Who’s Charging What for Trust Services?

Trust fees are headed higher according to our pricing survey completed this week. Some firms work strictly from a rate card. Others decide what your client will pay when the business is placed on the table. Either way, it’s good to know what the “market value” of trust services.

There’s still a fair amount of mystery surrounding exactly what’s baked into each of those basis points.

“It’s never as simple as just lining up the fees,” says Mike Flinn, a Phoenix-based trust consultant at Advisory Trust Company. “Once you start drilling down into the basis points, it becomes pretty clear that different firms really do different things,” he added.

To find out where the sizzle hits the steak for various types of trust company, The Trust Advisor Blog conducted a survey below of what they’re charging.

Who’s Charging What for Trust Services

Trust Company

State

Trust account minimum

Minimum annual fee

First $1 million

Next $2 to $3 million

$3 to $5 million

Above $5 million

“"

DE

$500,000

$3,000

0.50%

0.40%

0.30%

0.25%

“"

DE

$1 million

$6,000

0.60%

*

0.45%

Neg.

“"

NH

None

$3,000

0.90%

0.55%

0.45%

0.35%

“"

IL &
DE

$5 million

$20,000

0.40%

0.40%

0.40%

0.20%

“"

GA

None

$3,000

0.60%

0.35%

0.35%

0.35%

“"

NM

None

$4,000

0.75%

0.75%

0.50%

0.35%

“"

NV

None

$1,000

0.50%

0.50%

0.50%

0.40%

“"

NV

$100

$100

1.00%

0.80%

0.70%

Neg.

“"

SD

None

$4,000

0.50%

0.50%

0.42%

0.35%

“"

DE

$1 million

$8,000

0.60%

0.40%

0.40%

0.25%

* Breakpoint is $2 million.

NOTE:Accuracy is not guaranteed. Please consult the institution directly to confirm costs. The Trust Advisor Blog realizes that this is not a comprehensive list of all firms. To make sure your institution is included or excluded in the July 2nd edition of this survey please let us know. We will be expanding coverage; please also include any other services offered such as investment management, special purpose trusts, HSAs, etc. Advisors and estate planners may reproduce this survey upon request. To contact us, click here.

Source: Websites and telephone interviews. ©2010 TheTrustAdvisor.com

The Basic Account

One thing we discovered: if you just want a no-frills account, Flinn adds, it’s probably going to cost at least $3,000 a year. “That’s really the minimum anyone can comfortably charge.”

“Maybe $2,500,” he conceded. “But at that level, it’s going to be very difficult to stay in the business.”

While $3,000 happens to be what Advisory Trust charges on the low end, it does seem to be an informal sweet spot within the trust industry. Other companies that start at that level include New Hampshire Trust and Georgia-based Reliance Trust.

There are companies that charge small accounts less (Nevada’s Summit Trust will go as low as $100 a year), but plenty start their fees at $4,000 and up. It all depends on the size of account they’re courting and what makes economic sense, Christopher Holtby, president of Wealth Advisors Trust Company, told me.

“Hitting the sweet spot is part art, part science,” he explains. “There are very specific things that every trust has to do, and everything else is extra.”

Good scale for big fish

Northern Trust doesn’t publish its fee scale, but president Dan Lindley was kind enough to give The Trust Advisor a peek.

Although the $20,000 minimum fee looks steep at first, it makes a lot more sense when you consider that Northern Trust isn’t really interested in personal directed trust accounts with less than $5 million in assets. For a client with that kind of wealth, the $20,000 translates into at most 40 basis points a year—pretty low by industry standards.

(Really big clients get institutional-strength discounts. Once a Northern Trust account grows beyond $30 million, the company will only charge 5 basis points: $500 a year per $1 million.)

The upshot is that by concentrating on high-end clients, a white-glove firm like Northern Trust can build a lot of sizzle into its steak, even though the cost per dollar of AUM is comparable to what bare-bones vendors charge.

“Northern Trust in Delaware charges a reasonable, competitive fee and in return provides comprehensive services to our directed trust clients backed by more than 120 years of experience as a fiduciary,” Lindley told me.

Other high-end trust companies argue that at this level, it’s pointless to advertise your fees because high-net-worth clients and their advisors are happy to pay for the service.

