After decades of financial advisors and trust companies fighting over client loyalty, a few members of each of faction are realizing that it’s more profitable to work together.

That’s what we found out when we surveyed the industry and learned that the trust companies that actively court long-term relationships with financial advisors are winning big accounts — without stealing them from the advisors themselves.

The most advisor-friendly of all made it into our latest special report. (Download it here.)

They’re an eclectic bunch of organizations, ranging from white-glove institutions to high-tech entrepreneurial upstarts. Pretty much all they have in common is their independence and their eagerness to prove that they’re not a threat to your business.

They don’t have in-house wealth managers hungry for commissions or management fees, so the motive to ingratiate themselves into the lives of your best clients and squeeze you out just isn’t there.

They don’t have proprietary investment products to push into trust portfolios. And they don’t even mind if your preferred custodian hangs onto the money.

Get inside the list

Operationally, the most advisor-friendly trust companies out there emphasize flexibility and service.

Whether they’ve been around for a few years or close to a century, every single one is willing to work with any custodian you care to name: TD Ameritrade, Pershing, Schwab, Fidelity.

Between them, just about all the major accounting platforms are on the table, so if you want plug-and-play integration with Schwab, SunGard or anything else, you’re probably going to find it somewhere on the list.

And big surprise: all of the top trust jurisdictions are well represented.

Advisors have been flocking to trust companies that operate in Alaska, Nevada, South Dakota and Delaware — not to mention New Mexico — in order to get their clients access to the most flexible trust statutes and best tax treatment in the country.

Dynastic trusts, which run for centuries or even forever, are a popular offering. So are asset protection trusts, unitrusts and other specialized vehicles.

On the service side, most have the in-house expertise in place to promise extremely fast turnaround. A trust that could take weeks to set up elsewhere can be up and running in under a day here.

Not willing to hog the ball

The very idea of an “advisor-friendly” trust company might come as a shock to the 85% of advisors worried about losing the assets their clients move move into trust.

For too long, that account “migration” was a painful fact of life for advisors who wanted the best for their clients.

Wealthy clients quite rightly demanded the ability to incorporate trusts into their financial plan to protect their property from taxes, nuisance lawsuits and ultimately mortality itself.

But when advisors located a conventional trust company to serve as corporate trustee, it generally meant handing over about $1 million in assets — roughly half the typical high-net-worth investor’s net worth — as well as the associated management fees.

The clients were happy. The trust company was overjoyed to get the business and active management rights over the portfolio. And the advisor suffered.

Needless to say, a lot of advisors were less than eager to recommend that their best clients take their assets elsewhere, and so the adoption of trusts lagged.

As a result, according to Fidelity, a full 40% of high-net-worth households have yet to set up trust arrangements, even if it’s in their financial interest to do so.

A shot at a shared win

The trust companies on our list saw that natural resistance as an opportunity to offer advisors a better deal and capture that elusive 40% of the market.

Every single one of them supports an arrangement known as directed trust, in which the client assigns the right to manage the assets to an advisor — usually the one he or she is already working with.

The trust company does what it does best: run the trust.

All the bookkeeping, reporting and fiduciary responsibilities remain with the trust company, which earns a nominal fee for the service. If there’s a problem, it’s up to the trust company to deal with.

From the advisor’s point of view, nothing changes. The assets remain on the book of business and keep generating the same fees. With few exceptions, the trust company has no legal right or duty to interfere in the investment choices.

The client is happy to have an advisor looking out for his or her ultimate best interests. The advisor-friendly trust company gets new trust accounts to run. And the advisor doesn’t lose.

Scott Martin, senior editor, The Trust Advisor. Steven Maimes assisted with the research.

Permalink: http://thetrustadvisor.com/news/trustfriendly

States like New Hampshire and South Dakota report robust interest from wealth managers, family offices and other advisors looking to offer their clients the benefits of an in-house trust company as a hedge against possible FINRA oversight of advisors and more restrictions on how advisory firms can make money.

State chartered trust companies can do everything an SEC-registered advisor can do, plus serve as trustee and custodian. These privileges were given to both banks and trust companies with the enactment of the National Bank Act.

