J. HERBERT HODGINS November 1 1925


J. HERBERT HODGINS November 1 1925




What is the function of a trust company in Canada? What is the difference between a trust company and a chartered bank? What are the advantages of a trust company? What are the disadvantages of a trust company? What is their record for safety?

cing of corporations is accomplished by the issuance of capital stock. In the majority of corporations, whose stock is held by the public, it has become the custom to have all duties in connection with the transferring of stock, certification of stock certificates and so on, attended to by a trust company, and in fact the principal stock exchanges in Canada and the United States require that this work be so handled.

INVARIABLY, minds of inquirers I find as to confusion the functions in the and operations of trust companies in Canada. And it was to clear this confusion or misunderstanding, that I recently addressed a questionnaire to executives of prominent trust companies throughout the Dominion. The replies offer an interesting interpretation of a phase of our financial operations, of which, it must be admitted, there is too widespread lack of understanding. What is the function of a trust company in Canada? In short the institution of the trust company has put the business of executor upon a business-like basis. Most of us can hark back to the day of the old family friend made executor of his best friend’s estate, and of the deplorableness of that estate after the lapseof a few years.

The trust company takes the problems of estate executor out of the hands of the individual and places the whole business upon a safe and sane administration basis.

Technically, the function of a Canadian trust company is to act for individuals as executors, administrators, trustees, guardians of minors’ estates, committees of lunatics’ estates, holders of property in escrow, trustees in bankruptcy, and in all other fiduciary and agency capacities. For instance, a trust company will act as trustee under deeds of donation, or of marriage settlements.

Trust companies in this country act as attorneys or agents for the transaction of business, the management of estates, the collection of loans, rents, interest, dividends, debts, mortgages, debentures, bonds, bills, notes, coupons, and other securities for money. They take and receive on deposit for safe keeping, deeds, wills,insurance policies, bonds, debentures or other valuable papers or securities for money, jewellery, plate or other chattel property of any kind. They act as agent for the buying, selling and general administration of real property. They receive moneys on deposit and pay interest on them and they issue guaranteed certificates of deposit which bear interest to the investor at a fixed rate and for a fixed period.

So much for the function of a trust company toward an individual.

For corporations, trust companies act as transfer agents and registrars of stock; they act as trustees for bondholders and in various other ways serve the interests of investors. These functions arose and have been developed by the present-day method of financing. Most corporations now find it convenient to finance their business through the assistance of the public. This assistance is secured either by the issue of bonds or by the sale of capital stock. When bonds are issued, in order to protect the public against overissue to hold the property, which is the basis of the security of the bonds and to provide the bondholders with a medium through which concerted action may be taken, mortgages to secure bond issues are made in f avor of trust companies.

The duties of a trust company as transfer agent and registrar arise as a result of the fact that a part of the finan-

Compared With a Bank

WHAT is the difference between a trust company and a chartered bank? One might almost say that the difference is fundamental. The relation between a bank and those it serves is the relation of dealer and customer. The relation between a trust company and those whom it serves is the relation of trustor and trustee.

A Canadian chartered bank does not exercise trust powers such as acting as executor or administrator of estates, or trustee. A trust company in Canada does not transact commercial banking.

In most of the provinces of the Dominion, the Trust Company Act prohibits trust companies from taking money on deposit and paying interest thereon. A number of trust companies incorporated prior to fifteen years ago, however, obtained the right under their charters to take savings on deposit and pay interest thereon. The result is that a number of the older established trust companies transact business of this character Thus, they approach the operations of the chartered banks. Trust companies, generally, of course, control large volumes of funds belonging to others, but in the capacity of agent. In the fundamentals, however, it may be set down that Canadian trust companies do no commercial banking in the sense that trust companies in the United States do. The banking departments of many American trust companies are their most important departments.

A bank, in Canada, does not exercise trust powers such as acting as executor or administrator of estates or trustee. Trust companies may lend money upon real estate but Canadian banks are forbidden to do so under the Bank Act.

Banks receive their charters from the federal government, at Ottawa. Trust companies may be chartered either by the federal government or by any one of the nine provincial governments.

What are the advantages of a trust company? To a certain extent this question is actually answered in the explanation of the functions of trust companies in this country.

