Decrease in trust? High Street banks and equity
George Grierson examines why fewer High Street banks now deal with trusts
A number of well-known banks in the UK have, over the past year or so, stopped offering traditional banking services to trusts, citing issues such as cost, complexity and compliance as reasons for exiting a long-established part of the market.
One of the key issues is a lack of understanding around the nuances of different types of trusts. While some banks have maintained services for bare trusts or nominee accounts (most commonly used by parents opening accounts on behalf of children), many have become less well-acquainted with discretionary or life interest trusts and the accompanying tax and legal considerations.
One lender last year, reacting to a media enquiry, said it was discontinuing accounts because of new fraud protection laws which require banks to check the names of people to whom their customers transfer money. The bank said the new consumer laws had ‘increased the complexity and cost’ of managing trust funds.
What are the effects?
The withdrawal of a number of players has caused significant issues for those operating in the trusts sector – including solicitors –and impacted the effective delivery of trust accounts to those that need them. This is particularly the case for personal injury trusts set up for disabled and infirm individuals affected by medical negligence.
Asked about the impact on adviser firms, Callum Townend, Senior Solicitor at Turcan Connell explained: “The impact of service withdrawal by banks has been added cost where advisers need to open or assist with opening new accounts. Where suitable alternatives cannot be found, there is potentially significant added cost as solicitors may need to hold funds on an ongoing basis and manage funds on behalf of the trustees. Opening trustee accounts can also be an administrative burden and a time-consuming process and opening new accounts can be frustrating and stressful for clients.”
What is the data?
While HMRC figures show, while fewer clients are using trusts (145,000 for the tax year ending in 2020, down from 225,000 in 2004-05), they are still crucially important for many (gov.uk/government/statistics/trust-statistics).
They still play a valuable role for many high-net-worth clients, for instance. Personal injury trusts have remained a fundamental vehicle for individuals in serious need. Their smooth administration and delivery is critical in helping these individuals and their families to manage very difficult and specific circumstances.
The challenge has become, as the wider market has evolved, many institutions are simply not equipped to offer advice on setting up trusts – and this makes them wary of operating accounts for this purpose. The implication is more banks may also decide to withdraw from the sector – citing similar concerns.
“Trusts range from very simple bare trust arrangements to more complex discretionary settlements and the rights of beneficiaries differ depending on trust type. Certain trusts also have specific purposes, so it is essential that a bank understands the nature of a trust and rights of the various parties, particularly where solicitors are not providing ongoing advice.” (Callum Townend, Senior Solicitor, Turcan Connell)
Not all institutions are exiting the market – and there are still providers for whom the trusts sector remains both viable and attractive. These banks are investing the necessary time and expertise. Hampden & Co believes trust accounts remain crucially important for this traditional, albeit evolving, part of the legal sector.
We have received many more enquiries from solicitors seeking specialist banking expertise for their trust clients and as result, have experienced significant growth in this sector – up 50 per cent in 2021 in terms of numbers of accounts. We are continuing to work with solicitors on this – and other services tailored to the needs of their clients.
Recently, the bank managed a personal injury trust for a client with very specific borrowing requirements to make home improvements that will have a significant impact on their lifestyle. So, while many banks are backing away from trusts entirely, it is a particular strength at Hampden & Co.
George Grierson is banking director of Hampden & Co: hampdenandco.com