Archive for June, 2010
Would the Actors Heirs Have Been Better Off With an Alaskan Will?
Posted by Scott Martin in News on June 26th, 2010
Alaska’s new will testing statute allows for “death rehearsals” to give families a chance to correct mistakes before they happen. But some estate planners think the law is just a marketing gimmick.
If Gary Coleman or Dennis Hopper had been able to take advantage of the new Alaskan probate rules, local trust industry leaders say their estates might not be in turmoil today.
Starting in September, Alaska will become one of only a few states that allows for pre-mortem probate, which theoretically lets people resolve disputes around their wills before they die. (Read the new rule here.)
As a result, the state’s estate planners have gotten a lot of calls from non-residents looking to prevent the ugliness surrounding the Coleman and Hopper inheritance battles.
“We’ve gotten a lot of interest in this,” Douglas Blattmachr, CEO of Alaska Trust, told me. “I’m not sure how much we will get on the trust company side, but I think Alaska’s lawyers will get a lot of work out of it,” he added.
But while the lawyers in Anchorage may be generating a lot of out-of-state leads, it remains to be seen whether probate judges in the state where the death actually takes place will surrender their jurisdiction to the Alaskan process.
Settling the arguments in advance
In pre-mortem probate, residents and non-residents alike have the option of distributing their will to interested parties, who then have a limited amount of time to raise any legal objections.
If they fail to contest the will at this point, they forfeit the chance to do so later. Meanwhile, the person who wrote the will is still alive and available to clarify his or her wishes and mental competence in probate court.
Had Dennis Hopper gone this route, for example, he might have been able to argue personally that his estranged wife was not actually living with him, which would have technically broken her pre-nuptial agreement. His art collection would have gone to his children, and not to her.
And if Gary Coleman’s ex-wife or girlfriend wanted to contest his will with spurious or outdated paperwork of her own, the judge could have simply asked Coleman to point to which of the competing documents really represented his plans for his estate after his death.
The sticky point is that while out-of-state trusts have become a familiar part of the estate planning landscape, out-of-state wills are in more nebulous territory.
“I don’t think this would help Dennis Hopper or Gary Coleman,” Delaware probate attorney Peter Gordon of Gordon Fournaris & Mammarella told me. “Coleman is a classic example of a will that is going to be a nightmare because, among other things, a Utah judge sitting in a Utah court with a Utah resident is not going to send the case to Alaska.”
California resident Hopper would be similarly hard-pressed to get a California judge to hear his case early whether his will was drafted in Alaska or not. Unlike trusts, which are separate legal entities resident in the state where they are chartered, a will is simply a document that expresses the deceased person’s instructions about his or her estate, Gordon says.
In other words, in most cases, the will still needs to be probated where the person lived. While the Alaska rules are great for residents, estate planner Steve Oshins has deep reservations about how useful for accounts coming from out of state.
“I don’t see how an Alaska will would work for a non-resident given the jurisdictional issues involved,” he says. “An Alaska trust would have a better chance of success.”
Better for trusts
The Alaska rules extend to both wills and trusts. Someone can set up a trust in Alaska—a popular destination for wealthy individuals looking to take advantage of favorable laws—and distribute an estate plan for pre-mortem testing.
While states like Delaware do not allow pre-mortem probate for wills, this kind of testing has a longer track record where trusts are concerned. Peter Gordon says he’s personally made use of the trust testing rules several times since Delaware authorized them in 2003.
Wilmington Trust managing director Richard Nenno, known universally as “the font” of information on this topic, notes that if the assets are in trust, arguing about the terms of the will is a lot less likely to derail someone’s final wishes.
“The trust is where most people are putting their funds,” he told me. “Adding it for wills might help one or two situations in exceptionally dysfunctional families, but I don’t think it will be all that relevant in many high-end estate planning situations.”
As such, the new rules do two things for Alaska. First, they bring the trust code in line with other states by allowing pre-mortem testing—and this helps keep the state competitive on the national playing field.
Second, the will testing mechanism is great for state residents, but may not end up as much more than a marketing proposition for Alaska lawyers courting non-resident clients. Although North Dakota, Arkansas and Ohio also allow will testing, none are known as estate planning paradises.
