Mrs Mercy Edukugho-Aminah is the managing director of Meristem Trustees Limited, one of Nigeria’s trustee companies. In this interview with Capital Market Editor Taofik Salako, Edukugho-Aminah speaks on emerging issues in trusteeship, capital market and the economy.
What does a corporate trustee firm do?
As a trustee company, principally, we act as corporate trustee for corporate entities, public institutions and individuals. Ordinarily, an individual or corporate can decide that it wants to use someone who is familiar or they have a relationship with as Trustee for their assets. What the corporate trustee does is to now provide a specialized service, hence when you come to us, you are dealing with an institution, a regulated entity that has a corporate structure and enshrined corporate governance.
However within the capital market, there are some transactions that require a trustee, such as bond issuance by corporate institutions and governments. In that instance, you have the law making it mandatory for you to use a corporate trustee and in that respect, you cannot use an individual or anybody that you like or any company you like, you have to go the regulated way. At that point in time you have to use a corporate trustee that is licensed by the appropriate authority. In Nigeria, you have the Securities and Exchange Commission (SEC) that licenses trustees. Also, if you are doing a lending transaction, such as a syndicated loan, you ordinarily would have a security trustee.
As trustees, there are times when the business transaction dictates the parties that you bring while at other times, it is the regulation that determines this. But in each of this, you will have a role for a corporate trustee.
Now for individuals, because of peoples’ sad experiences with having to depend on relatives, legal associates, family friends and the like-there have been issues around biases coming to the fore, favouritism, issues around lack of confidentiality and accountability. This has made people more disposed to using corporate trustees. So readily, we are there to also provide for that market segment.
How would you describe the operators and users of trust services?
The trust business in Nigeria is relatively still at its infancy, especially when it comes to private trust. When speaking about trust services in general, you can segment it into private, corporate and public trust services. Within the public trust, that’s probably where you have the states bond issuance while under corporate trust, you have instruments like mutual funds-that is funds managed by licensed funds and portfolio managers. Mutual funds are regulated under the purview of the SEC and must have a Trustee. The Investment and Securities Act (ISA) stipulates and regulates investments and securities business in Nigeria including transactions where Trustees are mandatory, hence I will say relatively we are average when it comes to the public trust business.
However, within the corporate trust services as well as private trust space, you still have that knowledge gap of people who would ordinarily require our services but are not aware that they do. Accordingly, what you have is that most people are familiar with private banking and couple of years ago; let’s say about 10 years ago, that’s when you’ve a lot of people talking about private banking because it was an elitist thing. If you look at the history of where trust came from, how trust evolved, where the land owners had to use their property to get security, you will find how trustees have been the pillars of transactions and family business over the decades. In Nigeria generally, you’ll find out that the private trust business as well as the corporate trustee are relatively still at their infancy stage in terms of practice. In terms of the participants, you have mostly capital market firms wanting to have trust services subsidiaries as part of business expansion strategy.
From a multi-stakeholders’ approach, what should operators do and what can the government do to drive the adoption of trusteeship from the corporate, private and public trust perspective?
Sincerely, I’m probably not sure about government participation outside of capital market transactions, outside of bond issuances. As a group-the Association of Corporate Trustees (ACT), which is the self-regulatory organisation (SRO) for corporate trust businesses, I know that we are trying to get FMDQ and NASD- the two over-the-counter platforms to be able to see how we can include a role for trust companies in their transactions, especially when it comes to holding of security and perfection of security for the lenders and all that. When you talk about government, the preference would be for government to be an enabler, that is, to provide a level-playing field for everybody, as a market where you have professional dealings, where you will have your transactions executed the way you want it and within the ambits of the law. Government only needs to provide enabling and efficient systems that ensure that there are no sacred cows; that promote transparency and send the right perception out there about the capital market. Because really the image you want to put out there in the world about the capital market is an efficient, competent, professionally-driven, and value-driven market that is devoid of fraudulent and sharp practices. So generally, for the government they should help with projecting the capital market participants in the best light. With positive projection of the capital market, people will be ready to work with the parties, whether they are trustee companies, funds and portfolio managers, registrars, broker dealers and other capital market operators. That would definitely rub off on the trust business operators within the market.