After a rocky year in the markets, high-net-worth clients are on the move — and advisors looking for a competitive edge are hunting whatever it takes to give those investors everything they want.

And what those investors want, according to the experts, is an easy way to pass their wealth on to future generations as securely and efficiently as possible. In other words, they want an advisor who can help them set up and fund trust funds.

“Clients are constantly seeking greater certainty over the safety, disposition and management of their assets,” says Bob Ellis, a consultant at Fast Track Advisors.

By creating their own captive trust companies, wealth advisors more strongly retain clients.”

That’s the logic that’s driven dozens of advisors to start trust companies across the country in the last few years, with the lion’s share going to the states that combine investor-friendly statutes with advisor-friendly regulatory environments.

South Dakota alone gained about a half dozen public trust companies last year, with more applications in the pipeline. Nevada, Delaware and other top-tier jurisdictions have also been big winners in what research firm Cerulli Associates calculates is a decade-long boom in trust company creation.

“Interest seems to be on the uptick,” says Mark Purpura, chair of Delaware’s state bar association’s banking committee.

“I currently have several trust company formations in the pipeline.”

Becoming the trust advisor

Advisors have gotten so hungry for information on this topic that the Trust Advisor is running an in-depth webinar in two weeks. (Register here.)

But all this interest is really business as usual, says former Nevada banking commissioner Scott Walshaw, who — like Purpura and Ellis — will be a panelist.

“The motives haven’t changed much,” he explains. “What’s changed is that there is more opportunity for people to open trust companies now than ever before.”

Wealth managers still see a trust charter as a way to differentiate themselves in the marketplace, tempt new clients and keep old ones from straying.

After all, everybody in the business claims he or she offers “financial planning,” but only 15% even support plain vanilla trust funds, much less have what it takes to run dynastic trusts, asset protection trusts or other specialized vehicles.

And while many of the 15% are content to refer their clients to a third-party provider, Bob Ellis says your AUM gets a lot stickier when you do it yourself.

“Advisors are seeking to ensure that the strategies they develop for their best clients can’t be easily unwound in favor of the next hot product or manager,” he says.

The right trust arrangement can keep the assets on your platform not only for the life of your client, but for generations to come — or even forever.

Location, location, location

In theory, an advisor who wants to start a trust company can gamble everything on a federal charter or find a state that offers the right combination of flexibility, tax breaks and regulatory oversight.

But because states vary widely in terms of the types of trust they allow — much less how hard they make it to apply for a charter — most of the capital has flowed into a few exceptionally trust-friendly jurisdictions.

In these states, the barriers to entry are not as high as many advisors might think.

Nevada and Delaware, for example, generally want to see around $1 million in capital on a trust application. South Dakota will work with applicants who have as little as $200,000 on hand.

As a result, even advisors who used to be content to hand off their trust business to a third-party provider are considering taking that business back in-house.

“If you have a big enough clientele to invest the capital, forming a new trust company makes financial sense,” Scott Walshaw says.

“You’re reducing the lines of communication your clients have to deal with and keeping tighter control over the fee structure and the expense side of things,” he adds. “You can decide what to pass along to your clients, or what not to pass along.”

For example, advisor-run trust companies are well within their rights to charge an administration fee — often 25 to 75 basis points — on the trust assets.

That fee would be hard to negotiate in a third-party relationship, but advisors with their own trust company have complete control over how the money flows.

The advisor can absorb the entire cost of running the account, pass it all on to the client or come up with any arrangement in between.

These accounts can be surprisingly profitable in their own right, by the way. Some states charge supervision fees of barely 6 basis points a year, giving operationally nimble firms plenty of room to make money.

Does a trust company make sense for you?

The traditional breakpoint for thinking about adding a trust company to an existing advisory business is at around $100 million in AUM.

At that level, the required starting cash can represent a year or two of the revenue those client accounts throw off — and it can take another year or two before the operation runs in the black.

For those a little lower down the food chain, there are always trust companies dedicated to directed trusts.

These arrangements keep the advisor in control of the way the assets are invested while taking on the work of administering the trusts themselves.