The combination of will and trust may create some residual benefits for people coming to Alaska to get a trust anyway. Steve Oshins says an Alaska co-trustee may be able to work the local system successfully, although he is not convinced that this would do non-residents much good.
As it happens, Alaska Trust could get some add-on business from this, Douglas Blattmachr told me. “We might get appointed as trustees a bit more often,” he says. “A lot of clients are interested in trusts and worried about will contests. This gets those worries out of the way.”
Scott Martin, contributing editor, The Trust Advisor Blog, Jerry Cooper contributed to the reporting, Steven Maimes contributed to the research and editing.
Permalink: http://thetrustadvisor.com/news/premortem
The Trust Advisor Blog Offers Something New
Posted by Jerry Cooper in News on June 22nd, 2010
This July, we celebrate our first year anniversary by launching a new service for our readers.
We will be bringing you email announcements from important product providers in our industry.
This includes trust companies, technology firms, trust banks, advisory firms and consultants who can help you build and grow your business.
We are sure the valuable information they offer will be useful to help you serve your clients, create a more valuable customer experience and ultimately help you better protect and build their wealth.
In order to receive these announcements you must subscribe by email. If you are not a subscriber and wish to Click Here
Providers interested in information and rates on reaching our readers Click Here
Jerry Cooper, Publisher, The Trust Advisor Blog.
Pricey Wealth Management Ads are Back
Posted by Scott Martin in News on June 19th, 2010
For an industry that traditionally woos mega millionaire clients through referrals, leading trust banks could easily spend $100 million this year attracting high-end accounts. Insiders say the marketing boom is just beginning.
Northern Trust Ad. It manages as of 12/31/09 $3.98 Trillion, Ranked #5 in US
Pick up an issue of Forbes or Worth, and you’ll see the full-page ads from legendary private banks. Just watch a golf tournament or financial report on TV, and you’ll see the commercials. No matter what you’ve heard, the recession is over when it comes to prospecting for millionaires.
“There is a lot of money behind this,” says Orson Munn, co-founder of New York advertising firm Munn Rabot, which represents Bessemer Trust. “The category is alive and well again and the big banks are continuing to step up their spending as visibility improves,” he added.
U.S. Trust is following up a $25 million media spree with a fresh campaign of ads trumpeting its wealth management expertise to high-net-worth families looking for a good place to park $3 million or more.
BNY Mellon Wealth Management, Northern Trust and Bessemer Trust are running their own high-profile campaigns. The big banks are coming out swinging, and according to ad industry gossip, even aloof boutique players like Rockefeller may be thinking about dipping their toes in the pool.
Flash back to 2008
Many of these firms made their first big marketing pushes in 2008 in order to compete for the attention of the then-record number of wealthy U.S. households. But the collapse of Wall Street and the Bernie Madoff scandal made all their hard work look irrelevant if not actively bogus.
The industry circled its wagons and the ads were either burned off or pulled. That was a mistake, Munn says.
“When you withdraw during a financial crisis, it only increases suspicions of how credible you are as a going concern,” he told me. “The time to tell the world who you are and reassure them that you’re worth their business and their trust is when they’re asking questions about your competitors,” he added.
The normally media-wary Bessemer shocked the world last year by making the difference between its credibility and the rest of the industry the focus of its suddenly public brand.
Bessemer Trust Ad. It manages as of 12/31/09 $47.1B, Ranked #40 in US
In full-page ads in the New York Times and elsewhere, the $55 billion family office service provider openly solicited new clients for the first time in its 100-year history by trumpeting the question that every wealthy prospect was already asking about everyone in the business: “Why should you believe anything we say?”
Reaction to the in-your-face message from a button-down firm was even better than Bessemer executives hoped.
A few months ago, the company decided that it had dealt with enough reporter queries and stopped talking to the press. But the ads kept on coming, which indicates that the campaign is keeping Bessemer’s relationship managers busy enough talking to prospects.
Competing against the status quo
While not many wealth management firms are willing to remind would-be clients of the industry’s recent disgraces, the other 900-pound elephant in the room—the 2008-9 market plunge—is fair game.