I know Nigerians always like government to be at the focus of what we do. But really, what the government should do is to make sure that if I am operating as a corporate trustee, I am not a fraudulent entity and those that make up my board are people of integrity. Check me, come and see what my processes are, check my governance structure and all that, and then allow me to market my services to individuals, corporates and the like. We might think that government regulations might benefit us in the short run but in the long run, people will start looking for different ways in which they can avoid those kinds of transactions. So the government should be the enabler, that is, make rules that ensure that there is transparency in the market. To a large extent, the government has done a lot. For example, if you want to do transactions within the public space, it’s highly regulated. You cannot say you want to go and collect money from the public as a capital market operator without a prospectus and approval. Generally you need to go through the legal way, the regulated way. So I wouldn’t say that government should have so many activities within the private space. We should allow the market to dictate its own pace and grow at its pace. But what government should do is to ensure that the professionals in that space do what is required under the law by adhering to professional ethics and standards.
Are there advantages trusteeship offer an individual or a corporate?
The advantage of a trustee is that it opens up your business. Now, let’s take it from the corporate entity: it opens up your business to show everybody that you are transparent, you don’t have anything to hide and it allows for equitable execution of your transactions. So let’s take a case in point. You need N100 million for the expansion of your business, and the asset you have is valued at N500 million. Because you have a bank A that you have been doing business with over the years, they are available to give you the N100 million. Given the risk consideration and everything that the bank would do, the lender would say no problem we would give you the N100 million but at the end of the day, you are using a N500 million asset as collateral to collect N100 million. At the end of the day that bank transaction is over-collaterised.
So what if you go into the expansion and you have all the shocks like we have had with foreign currency fluctuations recently and your business was affected and your earlier projections were not tenable. With the bank’s exposure to you, you also know that there is what is called single obligor limits and the bank will not go above that loan, but you are stuck. Imagine if you have given your N500 million asset to the bank, the bank will go and put title documents in its vaults and until you sort out your business with the bank, there is nothing you can do. But if you built a trustee into the transaction, what happen is that you give the asset to the trustee to hold as security trustee, he holds those asset, then the bank comes to sign up an agreement, a debenture deed to say that I am collecting N100 million, these are the terms and everything. If anything happens, you still have a N400 million head room with this same asset because it is not sitting in one bank’s vault. So you can use it to access more funds and you can even decide to go to bank B and refinance the previous loan. So trusteeship allows for a lot of business transactions to be done as against how it would ordinarily have been. There are a lot of benefits. You could do structuring around having a trustee to hold your assets for you for the benefit of multiple interests, multiple stakeholders. The interests of those stakeholders are protected because there is a trustee that is holding that asset not only for one person but for everybody.
You also have that too with land or real estate transactions. Let’s take a land development transaction. You’ve somebody that owns the parcel of land but does not have the money to build, you now approached a private property developer that has the money or he is going to look for people he can readily collect money from. For the person that owns the land, you are definitely not going to give your title document to the developer. Now the developer will not like the title document to be in your pocket while he is pumping money into your land. So something needs to happen. What do you do? You call a trustee and say okay, trustee I am entering into this transaction, Mr Developer said he will do A, B and C, Let us write it down; this is what he will do. I, the land owner, have agreed that after he finishes developing and he gives me this portion of it, I would do deed of assignment for everybody that purchase and all that. So, Trustee will get all the documents sorted out, such that everybody is happy and nobody is feeling like if this man should die tomorrow what happens. So those are the ways in which you could use trust services. We keep telling people and we cannot overemphasis it, anywhere there are multiple interests over an asset, you need a trustee.
The same applies to individuals; our history is replete with families, well-known names, that when the patriarch of the family is dead, the family is in disarray. The patriarch before he died probably did a Will but that would be contested until thy kingdom comes. Some of them as we speak are still in courts. Imagine if he had given those assets to a trustee, just like the late Chief Gani Fawehinmi did. He made a testamentary trust. He disposed off his assets as he pleased, however the executors of his estate were corporate trustees.
Generally when it comes to estate planning, you should always plan for the unexpected. You need a trustee to help you in the distribution and management of your estate. It is very important. A trustee will help you to a very large extent to minimise those family crisis and issues. Once the assets are under the trustee vested with legal ownership over it, the law will take its course.
How do you assess the level of awareness about estate planning generally in Nigeria?
Estate planning is still a novel area in Nigeria. If you look at other climes like the UK, U.S. and other parts of the world, their estate planning structure and institution are very well defined, articulated and documented. However at Meristem, we align ourselves with best practices and policies as dictated by the Society for Trust and Estate Planning (STEP), which is a global body for trust and estate practitioners registered in the UK. We customise such global best practices and align them with Nigerian law and dynamics to make sure that what we are proposing to clients and how we are servicing clients are in line basically with extant regulations and global best practices.
