As stronger regulation encourages consolidation within the trust, fund and company administration sectors, Frederick Deacon asks the question: which is better - big or boutique?
Go with the flow?
Organic growth within the offshore trust, company and fund administration industry is likely to be muted in the medium term, with the continued increasing demands of financial regulation and greater transparency expected to drive consolidation in the sector.
The result will be reduced choice for clients, with increasing numbers of large institutional and private equity-backed service providers pushing out the independent, management-owned firms.
For clients, this growth in mergers and acquisitions will see many moved to larger companies, leaving them to decide whether to go with the flow or to move away from the big firm in favour of a boutique alternative – a conundrum that’s faced by professional advisers and families alike.
As a director of a management-owned business, you could be excused for thinking that my views are biased but, prior to joining Whitmill Trust, I spent 14 years working for the large fiduciary arm of an international bank, where I gained enormous insight into the pros and cons of being a large business client. So I’d like to think I have a rounded view.
Different qualities or a difference in quality?
When a family appoints a professional trustee, or an asset manager selects a fund administrator, they often base the decision on the perceived levels of expertise available and the levels of service that a firm can offer.
The benefits of large, institutionally-owned or private equity backed trust companies are well known. Financial stability, depth of departmental resource and operational support appear to cover off the factors mentioned above. They often also attract and retain experienced and leading industry personnel, people who are used to achieving success.
When looking at boutique firms, clients may question whether they can offer robust service delivery or the same access to capital markets or large counterparties as their bigger competitors.
The truth is that a boutique trust, company and fund administration provider meets these concerns in different, often more focused ways, compared to the larger firms.
They can offer more nimble and personal client service, which enables them to take a more holistic view of the needs of their clients, whilst simultaneously avoiding the challenges of excessive bureaucracy.
Experience has also shown me that advisers and clients enjoy working with firms that understand their asset class, their specific geographies and individual circumstances.
People choose boutique providers because the want to work with professionals who have in depth knowledge of their client’s areas of business. They also want to know that the advice and solutions on offer are suitable for achieving their desired outcomes.
Driven by your success
The much greater relative value of any one client to a boutique firm means that clients can count on focused levels of service, because the boutique’s principals are likely to see their clients’ success as intimately bound to their own.
Staff in boutique firms often thrive because of the greater flexibility on offer. They find that they’re asked to be innovative, are able to express themselves and are regularly given opportunities to demonstrate their knowledge and experience.
On the other hand, larger firms are able to invest in systems and processes that reduce underlying costs. It’s also the case that they can often rely on the backing of their parent institutions or private equity backers for financial investment.
Experience, however, shows that cost savings are rarely passed back to clients. Increased automation usually leads to a less personalised service and a dumbing down of experience. In return for the investment, firms generally have to deliver a much greater focus on sales targets and income generation.
It’s true that larger service providers regularly boast about the strength and breadth of their teams but they rarely mention their higher staff turnover and the resulting unfocused and disjointed service. When this happens, there is always a direct impact on the business relationship, with clients likely to feel marginalised and lacking the attention they deserve.
Mega-mergers - and we’ve seen a number of them in recent years - inevitably lead to a period of adjustment, particularly for key staff. At the end of the day, however, the aim of consolidation is to realise the benefits of operational synergies, economies of scale and improved product offerings,
In my experience, management-owned boutiques are constantly driven to ensure that they are aligned to their clients’ needs. By doing so, they are able to deliver the higher service levels that generate satisfaction and increase client retention.
It’s your choice
The large-scale, low-cost offerings of institutional and private equity-backed firms are right for some people, but the personal service, flexibility and depth of knowledge on offer at owner-managed boutique companies makes them the better choice for many.
Despite the wave of consolidation that is sweeping through the trust, fund and company administration sectors, the continuing success of boutique firms means there’s still a wealth of choice in well-regulated jurisdictions like Jersey.
Only you can know the type of organisation that will work best for you or your client, and I hope that these thoughts will go some way to helping you make that choice.