Trusts and Investment Management Accounts (IMAs)

Trusts and IMAs are not exactly the same. Trusts are governed by a trustor-trustee relationship whereas IMAs are classified under a principal-agent relationship. In a trust agreement, the bank is able to lend out the money as a trustee having legal title over the funds, with the trustor or client retaining the beneficial and equitable title over the funds. Thus, the trustee is able to act in his name, subject to the prudential disclosure of his capacity as trustee.

This distinction can also be explained in the following illustration. A central bank is different from an ordinary bank because, among other things, it does not accept deposits from the public; it accepts deposits only from banks and from the Government.

There is another substantial distinction between the two – as to the required diligence required from the trustee or agent in discharging the trust or agency, as the case may be. In an agency, the agent shall do all that a good father of a family would do, as required by the nature of the business. The phrase “as required by the nature of the business” would mean that in IMAs, the agent will observe that diligence required from banks more than as a good father of a family.

For banks discharging trust functions, the required diligence is called the “prudent man’s rule.” It is a rule for those who are investing the money of others who are thus required to act as a prudent man would act with discretion and intelligence to seek reasonable income, preserve capital and in general avoid speculative investments.

The foregoing considered, if I would ask a bank to invest or lend my money, I would personally prefer a trust agreement rather than an IMA account. In such instance, I should then expect the bank to observe higher standards of diligence under the prudent man’s rule, over that being observed under the good father of the family rule.His email address is jzuniga@bsp.gov.ph

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