Specifically, as a service, there is still a huge knowledge gap in estate planning. Most people off hand will tell you I have a Will. But you and I know that having a Will is not the end. You have some who have Wills and yet, many years after, they are still awaiting the judgement of the courts on the Wills. Some people will purchase assets and say it belongs to me and my wife as Mr and Mrs but there is nothing in the law known as Mr and Mrs, the law does not recognise that. When purchasing assets as a couple, the full names must be clearly delineated. Whatever you own in your lifetime are your assets, such as, shares in companies, bonds, real estate, jewelleries, cash in the bank and others, all that make up your estate. The question is who do you want to get your assets when you are gone? How do you want them to be shared? When do you want them to take benefits of the assets? That is estate planning. There is also the issue of culture too and the way it affects estate planning. Around here people don’t usually want to talk about death. But death is one of the inevitable events that must happen in the life of a man. Designing and implementing an Estate plan using a Trustee does not mean that you are wishing death on yourself.
As a company, how do you handle the problems of cultural bias and resistance?
We have handled these basically through education and sensitisation. For existing clients that are doing one or two things with us already and are not really into estate settlement plan, we talk to them. For people that we don’t know we gather them up as a group and come to speak to them at their homes, offices or at leisure places. That is what we have been doing. We tell people it is not just about acquiring assets and all that. The same way you planned towards acquiring those assets, the same way you need to strategise on who gets what and the earlier you do it, the better because the earlier you start buying assets under a trust, you end up saving huge transfer cost should you decide to establish a trust over those assets.
Do you have specific products for individuals?
Our services are generic or bespoke trust business across corporate, public and private platforms. Under our private trust, our services includes estate planning, child education trust and nominee transaction-that is where you want to have somebody else who will marshal your arguments and make sure that whatever interest you are holding or assets is well protected and you are getting the best value. We also have a very unique service that we render in Meristem and that is the Meristem Diaspora Trust. Meristem Diaspora Trust (MDT) is aimed at ensuring that Nigerians in Diaspora execute their projects and investments in Nigeria successfully while still residing abroad. It includes all kind of transactions including financial investments, construction of buildings, acquiring of properties and advisory services on investment options among others. We have all heard one way or the other of cases where people say they sent money to their relatives or friends to build a house, the house did not materialise, sent money to someone to buy stocks for them, the shares were not available when requested, all those kind of cases around. If you live and work in the Diaspora and you need a trusted partner, you can come to Meristem Trustees.
With Meristem Diaspora Trust, everyone is a winner. When the people in the Diaspora have more confidence that their remittances will be used as required, there will be more inflow of remittances and the country will be better for it. Nigerians in the Diaspora are toiling hard to build their futures, hence they can also be rest assured in certainty of coming home to their investments and in the longer term, they will be in better position to support themselves and their relatives, make meaningful contributions to their society. Under Meristem Diaspora Trust, all transactions are backed with a Trust Deed, you can monitor your investment and there are flexible exit options in case of decision to withdraw. We also have alternative education plan for parents known as Meristem Kiddies Assured Trust (M-KAT). It is not an insurance product but a trust product that guarantees uninterrupted education for the beneficiaries. Unlike an insurance product where interruption can occur due to legal transfer process or probate administration, M-KAT is based on a Trust Deed that spells out the rights, obligations and other modalities for seamless management of the trust. The fund is managed professionally and the return on investment is usually reinvested to form part of the principal that is payable to the specified beneficiary.
How affordable are these services that you render?
They are very affordable. For us as a firm, our philosophy is built around values; we are a value-driven firm. Across a group, Meristem generally is value-driven. So whatever we do, we are always asking ourselves: are we adding value to the client? Let me make an example. If you say you want to set up a trust fund for your child today and you put N10 million to the trust fund, how will you feel if I tell you my fee of one per cent will be from that your N10 million? Meanwhile your child is about 10 years old. So let’s assume that you are saving towards his university education, at least the first few years, how will you feel if I tell you that between now and termination of the Trust Fund I will be earning as fee one per cent every month? How much will you have at the end of the day? So would you do business with me? The answer is no. But what we do is that once you put funds in a trust fund, In the Trust Deed we have stipulations of where we can invest funds from trust assets. In addition, we have the Trustees Investment Act that dictates the kind of investments that trust assets can be put into. And those are guaranteed and securitised investments like treasury bills and bonds among others. We make sure that the asset is protected. So what we do is at the end of the day, taking into cognisance the regulation, it is only what we can add to the N10 million that we take our fee from. So that N10 million should be able to yield a certain amount of returns. That is just an analogy to tell you how we operate, how flexible we are.
As a group, how do you ensure that the independence of the trustee is not compromised in any way as to affect the fidelity of its transaction?
