Posts Tagged alaska trust
11 Top Trust Firms Make the Winners’ List for Advisor Friendliness in Our New Special Report
Posted by Scott Martin in News on February 6, 2012
Teamwork is key for a whole generation of trust officers who have little motive and less opportunity to cut the advisor out of the game. Unlike football, everybody wins.
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.
Get Ready for the Winners List “America’s Most Advisor-Friendly Trust Companies” Special Report on February 6
Posted by Scott Martin in Headlines on January 8, 2012
With over 1,700 trust providers to choose from, we’ve spotted only a handful rolling out the red carpet for financial advisors and broker dealer representatives.
As 2012 begins, every advisor in the business is already hunting the competitive edge they need to stand out from the crowd and capture new assets.
Many acknowledge that it’s no longer enough to offer prospects a traditional investment management and financial planning approach. There has to be an angle, a differentiating factor.
With $41 trillion at stake as the baby boomers retire and start pondering their legacies, that angle increasingly involves estate planning. And modern estate planning means being able to support trusts.
Unfortunately, most trust companies only want advisors’ business so they can get control of the underlying assets. These vendors aren’t really partners. They’re just competitors, wealth managers in trust officer clothing.
So how do advisors find a partner they can trust? That’s what we set out to discover.
Featuring the Winners List
Our next report on directed and delegated trust providers will zero in on who in the trust industry is catering to registered investment advisors (RIAs), family offices and broker-dealer representatives.
There are a few obvious choices in the form of trust companies owned by advisors or dedicated exclusively to their business: Wealth Advisors Trust Company, Advisory Trust, Provident Trust, National Advisors Trust Company, Alaska Trust, Summit Trust and a few others.
But due diligence is the name of the game here. Advisors need to weigh all the options they can before picking a trust partner, much less diverting their clients’ assets to someone else’s custody.
With that thought in mind, the Trust Advisor has been tracking advisor-friendly trust companies for years now. The 2012 list will be available on a complimentary basis for download beginning in our February 6 issue.
As in previous years, we’ll rank the technologies used for each of the trust providers, reveal custody arrangements and compare fees side by side so you can be sure you’re getting the value your clients deserve.
Anecdotal commentary and extensive interviews will give you a sense of the types of trust each company can handle and the level of customer service it provides.
As Christopher Holtby, head of South Dakota-based Wealth Advisors Trust Company, told us last year, advisors and clients alike still don’t understand how trusts work.
This year, we’re also looking at how well these firms educate their partners and potential partners. Can they explain to advisors how to cultivate trust relationships and build their own businesses, or are they simply waiting to absorb whatever assets the advisors send over?
Let’s make 2012 the year of the win-win scenario. You will be able to receive your complimentary download. Just check our February 6 issue.
If your trust company would like to be included or to advertise in this special report, simply click here
http://thetrustadvisor.com/headlines/advisor-friendly
Scott Martin, Senior Editor, The Trust Advisor
Surprise Kobe Bryant Divorce Could Cost Him $75 Million
Posted by Scott Martin in News on December 18, 2011
Lack of premarital planning gives Vanessa even more financial leverage, and the fact that he was the one caught cheating left her with all the cards. Half his fortune is forfeit.
Vanessa Bryant was legendary among basketball fans as the iron-willed Yoko Ono of the Los Angeles Lakers, complete with ICE QN vanity plates.
But Kobe was only 22 when he married her, and while he was already playing on a $70 million contract, he never got her to sign any kind of arrangement limiting her share of his wealth. Read the rest of this entry »
Trust Experts Say Judge Made “Bad Law” in Landmark Asset Protection Case
Posted by Scott Martin in News on October 29, 2011
Last week, trust gurus from every corner sounded loud sirens to register both discontent and caution over a recent federal bankruptcy decision that could shape the future use of domestic asset protection trusts.
