When I was hired 12 years ago in the Trust Department, my first question was “What is Trust?” “What do they do in the Trust Department?” I really wasn’t aware of what’s going on inside there. I only knew of the basic bank products like the deposits and loans. And many ask how does it differ from Deposits in bank?
“Doing business WITH you vs. Doing business FOR you”. – This simply describes how Trust Services differ from Banking or other Financial Transactions. When you open a deposit account, you look for a higher interest right? The Bank Manager most of the time could offer only this rate which is lower than you would expect. There will be negotiations and later on you’ll meet halfway and agree with each other. In this you both benefit and do business WITH each other. In Trust Services, Investment Managers look for safe venues which pays the kind of interest you want and meet your target. They work hard to make sure that the client’s account is safe, that they achieve reasonable growth for the funds they manage and that they account yield adequate income for their clients.
These are also some factors where Trust Services and Bank or other Financial Transactions differ:
Relationship. In Trust Services, the institution is the manager of the client’s assets either as Trustee, Custodian, Agent or Advisor. In Bank Transactions, there is a creditor-debtor relationship between the client and the bank. The client extends a loan to the bank in the form of deposits thus becomes the liability of the bank.
Documentation. Documentation of Trust transaction is usually in the form of trust indentures, investment management agreements, custodian contracts or investment advisory agreements. In Banking or Financial transactions, the client is given a passbook, certificate of deposit, repurchase agreements or confirmation of sale as proof deposit of placement.
Duties. When the funds held in trust are invested, the Trust institution is required to place the money in an investment which gives the highest income while protecting the capital. Getting the best deal for the client is the most important duty of a trustee. In Banking, the mere duty of the bank is to pay back the money deposited to them together with the agreed interest upon maturity of the placement.
Liabilities. If a client’s money is placed in an investment which resulted into a loss despite due diligence and prudence by the Trust Institution, the loss will be borne by the client. While in Bank transactions, the loss will be borne by the institution if the client’s money is placed in a losing investment.
Insurance Coverage. Investments in Trust are not covered by the Philippine Deposit Insurance Corporation or PDIC but bear in mind that adequate protection is secured by strict laws and regulations concerning trust activities. Deposits in Financial institutions are covered up to Php500,000 and for the excess, the ability of the institution to pay will depend on its financial standing.
Continuity. In case of a bank closure, the trust department continues its operation. It can still collect on existing investments and/or delivers assets/securities back to clients or successor trustees or agents.
Tags: Banking, deposits, difference, Trust, trust fund, trust services
