Chapter 10 - Regulation of trust service providers

Scale of any problem

The practices of unregistered and unregulated service providers and the quality of services they provide are very difficult to gauge. The nature and quality of the trust services being provided or the extent to which there are problems is not generally monitored. Without a registration system it is even difficult to assess the number of unregulated providers operating.

The Ministry of Economic Development has indicated that it considers that any gap in occupational regulation is very small. Anecdotal feedback provided to the Commission by others during the review also indicates this. Some submitters have suggested that the quality of trust and trustee services is quite variable and a few have provided anecdotes about unqualified or inexperienced advisers. However, these have mainly concerned lawyers or chartered accountants who “dabble” in trust work, sometimes with insufficient understanding of the relevant law and practice. Most examples given have concerned poorly drafted trust deeds and/or the use of outdated precedents, which can result later in problems and costs. These types of problems do not indicate a significant regulatory gap, and illustrate the importance of continuing professional development rather than the case for additional regulation. In the case of chartered accountants and lawyers there are already complaint and disciplinary mechanisms available for dealing with any serious breaches of their duty of care.

One trustee service provider has, in its submission to the Commission, raised concerns that many trusts are not being actively managed or administered by lay trustees who do not understand their role as trustees, keep poor quality records, and fail to separate trust and personal assets.504 Such reports are concerning, however they mainly concern trusts administered and managed by lay trustees rather than paid trustees providing services.

The Commission has heard relatively few anecdotes about the quality of services provided by paid trustees and trust advisers. Most anecdotes conveyed to the Commission concern advisers establishing trusts cheaply using off-the-shelf trust deeds. Unfortunately precedents can be poor and the result can be trust structures that are inadequate and poorly designed for the needs of the client. The problems are not normally apparent until a later time when other advisers are consulted. A survey undertaken by the Society of Trust and Estate Practitioners (STEP) in the United Kingdom in relation to the unregulated will-writing market found similar types of problems around competence and integrity. However, the scale of the problem identified by STEP seems to be significantly larger than any there may be in New Zealand in respect of trusts. Among many other issues, the STEP survey identified the problem of trusts sometimes being established unnecessarily, or being unnecessarily complex, or having poorly crafted or unworkable provisions.505

Poor quality advisory services and poorly crafted trust deeds do impose significant costs on trustees and beneficiaries. However, regulatory regimes also involve significant costs. If the problems are not significant then additional regulation may not be warranted.

Submission of New Zealand Trustee Services on Review of the Law of Trusts in New Zealand: Introductory Issues Paper (submission dated 29 November 2011) at 13.

Society of Trust and Estate Practitioners (STEP) “STEP Policy Briefing January 2011 – Cowboy Will Writing: Incompetence and Dishonesty in the UK Wills Market” (2011) Society of Trust and Estate Practitioners < www.step.org >.