And while it hasn’t been tried yet, Walshaw is intrigued at the notion that several smaller advisory firms might team up to “share” a captive trust company.

“Get three or four friends together, and you might be able to do it,” he says.

Scott Martin, senior editor, The Trust Advisor

Permalink: http://thetrustadvisor.com/news/trust-charters

Years of Wall Street scandals, fiduciary failures and a sagging market have gotten under the skin of wealthy Americans.

According to a recent survey, a full 60% of investors are currently considering firing their advisor and 44.7% have already terminated a relationship with an advisor in the past — interestingly enough, the exact proportion giving referrals.

These numbers reveal that if advisors are looking for an average of 16 new clients this year, they’re going to get them from each other — and that they’ll have to fight for every prospect.

“A lot of advisors get clients from referrals, but over 25% of the investors surveyed surprisingly said that their advisor had never asked them for a referral” explains Barbara Kotlyar of ByAllAccounts, which co-conducted the survey with Paladin Registry.

“This represents a huge opportunity for advisors who are confident in their practice to gain more business using their existing clients and networks by simply asking for an introduction or a referral.”

Earn your clients’ loyalty and then meet their friends

When asked why they terminated the relationship, the top 5 reasons investors gave were:

1. Poor performance
2. Too expensive
3. Slow response times
4. Lack of accessibility
5. Inadequate reporting

The data reveals that what differentiates winners from losers in today’s advisory market is the ability to overcome the fragmentation your clients feel.

A typical wealthy family can easily have three or four advisors, several bank accounts, interests in one or more business entities, trusts, IRAs, other qualified savings vehicles and even a brokerage account or two.

The statements come in at different times and are usually a month or two behind the news, so they always feel a little disoriented and off-balance.

Click Here for Full Survey

They need a quarterback, a head coach, someone with one eye on breaking developments and another on the long term.

They want what ByAllAccounts calls “holistic” service and other firms are calling “integrated” or “household-level” advice.

And as it turns out, 98.3% of the investors who get that all-inclusive perspective on their finances are happy with the level of service they’re getting, and 85% of them say there’s a zero percent chance they’ll fire their advisor this year.

Those figures are admittedly extremely high, but other components of the survey support the conclusion: advisors who can give their clients a top-down view of all their assets and liabilities retain their clients a lot longer, inspire more confidence and get more referrals.

Retention generates revenue as well as growth

And of those investors who are sticking around, 25.8% are being increasingly stingy with their referrals, arguing that their current advisor simply “haven’t earned” the right to get an introduction to their friends, families and professional colleagues.

Since almost half of all investors still find their advisors via referrals, advisors with ambitious growth plans absolutely must make sure their current clients are happy.

Retention comes first, then growth. If clients aren’t incredibly enthusiastic about what you’re offering, find out what they actually want.

You might be able to give it to them. Then, when they’re feeling good, ask for those referrals.

Success breeds success, and as Barbara Kotlyar has discovered, it’s paying off in the here and now.

“Advisors with the ability to monitor and advise on assets that aren’t under their direct management are charging for the service,” she says.

“The 401(k) or other account stays right where it is, but they’re asking the client to pay between 50 and 100 basis points on those assets. And they’re getting no push back at all.”

Scott Martin, senior editor, The Trust Advisor

When a Chinese company came out with a Steve Jobs doll a few weeks ago, we weren’t surprised to see Apple’s lawyers shut it down very quickly.

After all, the top estate planners we talked to had already warned us that Jobs had probably been very careful to assign control of his distinctive likeness when he knew that his cancer would end up killing him.

That control included archival footage and even the right to re-edit previous public appearances into “new” Apple product announcements or endorsements.

“Given his private nature and the tremendous value of his image, he almost certainly assigned his rights of publicity to his trust or some other corporate entity,” notes Bernie Vogel, CEO of Silicon Valley Law Group’s estate planning practice.

The Jobs family seems to have used that legal framework to apply “immense” pressure on Hong Kong toy maker In Icons, which was going to sell the dolls for $99 apiece.

And since Apple reportedly owns the right to sell commercial products that bear the names of employees, simply naming the doll after Jobs was asking for trouble.