BNY Mellon, one of the top names in the space with $157 billion in managed assets, came up with the tagline “Can you handle the truth?” to acknowledge investors’ loss of trust in Wall Street banks that failed to see the crash coming or, worse, predicted the plunge and didn’t bother warning their clients.
BNY Mellon Ad. It manages as of 12/31/09 $24.8T, Ranked #1 in US
“We thought it was refreshingly frank and straightforward,” a BNY Mellon insider told me on background. “We want to differentiate ourselves from the old sense of ‘business as usual’ that poisoned a lot of client relationships out there. It’s sink or swim time for business as usual.”
On the other hand, the new wave of wealth management marketing gives prospects plenty of “business as usual” to consider—or ignore, advertising executive Orson Munn says.
For example, U.S. Trust, which was just starting to find its feet as a subsidiary of mass-market giant Bank of America before the crisis, is trying to reverse a recent slight decline by calling itself a “worth” management company.
Munn is skeptical that tweaking the boilerplate will help the firm increase its pull with wealthy investors.
“I’m not sure it’s going to be successful,” he told me. “It just replaces the industry’s normal armor-plated pinstripe image with the same stripe in a slightly different color,” he added. “Why waste all that money building a new brand if it doesn’t bust through the jargon?”
Huge potential rewards
None of the advertisers are crowing yet about all the accounts their million-dollar ad buys have won them, but they’re definitely committed to giving the campaigns time to work.
While Bessemer and BNY Mellon are keeping the numbers to themselves, they’ve gone on the record in the past as being pleased with initial response. For Bessemer in particular, the sheer size of the fish they’re going after will almost certainly justify the expense of running the ads.
Figure one back cover of the New York Times magazine costs around $100,000. With a $10 million account minimum and roughly a 1% management fee, if Bessemer reels in even one new account and holds it for just one year, the ad buy breaks even.
Although U.S. Trust is chasing smaller accounts than the mega-net-worth types Bessemer (and to some extent BNY Mellon) is after, it is also betting that its media campaign will capture a lot more than one or two clients. The firm has confirmed that it’s hiring 200 relationship managers this year in order to grow its business.
Scott Martin, contributing editor, The Trust Advisor Blog, Jerry Cooper contributed to the reporting, Steven Maimes contributed to the research and editing
Permalink: http://thetrustadvisor.com/news/ads
SNL Financial to Present Special Trust Webinar June 29
The trust industry is in flux, and SNL Financial is holding a one time special online seminar on June 29 to help bankers, wealth managers and other professionals adapt to the changing environment.
Three veterans of the trust business — Robert Testa of Cerulli Associates, Jon C. Walls JD of Principle Management Consulting, and Jerry Cooper, publisher of The Trust Advisor Blog.
They will explore challenges and opportunities facing both the industry and the broader economy:
Why are wealthy families pulling their money out of traditional bank trust departments and moving to independent trust companies?
What do today’s high-net-worth clients want from a fiduciary relationship, and how can established vendors and new players alike give it to them?
What are the best business models and jurisdictions for new and old trust companies alike?
This one-hour event is free to SNL Unlimited subscribers and counts as continuing education credit for both the CFA Institute and the National Association of State Boards of Accountancy.
For more details and timing, along with pricing information for non-subscribers, take a look at www.snlcenter.com/trust.
Feds to Target Trust Firms for Reg R Violations
Posted by Scott Martin in News on June 12th, 2010
Compensation tests start in six months. Fiduciaries still have questions about what they need to show the examiner to prove that they’re pushing out commission-based securities sales.
Bank examiners have started checking on trust companies to make sure that everyone can either demonstrate that they’re obeying Regulation R, even though the specifics still perplex industry veterans.
Regulation R mandates that non-SEC-regulated institutions “push out” or refer most securities sales—and the commissions they generate—to broker-dealers. Fiduciaries can get a pass if they can prove that no more than 30% of their revenue comes from commissions.
Because this is a new requirement, not all trust companies are sure they’ll have what it takes to convince the Office of the Comptroller of the Currency’s examiners that they’re exempt when compliance testing starts on January 1.
“We’re all still waiting on record-keeping guidance,” Sally Miller, who chairs the American Bankers Association’s banking law committee, told me.