Lawyers around the country have been heating up the Internet fretting over whether a seemingly routine bankruptcy hearing invalidates an entire class of trusts and could leave thousands of their wealthiest clients exposed to nuisance lawsuits.
After Alaska geologist Tom Mortensen filed for bankruptcy protection on about $250,000 in debt, the credit card companies came after his 1.25-acre vacation property in the vicinity of Anchorage.
In theory, that property was held in an Alaska trust, but the bankruptcy judge overruled state statute to let Mortensen’s creditors recover anyway. Read the rest of this entry »
Trust Firm Launches “Why Pay More for Trust Services” Marketing Campaign
Posted by Scott Martin in News on September 10, 2011
Alaska Trust says frugal fees are better for both clients and advisors alike. New low fixed fees and advisor controlled directed trust program makes Alaska Trust a top choice for trust services.
Best known as a provider of full-service managed trusts at made-to-measure prices, Alaska Trust has started turning heads for offering its directed trusts at a flat fee.
As part of the company’s push into the advisory market, it has eliminated basis point pricing and is simply charging a fixed, flat fee, typically $3,500 a year, for all directed trusts — large or small. Read the rest of this entry »
White House Punches Wealthy Again – This Time, Dynasty Trusts
Posted by Scott Martin in News on March 13, 2011
Proposal to reinstate rule against perpetuities probably won’t pass, but estate planners are urging clients to lock in ultra-long-term benefits now.
The promise of avoiding estate tax for centuries if not forever has been a $100 billion boon for “perpetual” trust companies, but the Obama Administration has recommended that it’s time to take the punchbowl away.
Buried in the latest edition of the annual “Green Book,” which explains how the White House expects to pay for the upcoming year’s government spending, is a brief one-page proposal to “limit the duration of generation-skipping transfer tax exemption.”
In effect, such a move would cut the effective lifespan of “perpetual” or dynastic trusts to a maximum of 90 years, no matter how long the beneficiaries live or what state rules apply.
The trusts themselves could theoretically run forever — the proposal wouldn’t reinstate the rule against perpetuities — but the incentive for keeping money in them after the tax benefits expire would be much, much smaller.
Washington pundits don’t expect this bit of the budget to get through Congress this year, given the likely hostility to what could be perceived as a “tax hike.”
But now that the idea is on the table, estate planners warn that it’s not going to go away — sooner or later, their clients are going to lose the power to lock up their wealth for centuries.
“Like a bad penny, once these types of proposals are out there, they tend to show up again and again,” says Chuck Rubin, an attorney at Boca Raton firm Gutter Chaves Josepher Rubin Forman Fleisher.
“It will be hanging out there like the Sword of Damocles.”
The threat is enough
While Rubin isn’t convinced that a 90-year statute of limitations is ever going to apply to the GST exemption, the mere idea is getting a lot of advisors to urge their clients to take advantage of longer planning windows now.
In fact, trust companies in the most favorable dynastic states — including Alaska and Nevada — were already seeing an uptick in new accounts and inquiries as wealthy families look to lock in this year’s attractive tax rules.
In the last few months, principals of both Provident Trust in Las Vegas and Alaska Trust up in Anchorage have told me that wealthy families are now highly motivated to protect their assets ahead of what just about everyone sees as higher taxes on the horizon.
From there, the question for those families’ advisors is where to set up that trust to get the maximum possible benefit under all conceivable circumstances.
Under the old rules still in force in about half of the states, trusts must liquidate after 90 to 120 years. That may be long enough for many families, but family office providers now favor going to states that allow a trust opened today to keep operating through 2371 or even forever.
After all, they argue, if a century of protection from taxes is good, a longer period of time is even better.
As a direct result of that reasoning, states that support dynastic trusts captured at least $100 billion in trust assets from those that don’t — and according to an influential study by law professors Robert Sitkoff of Harvard and Max Schanzenbach of Northwestern, that was doesn’t reflect moves after 2004.