Some vendors refused to participate in the survey because they either work on an a la carte basis (Alaska Trust) or figure out what to charge once they see the trust paperwork (Commonwealth Trust). As Alaska Trust founder Douglas Blattmachr told me, it’s pointless to advertise how much a generic offering would cost when the fact is that at this level, one size fits none.

“It really does depend on what the client wants us to provide,” he says.

When asked to present a benchmark, he estimated that a relatively bare-bones Alaska Trust account might charge 50 basis points a year or an annual minimum of $3,500. That’s about where vanilla Commonwealth trusts start, Jim McMackin, who runs the company’s marketing, told me.

Splitting smaller pies

Naturally, it’s going to cost extra if the trust company also manages the underlying assets. But there are a lot of vendors out there that are happy to offload the investment responsibilities and knock a bit off their fees in return.

Companies like Wealth Advisors Trust, Advisory Trust and Santa Fe Trust, cater exclusively to investment advisors looking for a place to refer their clients who need to open a trust.

Account minimums tend to be relatively low—Wealth Advisors Trust and Santa Fe Trust can theoretically start a trust with as little as $1—but expenses can be a little higher to cover the fixed cost of administering these tiny trusts.

For example, Santa Fe Trust accepts very small accounts, but according to its published fee scale it will still charge them at least $4,000 a year. At an annual fee of 75 basis points, this suggests that a trust really needs to have more than around $533,000 in it to “earn out” that $4,000 minimum fee.

By comparison, Wealth Advisors Trust’s scale “earns out” at a slightly higher level ($800,000 in the account), which indicates that its platform is built to support a somewhat more affluent clientele. Others on our list (Advisory Trust, Reliance, Saturna, New Hampshire Trust) justify their minimums at lower levels.

Whatever happens, says Kathy Roberts, the CEO of Santa Fe Trust, small accounts shouldn’t be loss leaders.

“We don’t take a trust that isn’t going to be profitable,” she told me.  While she’ll take on a tiny trust if the grantor insists, she warns that advisors should recognize that the trust company will pass on the cost of running it and sometimes it just doesn’t make sense.

Where we go from here

Most of the people I talked to say the cost of running a trust has already gone about as low as it can go.

Mike Flinn from Advisory Trust and Douglas Blattmachr of Alaska Trust agree that the cost of fiduciary compliance and routine service probably isn’t going any lower than around $3,000 per trust any time soon, especially given the current trend toward higher regulation.

“It’s expensive to be a fiduciary,” Blattmachr acknowledged in our conversation. “So that provides a floor on what people can offer.”

But beyond that level, technology keeps improving and letting efficient trust companies bring down their overall cost proposition. Blattmachr says low-end players can use technology to better serve the mass market. Kathy Roberts of Santa Fe Trust agrees.

Either way, Christopher Holtby of Wealth Advisors Trust told me that there’s always room for enthusiastic competitors.

“Wherever fees go,” he says, “there are going to be a lot more entrants in the trust service business.”

Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and the editing.

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

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Do You Own an Apple iPad?

The Trust Advisor will be publishing an upcoming article on wealth management applications for the new Apple iPad device.

I have seen the device and its amazing. Forbes reported that Apple sold between 600,000 and 700,000 iPads today alone.

We would like to include any comments our readers have about their experience with the device, either good or bad and what applications they may be using.

Click this link to submit your iPad comments

Thank you — Jerry Cooper, Sr. Editor, the Trust Advisor

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  • http://trustadvisor.com Mary Barnett

    This is a very useful site. Would you please tell me if the above banks, etc, include investment advise and investment monotoring. Thanks you

  • http://www.allabouttrust.com charles idelson

    Mary Barnett :This is a very useful site. Would you please tell me if the above banks, etc, include investment advise and investment monotoring. Thanks you

  • http://TheTrustPeople.com Steve

    I once led a discussion group where a person asked what we would charge for administering a $500,000 trust.

    When told our fee, he responded, “That’s expensive!”.

    Whereupon another fellow exclaimed, “If they will take responsibility for my teenage son, that’s cheap!”

    Much depends on the individual situation and goals of the person establishing the trust.

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