“I understand it has been drafted, but with everything else going on right now in the regulatory world, review has been slow,” she added. “It just hasn’t been a top priority.”
Caught in the middle
On the surface, the rules are clear. A fiduciary can book up to 30% of its revenue (calculated on a two-year rolling basis) from trading fees that it earns in the course of exercising its duties. All other stock and mutual fund trading needs to be pushed out.
“You don’t want to make any mistakes on this one,” warns securities lawyer Melanie Fein, who wrote the Securities & Exchange Commission’s Reg R compliance manual.
Fein acknowledges that a lot of the confusion out there stems from the fact that trust companies—especially those with state charters—occupy a somewhat nebulous position on the national regulatory map.
While trust departments affiliated with FDIC-insured banks are clearly under the OCC eye, an independent trust company operating under state jurisdiction may normally consider itself aloof from the banking world.
Fein says that’s not really an issue here. State-chartered trust companies may not be OCC-regulated banking entities, but it’s the SEC they ultimately need to convince that they’re operating on the right side of the line. And all trust companies look alike as far as the securities regulators are concerned.
“The term ‘bank’ at the SEC includes the term ‘trust company,’” Fein told me. “What a Reg R exemption means is that you are exempt from their regulation. They are not really concerned with who regulates your other activities.”
This is the real danger of failing the compensation test, Fein says. A trust company that does too much commission-based business actually loses its exemption from SEC oversight.
“If it turns out you are not exempt, you would be operating as an unregistered broker-dealer and would be liable for your customers’ losses,” she explains.
Plenty of questions remain…
In theory, a bank can get around the 30% rule by making sure all employees maintain a strict “two-hat” separation between commission-based and relationship-based business. As long as a securities-licensed bank employee takes off the “bank” hat to trade, the bank can avoid from SEC oversight.
While this may look feasible on a superficial level, every securities lawyer I talked to warned me that keeping the hats separate is an operational and supervisory nightmare for banks and broker-dealers alike.
As a result, some compliance departments on both sides of the bank/broker divide take a more restrictive position than advisors might like. That’s their perogative, but it can be frustrating.
“Our broker-dealer takes the position that independent trust companies are not exempted under Reg R,” Jim Farmer, a wealth manager at First Bankers in Quincy, Illinois, told me. “They will pay commissions to the bank, but not the trust company. I understand the two-headed issue, but sometimes I still feel stuck.”
Most banks and trust companies will simply pass the business to a favored broker and collect a fee. Sally Miller at the ABA says most of the Reg R questions she gets revolve around how the examiners will look at these referral fees.
“This is the tougher nut to crack for some of the banks out there,” she told me. “Is this commission-based or relationship-based income? And what will the OCC think is fair?”
Red-flag referrals
Miller says there are a few practices out there that trust companies should avoid if they want to keep their Reg R exemption.
Referral compensation should not be tied to either the size of the account or trade at stake or the broker-dealer’s success in getting the business. Doing this raises the odds that a payment may actually be a commission in disguise, Miller told me.
These fees should also never be tied to any kind of incentive program. The rationale here is that pushing out securities business is supposed to be a sacrifice, not a business opportunity for trust companies to chase.
“Staying exempt under Reg R means proving that you’re primarily interested in lending, cash management, trust administration or other traditional banking activities,” Miller says. “If you tell your employees they’ll get a bonus for turning over prospects to broker-dealers, it doesn’t look good.”
Although the OCC has yet to issue concrete guidance, examiners have been actively working with banks and trust companies to make sure everything is going well. If a trust company still has any questions about what it will need to pass the test, there’s plenty of time to find out, Miller says.
Melanie Fein emphatically agrees.
“Confer with your regulator and clarify your status,” she told me. “Whether you’re FDIC-insured, state-chartered, OCC-regulated, go ahead and make the call. This is very definitely serious business.”
For follow-up, we suggest reading an excellent article on compliance, published by the Federal Resreve Bank of Philadelaphia, “Regulation R: Is Your Bank in Compliance?.”
Scott Martin, contributing editor, The Trust Advisor Blog, Jerry Cooper conrtibuted to the reporting, Steven Maimes contributed to the research and editing
Permalink: http://thetrustadvisor.com/news/regr
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