Ombudsman Needed to Resolve Trust Fee Disputes

Sector peak body, Philanthropy Australia has called for the creation of an independent ombudsman with statutory powers to resolve fee disputes between licensed trustee companies and the charitable trusts they manage.

The call comes as part of Philanthropy Australia's draft submission to the Corporations and Markets Advisory Committee (CAMAC) review of the Corporations Legalisation Amendment (Financial Services Modernisation) Act 2009.

The purpose of CAMAC’s review is to look at the impact of 2009 legislation, particularly relating to promoting the efficient pricing of services provided by trustee companies.

Philanthropy Australia says it considers that the issues raised in the Review as “significant, complex and long standing.”

“Trustee companies play an important part of Australia’s philanthropic landscape, as do the foundations they manage. It is therefore necessary to get the balance right so that trustee companies are able to charge reasonable and appropriate fees as part of a competitive, efficient and growing philanthropic sector which attracts for-profit and not-for-profit participants,” the submission says.

“It is beyond dispute that the endowment monies held in charitable trusts by professional trustee companies are endowments which were irrevocably sequestered for, and must continue to be applied for, community benefit according to the wishes of the original benefactor(s).

“They are vested in charity and do not “belong” to trustees or family of the benefactors. The intention of the original benefactor to benefit the community through a financial legacy is the overriding imperative of the trust and must remain so, and this must be maximised on a long term sustainable basis in any reforms.

“In managing such charitable trusts, the Licensed Trustee Companies (LTCs) must be able to charge appropriate commercial fees for their professional trustee services in order to be able to perform those services adequately and sustainably.

“The challenge is how best to regulate the management of charitable trusts by LTCs so that such fees are fair and reasonable over time, as well as efficient, so that the community benefits of charitable trusts are maximised."

PA recommends the creation of an independent ombudsman or entity with statutory powers to provide a dispute resolution mechanism.

“It is clear that whatever solution is put in place for new charitable trusts going forward, there needs to be some way to resolve the acute issues relating to fee disputes for existing charitable trusts. The current situation involves a demonstrable breakdown of trust between some licenced trustee companies and their fellow trustees.

“Philanthropy Australia believes there is a real need for a cost effective and timely alternative dispute resolution mechanism, short of a court action to remove a trustee and hence potentially resolve fee disputes.

“This role could be taken on by an industry based independent ombudsman, similar to the banking or the telecommunications ombudsmen, or by the Australian Charities and Not-for-Profits Commission (ACNC) as part of its role as the regulator for the charitable sector.

“As the ACNC will eventually take on many of the provisions which apply to charities in the Corporations Act, it could be a potential solution to also move the supervision of the provisions relating to fees on charitable trusts to the ACNC.“

Philanthropy Australia says it believes that this makes sense in the light of the ACNC’s role as the charity “one stop shop”.

It also recommends the implementation of a disclosure regime for charitable trusts administered by licensed trustee companies and the winding up of smaller, economically nonviable trusts and distribute their assets to a sub-fund in a community foundation.

Philanthropy Australia says it understands that reforms to assist or allow portability have been suggested as a potential solution to the fee issue.

“Undoubtedly, if portability of existing charitable trusts were legally possible and practical between licensed trustee companies, it would provide a more efficient and competitive pricing environment, as without any ability to change trustee companies there is no real contestability of the pricing of services."

The statutory maximum fee caps seek to address this lack of contestability and competition, but they are a relatively blunt way to seek to ensure reasonable and fair fees for all parties.

Despite the apparent desirability of portability, there are significant legal impediments on multiple levels to creating a mechanism for the portability for existing trusts.

Terms of reference
Corporations and Markets Advisory Committee website