-boarding or white-labelling transition – they will experience the same levels of service and fees.  What simply changes is the person they speak with in relation to the administration of their structures. In Amicorp’s experience, where these transitions are handled well, the impact is seamless from a client perspective.

The process

The process behind this is extensive, and will include non-disclosure agreements with the bank, memorandum of understanding and terms of engagement. Going forward one needs to discuss terms and procedures with the bank on the on-boarding process. Once agreements are reached and in place, the client engagement can commence, including KYC, due diligence, legal documentation and the transfer of the trusts. IT set up and e-filing is initiated, and the on-boarding process has been completed – the client is now in communication with Amicorp directly.

Below is a high level overview of the illustrative steps of how Amicorp has employed a robust methodology to assist in such engagements.




Amicorp’s research driven approach: “The Future of Trust”

For our part Amicorp has embarked upon a large-scale research project, to help determine the future trends in the trust and wealth management industry among the leading global and regional institutions. This group will include private banks as well as asset managers and family offices – all of whom we consider to be at the frontier of the market. We want to know the key strategic issues facing these organizations as they consider their options with regard to growth in their models and what role outsourcing and white labelling will have for them.

Our ambition with this work and our broader strategy is helping to lead the process of creative strategic thinking on the future of our industry. Indeed, the trust industry has traditionally focused on past wealth; we believe we should move away from this and focus on future wealth, as well as offering the best practice in managing trust mandates. With this knowledge, Amicorp is determined to become the strategic outsourcing partner and operator of choice amongst these organizations.

Amicorp’s Private Client Services Unit

The Private Client Services unit leads Amicorp’s engagement globally with intermediaries including private banks, asset managers, family offices and independent financial advisers. To meet the increasing demands of private banks and their clients in the markets that they operate in, dedicated Private Client Service teams are set up in key banking centres, including Singapore, Hong Kong, Dubai, Zurich, London and Miami.

ABOUT THE AUTHOR:

Peter Golovsky
Managing Director
Global Head of Private Clients,
Amicorp Group

Peter is responsible for the leadership and growth of Amicorp’s private client services unit across more than 40 offices and over 30 countries. Prior to joining Amicorp in early 2012, Peter had acquired 17 years’ experience in global private banking, retail and institutional asset management, and consumer financial services in Macquarie Bank and Westpac Banking Corporation in Europe, Africa, Asia and Australia, and with Arthur Andersen in Australia and Asia, and the US in private clients, risk management consulting and audit. Peter was raised in Sydney, Australia, is a Chartered Accountant, and holds a Masters of Commerce (Macquarie University) and Bachelor of Commerce University of New South Wales).

     
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  Contact details:  
  Peter Golovsky
Tel.: +852 3105 9882
Email: p.golovsky@amicorp.com
   
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This document is prepared for general information purposes only. Amicorp Group does not provide tax or legal advice to its clients. Any opinions contained herein should not be construed or interpreted as advice provided by Amicorp Group.