“The need of a trustee, which may be said to be as old as the institution of individual property, first arose when a person needed to leave his property to some one else’s charge to be used for the benefit of another person,” explains one trust company executive when dealing with this point. He proceeds to explain: “But it is only in comparatively recent times that the means has been found of releasing trusteeship from the dangers which beset it when an individual person acts as trustee. The weaknesses of the system of personal trusteeship are manifest. The personal executor did not generally have the resources himself to replace losses to the property under his charge and arising through his neglect or default. He did not usually have the knowledge, either of trusteeship or of general business to keep systematic records of his dealing with the property in trust and thus to give an accounting to his trustor or the beneficiaries. Chosen from among personal friends of the trustor he was also well acquainted with the various beneficiaries, so that his sympathies were subject to enlistment, sometimes to the detriment of the purposes of the trust. Again, he was frequently called upon to deal with all kinds of property, with whose problems he was unfamiliar; the assets of the trust could not but suffer from such a disadvantage. He was subject to illness, absence or death when the interests of the trust needed his attention or before the duties of his position as trustee were discharged. If to all these disadvantages are added the fact that the personal trustee was not always devoted only to the interests of the trust it will be seen why men of property for generations hesitated to put their property with a trust and, indeed, strove by all means to avoid it.”

Individual Trusteeship

THE trust company obviously eliminates all of the old - time worry occasioned by the individual trusteeship. A trust company is permanent, impartial, always available, backed by substantial resources, has expert organization for every duty and offers complete financial and business service to individuals or corporations.

A trust company has a capital and reserve fund which stands as a guarantee of the proper performance of its duties. This fact is recognized, for instance, by the Ontario law which releases a trust company from giving the bond exacted from a personal administrator for proper administration of property in its charge. A trust company has a skilled bookkeeping staff which keeps in the most approved manner, complete records of all transactions. On the personal side, the trust company has no interest or sympathies which interfere with the faithful carrying out of the wishes of the client and is thus able to act impartially among the various beneficiaries. Again, the company cannot be overtaken with the problems of property which is unfamiliar to it. Its experience has extended to all kinds of property, and this experience is at the service of any client it is asked to serve. It has on its staff experts in all kinds of property, whether real estate, businesses, securities or any other kind of property. Finally, the company cannot die, be absent or fall ill. If any of these happen to one officer there is another to step into his place so that the interests of estates are constantly guarded. In addition, most trust companies have branch offices in the various provinces so that they are in touch with conditions over a wider area than is possible for any personal trustee.

“The appointment of a trust company by no means, means the loss of personal interest which the maker of a will may desire in his family affairs” insists an executive. “The company’s officers can bring to those interested all the advantages that come from contact with an individual. The maker of the will can talk with these officers, explain his position to them and place them in thorough sympathy with his ideas. He can bring them in touch with his family or with any of the beneficiaries of the will, so that his death may not cause his family the added difficulties of establishing connections with unknown agents. He may thus establish relations which, even when the executor’s duties have been discharged, may lead his beneficiaries, especially if they are women, to seek the advice and counsel of the trust company in business matters for years to come.”

What Are Disadvantages ?

WHAT are the disadvantages of a trust company? “Frankly, we know of no disadvantages,” countered one general ’^■'..ager, whom I interviewed.

There will be no denying, that some persons feel that if an individual sufficiently capable and having the time and intimate knowledge of the testator’s affairs and family conditions were available, he would make a better executor than a trust company. Perhaps he would if such a man were available. But the difficulty is to find such an individual, because one sufficiently capable would not likely have the time to act and, in any case, there is no guarantee that he would outlive the testator or be able to act when the time arrives. Seriously, “disadvantages” of a trust company are no longer seriously contended among men or women familial with modern business. The trust companies are doing the work of trusteeship better than it has ever been done; in addition they are performing countless duties for which the largely corporate form which business has developed has been responsible and which would have been impossible to get discharged properly under the individual system.

What is their record for safety? The record of trust companies for safety is an admirable one. There have been one or two instances of failure in Canada of so-called trust companies which, from the nature of their business, should not have been permitted to assume such designation.

In the Province of Ontario there is inspection of trust companies by the Government which is a great protection to the public. As all of the large trust companies in Canada do business in the Province of Ontario either as Ontario companies or as branches of other companies, they all come under the government inspection provisions.

Tnus we find the trust companiei prepared to enter intimately into the lives of individuals, offering an intimat* and an efficient service, with a bacl ground of considerable resource.

The trust company’s service is not ccx fined to the individual.

By reason of recent developments n has come to embrace the entire community. This development is the formation in North American cities of foundations known as community trusts. Previously a citizen wishing to place a part of his estate at the service of the community had to choose among various worthy causes or divide among them the resources he intended for the purpose. The modern development, the community trust, with a self-perpetuating board of directors and a trust company as trustee, insures that any funds or property left in its charge will be used for furthering, as far as possible, the intentions of the donor. At the same time a community trust tends to increase the effectiveness of the charitable donations by providing for skilled management, experienced investment and centralized' control of such benefactions.