That’s a very interesting question and that takes me back to the duties and responsibilities of a trustee. Now for you to say you are a trustee, it is not by saying it, it is the fact that you act within the ambits of the law: you are a fiduciary. So irrespective of whatever consideration you have, at the foremost of your mind, would be your role as an impartial judge; our role is to serve as protector; our role solely is to ensure that nobody suffers a loss around the transaction. We are not going to say because we are related to this party or related to that party or we have the same board, to jettison our duties and responsibilities as trustee because it is a fiduciary position. We must make sure we render account of trust assets; we must make sure we do not enrich ourselves with trust assets. We must make sure that trust assets are not co-mingled where the clients would not be able to distinguish its assets from ours. We must make sure that whatever the dictates of the trust deeds and agreement reached by the parties are, they must be upheld. Trusteeship as a concept on its own, has over the centuries defined what your roles are, what your obligations are, what your powers are and what Trustee duties are. So really that concept of trusteeship is sacrosanct. So you are not just a trustee by mouth, at any point in time you are a trustee in deed and actions. And that has evolved over centuries.
Within the Nigerian space, as a trustee, we have the code of conduct by the SEC, if you go and check the code, you will see all the things that trustees should do and all the things that you should refrain from doing already stipulated. So if you add that to the timeless principles of trusteeship given the origin of trusteeship, if you are going to be a professional, you must align yourself. So that’s the best way. So at any point in time your fidelity must not be compromised. And if it means you shouldn’t do the transaction because you would be compromised, then really you should walk away. Also, you also have instances where the SEC would say if you have a capital market firm that is a party in a transaction and you also have a trusteeship firm, the two of the firms cannot be on the same transaction, or where you have the same board managed by the same holding company, you cannot pitch or do this transaction. This is aimed at guiding against conflict of interest.
One major statutory requirement for bond issue whether as corporate, private or public is having a trustee. Now we have had instances where bonds being raised, especially by governments, are suspected to have been mismanaged. What can be done to guide against such incidences and to protect the interest of the common citizens?
Yes, the interest of the citizens is very important because what such public bond issuance is usually meant for is to build infrastructure and that must be done. Because, once a bond is issued, you now have Irrevocable Standing Payment Order (ISPO) and at the end of the day, the money from the state is being deducted to pay back the bond. Like you said, we have had one or two issues around that. The role of the trustee is actually, at that point in time, is to ensure that those projects are being undertaken and it is not somebody putting up phantom projects. The bond issuer itself has an obligation to make sure that those infrastructural projects are put in place. As a trustee, we can only go and monitor. But for those public bonds at the end of the day, the onus goes back to the issuer. Trustees would try to sit between ensuring two things: the person that has invested in good faith should be able to get his investment back, that is why you have the ISPOs, and the people who should benefit from the infrastructure should have the infrastructure, the issuer should be responsible enough to make sure that asset or infrastructure is provided for the people. We also handle such roles but the problem is that these monies are not disbursed by the Trustees.
Doesn’t the law give a trustee the power such that if there is fraud in the system it can actually take up the parties that are involved?
It can. At that point in time what you can do is to notify the regulator that these are your findings. That while you are aware that this bond issuance was for this and that project, this is your finding with regards to project execution and utilisation. These bonds issuance are cleared by the SEC, the apex capital market regulator and we render returns to it. We just perform our role of making sure that investors are protected and they get their returns. The other thing that we are proposing given the experiences we have had is to hold the assets and the money and disburse it ourselves according to project milestones. This will give trustees greater powers to monitor fund utilisation and project execution and help to checkmate abuse. With this, the proceeds of the bond issue will not be subject of political transition and the citizenry will be rest assured that irrespective of the government in power, the project will be delivered as projected. Because irrespective of the government in power, the ISPO will automatically deduct funds from the government and by extension the funds belonging to the general citizenry.
As a capital market operator, mutual funds are some of the things that drive the market. What can be done to encourage savings and investments and how can Nigerians see the benefit in mutual funds?
As to what we can do as operators in the market, we must make sure we operate a market that is transparent, a market that is professionally driven, and peopled by professionals with integrity. Once you have a market that is transparent, a market that is professionally-driven, the market will have integrity, a market where you have zero conflict of interest, you put in place measures and practices that guarantee that my interest is not at risk. Once you have a market that is like that you can be rest assured that overtime the market would speak for itself. Now, on getting the Nigerian populace to come into this market, you have to go by way of more sensitisation. We have had some good examples but most time you find out that some negative experiences we have had tend to discourage people, so we need to keep projecting the market in a positive light. If we keep projecting it, peoples’ confidence in the market would be sustained.
