Trust’s remarkable evolution in the Philippine financial landscape

By Angela Kiara S. Brillantes, Special Features and Content Writer, BusinessWorld

Banking is a fundamental aspect of the economy. It provides financial security among individuals, businesses, and government agencies to manage their finances, investments, and loans.

Throughout the years, prominent drivers of the sector have contributed to the growth of banking. Among these drivers is trust services which not only develop financial health but also cater to the growing demand for services that goes beyond safekeeping, borrowing, and lending.

The trust industry is a key driver to financial stability in the Philippines. As the country’s credit and investment rating improved in recent years, the business of trust has become more important than ever.

To ensure better quality financial services and contribute to the development of capital markets in the country, the Trust Officers Association of the Philippines (TOAP) was founded in 1964; and since then it has been at the forefront of financial management and services.

In its earlier years, the association focused on managing court trusts, land registrations, and selective trust funds; and later on, as the business of trust began to grow, TOAP played a wider role in further pioneering the Philippine financial services sector.

Since its inception, the association has been working closely with the Bangko Sentral ng Pilipinas (BSP) to further promote trust, investment, and fiduciary services in the Philippine market.

“The trust industry today has transformed significantly since its entry into the local financial system at the start of the 20th century. Although the development of the trust concept was slow in the beginning, the local trust business has steadily evolved to reach a level comparable to its counterparts in the Southeast Asian region in terms of structure, investor sophistication, and product offerings,” TOAP said in its 50th anniversary coffeetable book.

Through the years, TOAP has seen a lot of changes, one of which is embracing digital transformation for investments. Since the pandemic hit the Philippines, the trust industry has adapted to new ways of working and doing business/es. The pandemic has driven hybrid and digital forms in work and transactions, which places an even stronger emphasis on enhancing services to clients using digital tools.

“As the economy re-opened post-pandemic, we are now seeing a combination of return to physical engagement and higher digital usage as compared to pre-pandemic,” Mr. Rafael G. Ayuste, Jr., former chief trust officer of BDO Unibank, Inc., shared. “Also, more and more trust entities are providing seamless digital investment transactions thus giving the investing public more options, variety and flexibility.”

At present, the investment landscape offers many options that are designed to address consumers’ financial needs. Unit investment trust fund (UITF), for instance, is a type of investment pool that distributes an individual’s investments in a portfolio of securities like stocks, bonds, or money market instruments.

As financial markets evolve, investment opportunities grow as well. Different types of UITFs can be explored, such as global funds that focus on global investments, feeder funds that pool money from multiple investors and invest in a master fund, and other arrangements, including investment management account (IMA) for purely investing purposes, and personal management trust (PMT) that allow clients to control their assets and provide for their beneficiaries even beyond their lifetime. These products and arrangements open the door for the Philippines to access and invest in various financial markets.

TOAP has been a witness to bringing these tools closer to Filipinos. Dr. Robert B. Ramos, president and CEO of RCBC Trust Corp., recalled that TOAP worked closely with the BSP to expand UITF structures and thus made significant progress in that regard. Such progress includes the use of banking technology, which changed the game for the sector. For instance, digital banking simplifies access to financial transactions using the internet and mobile devices, anytime and anywhere, removing the need to go to a physical branch.

Since post-pandemic, as the overall economy regains momentum, TOAP has been quickly evolving. According to TOAP data, the Philippine Trust AUM saw an increase from P5.35 trillion in 2022 to P6 trillion as of third quarter of 2023. These figures bear witness to how the association continues to be a great champion in addressing the investment needs of investors.

In line with this objective, Mr. Ayuste also shared that the association is continuously working with regulators to improve the regulatory framework, collaborating with industry players to develop top-quality products and practices, and keeping Filipino investors informed of industry developments and the benefits they can expect from these changes and initiatives.

Harmonizing whilst mitigating risks

These developments notwithstanding, the trust industry faces its own set of challenges. The primary issues stem from the increasing competition posed by brokerage houses, treasury departments, fintech, and other investment structures, as Mr. Ayuste shared.   

To address such risks, TOAP is working closely with regulators to boost the industry’s position in the market.

“TOAP continues to work with regulators to strengthen trust industry’s dominant position in the market by improving products and services as well as simplifying rules and regulations to improve efficiency and productivity. Given the highly regulated nature of the trust industry, we have seen institutions veering away from the trust structure and using the brokerage model,” Mr. Ayuste said.

To do this, the association is also taking part in legislative decisions to standardize investment structures.

“The harmonization of the rules and regulations across different regulations and regulators have been in the works for quite some time now but this goal remains to be just a plan,” Mr. Ayuste added. “The harmonization is crucial to ensure leveled playing fields among the market players to enable best-in-class products for the benefit of the investing consumers.”

Another challenge in the market lies within global events and their potential impact on the Philippine economy. Dr. Ramos believes that industry players must strive to mitigate such risks by guiding clients towards diversifying their portfolios. By doing so, it will help them better manage potential risks.

Next steps for trust

Moving forward, the sector remains optimistic about how the industry will continue to grow in the following years. With the increased interest in investing, the importance of digital investment channels will become more prominent.

According to Dr. Ramos, the association will need to keep abreast of and keep adjusting to fast changes, such as in how and where consumers get their content, to drive growth in the trust industry.

“Adapt to different market conditions, changing regulatory frameworks, a more global financial marketplace, and shifting client preferences,” he advised. “TOAP members have to use the new tools that we have available to serve our clients better and serve them through the channels they prefer to use.”

Moreover, the industry will continue to thrive as the economy grows. “The increasing wealth of the Filipinos should provide the industry with solid ground to push trust as the dominant platform for wealth management in the Philippines. Already, we are seeing more players in the wealth management arena using trust as its platform,” Mr. Ayuste said.

“To this end, TOAP should push for more definitive regulations that serve the needs of the more sophisticated investors. This market requires greater access to the global investment opportunities that they get from their off-shore bankers. This market is very ripe for the picking, but regulations must be able to distinguish between protecting the ordinary Filipino investors and the needs of the sophisticated Filipino investors,” he added.

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