October 16, 2018Four Facts to Know About Trust Funds and Onboarding Modern Clients

In many countries (especially the UK and US), trust funds are a great way for a family to grow wealth for the younger generations. In the past, trust funds have been associated with blue blood families that have a sizable amount of wealth. But that’s changed over time; trust funds are now also attractive to middle class families who want, for example, to ensure their grandchild receives a quality education.

1. How do trust funds work?

A trust is a legal arrangement. One person, called a settlor (or a grantor in the US), transfers the legal ownership of their assets (which then become the trust assets) to somebody else, the trustee. This person manages and holds the assets for the benefit of the beneficiaries. Beneficiaries may include the settlor and their family. It can also include companies—this regularly happens in sophisticated commercial transaction structures or non-profit organizations.

The trustee is then meant to manage the assets of the trust in a way that will benefit them—even though the assets don’t belong to the beneficiary and aren't owned by the trustee—based on the specific instructions and rules laid out by the grantor when the trust fund was created.

In the UK, trust law enjoys a long, fascinating history dating back to the 18th century, when trust and equity rules were put in place as a parallel justice system to address the “inequity” of common law around property disputes.

Yet, “trust” has evolved in the UK into an umbrella term for a variety of financial frameworks that allow citizens to protect assets, distribute earnings, and manage wealth both for the present day and for upcoming generations.

In America, nearly every small-town bank has a trust department, which affirms that these days, trusts aren’t just for ultra high net worth individuals. Because setting up a trust fund account can get complicated, banks usually spend weeks or even months running complex screening and approval procedures, as well as chasing documents and evidence before letting the client access their new account. Today, though, we’re in a faster-paced era, and clients aren’t willing to wait around for weeks or months.

2. How can a bank make trust account processes more efficient and deliver improved customer experience?

It all begins with the account opening process. Usually, customers have to fill out weeks of paperwork before being able to transfer assets into their new account, and only then can they create an investment plan with their lawyer and trustee to grow their assets. This long wait time can lead to very negative onboarding experiences.

Due in big part to the complexity of the structures themselves, onboarding new trust customers is typically an expensive and time-consuming process that involves collecting documents and data from several parties, including the trustee, the settlor, the potential beneficiaries, and the list goes on.

3. Which areas of the account opening process should banks focus on enhancing?

More than ever, banks around the globe are investing in their onboarding processes to improve customer experience and internal efficiency and to remain competitive in the market. One significant way to improve onboarding is by making the whole process easier.

Some ways to do this are by letting clients sign contracts online, enabling them to print documents to get necessary signatures from other parties, creating a digital version by scanning the documents to archive them in the bank’s server and speed up approvals via soft copies, and lastly by allowing clients to switch seamlessly between channels to avoid unnecessary meetings and to save time. To prevent more time-consuming steps, the client’s online actions also need to be visible to support staff who are providing offline help.

One major private bank located in Guernsey recently asked us to put a trust onboarding solution in place that would bring more clarity to all stakeholders involved and improve process efficiency. To achieve this, Appway is helping the bank set up a self-service portal that will eliminate paperwork, simplify interactions, and provide greater transparency by having a single point of interaction for all parties that take part in the account opening process.

As the managing director of the company said, “We want to automate the onboarding and compliance review processes to facilitate the relationship with new and existing customers.”

4. When opening a trust account, how can banks ensure the highest level of compliance?

Compliance is another headache for banks dealing with complex structures. With so many parties involved in these structures, the KYC profiling and risk assessment of a trust fund can become difficult. Relationship managers sometimes need help figuring out what information to collect, what actions to take, and whether to even proceed with opening the account.

A bank can adopt rules engines to support risk-rating calculations, KYC and background check automation, and e-signature tools that make it possible to virtually sign documents. These are all powerful elements for a bank to become more effective while at the same time guaranteeing compliance and proper due diligence.

Relationship-driven banks, especially when dealing with customers’ assets and financial planning, should aim to offer the best possible experience from the very first interaction, to build on trust (excuse the pun) and set the groundwork for a long-lasting relationship.

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Written bySilvia SegaleProduct Marketing Specialist, Appway