Publicity, privacy get hazy after death

But estate planners may have a bit more trouble ensuring that their clients are similarly protected from posthumous “tributes” may not have it so easy.

In a majority of states, control over publicity ends at death, but there are exceptions.

Jobs’ home state of California voted in 1999 to extend the right to profit from a celebrity’s public image to 70 years after death — a provision designed to protect the estates of stars like Fred Astaire.

Before the people at In Icons gave in and canceled their doll, they argued that Jobs wasn’t a movie star, so they could do what they like.

That’s not quite true, the publicity gurus say. All you need to be covered is to be famous enough for your likeness to have commercial value when you were alive.

Jobs definitely qualified as this kind of “personality,” as the very existence of this doll demonstrates.

His appearances on Apple’s behalf, for example, made billions of dollars for the company’s shareholders, and an unauthorized product dilutes that personal brand.

Assigning that brand to his heirs is possible because he was a celebrity and there’s actually a material interest to pass on.

For most people — even high-net-worth clients — there may not be a brand to pass on. In that scenario, the estate wouldn’t even be able to fall back on rights of privacy, since the dead are currently not entitled to that.

That’s probably the most disturbing aspect of this.

If you’re not famous, the Hong Kong doll maker can do whatever it wants with your image.

The only thing holding them back is the lack of a profit motive.

Protect what can be protected

The Jobs case highlights the importance of spelling out the intangibles in a trust or other testamentary document.

Sure, a lot of estate planners are content to assign the real property and the liquid assets, especially if there aren’t any patents or literary assets.

But intellectual property adds up to a lot more than copyrights and patents that can be held in trust for future generations or sold to a corporate buyer.

Every one of your clients has correspondence to protect, photographic archives, diaries and notebooks.

Ordinarily, access to those more personal documents passes to the family, but why trust your clients’ wishes to posterity?

With Jobs, for example, the personal papers were almost certainly locked up, Silicon Valley lawyer Bernie Vogel tells me.

Otherwise, the action figures could only be the first wave of trouble for the notoriously media-shy technology guru.

“There are tell-all books, unauthorized movies to worry about,” Vogel explains. “Addressing the ultimate disposition of the raw materials and who gets access can make those projects more difficult and less likely to interfere with your client’s wishes.”

Vogel says he’s doing a lot more work with his clientele to get their intangible wishes on record.

Naturally, he’s in California, so they can benefit from that state’s posthumous publicity laws.

But even in states that don’t recognize these rights after death, the law can change, so it’s good to have a clear statement of your clients’ wishes on file.

New York, for example, has been pushing to protect its celebrities’ images for a few years now, while places like Indiana have enacted rules that prohibit anyone from making money off any dead citizen’s image for a full century.

Taking the struggle to the fans

If nothing else, an estate can use the statement to influence public opinion and show the world that a product is out of line with the wishes of the deceased.

The company that was making the Steve Jobs doll maintains that they “have not overstepped any legal boundaries” and could theoretically sell the toys tomorrow if they wanted to do so.

However, given the strong protest from the Jobs family — who know better than anyone what Steve would have wanted — it’s likely that diehard Apple fans would have stayed away anyway.

Scott Martin, senior editor, The Trust Advisor. Jerry Cooper and Steven Maimes contributed to the research.

Permalink: http://thetrustadvisor.com/news/jobsdoll

The Trust Advisor will be conducting an online webinar on February 14 to provide a few answers.

Seats are limited to the first 500 registrants and participation is free for Trust Advisor subscribers. All others will have to pay $99 to hear what our all-star panel has to say:

* Robert Testa, analyst with Cerulli
* Mark V. Purpura, Delaware trust attorney
* Robert Ellis, trust technology expert
* Brian Williams, branding expert
* L. Scott Walshaw, Nevada’s former banking commissioner

I’ll be co-moderating along with Jon C. Walls, a senior financial advisor with Principle Management Consulting who has organized several South Dakota trust companies.

The program will include the best business models and jurisdictions to use for hosting trust companies in various favorable states like South Dakota, Delaware and Nevada.

For all the insights, click here to register.

Permalink: http://thetrustadvisor.com/headlines/webinar