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The report examines how investment funds have been changing the way they work with trust companies. In particular, it looks at the changing nature of the relationship between the investment fund and the trust company and the potential implications for the relationship between the investment fund and the general public, including for the fund’s reputation and its ‘choice of adviser’. It also explores some other issues affecting the relationship, such as fund ownership and ‘pension funds’.
The report reveals that the mutualisation of pension funds has made it harder for most trust companies to earn a return on their assets. Trust companies have traditionally been paid fees by the pension funds to provide specific services to the funds. For example, trust companies provide compliance and advisory services to the fund, investing the funds’ assets and processing funds’ transactions. However, due to their ownership, as opposed to their brokerage role, it is not clear how much of the return on investment funds goes to the trust company or how much would be left for the fund. Further, some funds will only invest in companies that have a mutual fund, as they are committed to managing only such funds. In addition, some pension funds are only investing in a select few of the 2,500 investment funds registered with the MFAA (the Mutual Funds Association). The report finds that as a result, the ability of trust companies to generate a return on their assets has been reduced.
The report also finds that funds have changed their investment objectives, from income and growth to risk and preservation. This has had a negative impact on trust companies’ traditional ability to charge fees, because they are unable to meet their costs of service. In the past, trust companies had been able to charge a fee for performing certain advisory and compliance services on the basis that these services were necessary to provide the funds with a risk-free investment option. However, in recent years, this risk-free option has been largely eliminated. For example, because the funds’ objectives are focused on achieving preservation rather than growth, the funds do not generally purchase investments with long maturities (which would reduce the funds’ current value, and therefore their eventual return) or holdings with high potential volatility. As a result, the funds cannot take advantage of investment options, such as structured products and other financial instruments, that are available for such
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