Getting into the grandfather exemption
According to the proposal, previously created trusts will be immune to the 90-year rule and will be able to function as long as their state jurisdictions allow.
However, additional transfers to those trusts would not be “grandfathered,” which would create headaches for administrators who would then need to account for old and new assets separately.
Once the 90-year rule is in place, that’s it. No creating a token dynastic trust today as a “back door” for fresh assets to get perpetual protection down the road. No decanting new or old non-dynastic trusts into an existing trust, either.
The upshot, according to analysis from law firm Sullivan & Cromwell, is that advisors who want to get dynastic protection for their clients can’t really hedge against the odds of future Congressional tinkering with the trust code.
More symbolic than anything else
The White House characterizes the suggestion of restricting the multi-generational scope of dynastic trusts as simply closing a loophole.
As the Treasury Department points out, back in 1986 when states started repealing the rule against perpetuities, grantors could only fund a trust with $1 million before hitting the GST limit.
That meant that a perpetual trust was unlikely to grow to huge levels even over a century or two, once you consider regular distributions to generations of beneficiaries.
However, as of this year, gifts of up to $5 million are free from generation-skipping tax, which means these vehicles can hide more money than ever from the IRS for vast periods of time.
“Another reason to give strong consideration to making gifts during 2011 and 2012 under the favorable gift-giving transfer tax environment,” Rubin says.
In theory, this can make a huge difference for the great-great-grandchildren of today’s wealthy families — assuming, of course, that the tax code of 2370 looks anything like it does now.
But when it comes to fighting the current budget crisis in Washington, it won’t make more than a symbolic difference.
The Treasury estimates that instating the 90-year rule would net the government a big nothing in 2011 and then $15 million in 2012. It would take until 2018 to generate over $1 billion in added tax revenue.
In an era when the government spends $21 billion a year out of its $3.7 trillion budget on pollution control and $14 billion on scientific research, for example, that added revenue is really nothing.
Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper and Steve Maimes contributed to the editing and research.
Permalink: http://thetrustadvisor.com/news/dynastic
Overlay Management Hits the Big Time Among Once-Stodgy Trust Companies
Posted by Scott Martin in News on July 10, 2010
New “overlay” technology puts sub-manager’s real-time performance on trust firms’ radar screens. Benefits include enhanced performance and less mistakes. Our survey reveals New Jersey-based Concord Wealth Management steals the show.
More independent trust companies than ever are relying on overlay management software to streamline their investment process. However, finding the right fit can be difficult if you don’t know exactly what you’re looking for.
“Self-described overlay vendors run the gamut,” says Robert Testa, an analyst at Cerulli Associates who covers the wealth management industry. “Some simply provide access to third-party investment models. Some provide a more comprehensive technology solution.”
At its most basic, an “overlay” is simply a model used to determine how a given account should be invested. In traditional separately managed account (SMA) structures, the money is actually delegated to multiple outside managers to invest, but in an overlay system, the assets—and the ultimate responsibility—stay together in a unified managed account (UMA).
The UMA approach made sense for trust companies like Alaska Trust, which bought an overlay system from Matawan, NJ-based Concord Wealth Management about a year and a half ago.
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Guide to Trust-Friendly Overlay Providers |
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Designs, develops and administers wealth management programs for financial institutions. 70 customers including Alaska Trust. Since 1975. |
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A leading global provider of information management and electronic commerce systems for the financial services industry. Many customers. Since 1984. |
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Wealth servicing innovation and platform technology modernization. 115 customers including Northern Trust. Since 1999. |
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Offers managed account platform services to trust banks and institutional investors. 90 customers including Reliance Trust. |
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Advisors for individual and institutional investors. Division of Natixis Asset Management. 30 customers including FundQuest. Since 2003. |
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Industry-leading provider of structured portfolio management and overlay portfolio management. Since 1987. |
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Investment industry’s leading overlay manager for enabling UMAs. 25 customers including Piper Jaffray. Since 1999. |
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Provides real-time technology platform for integrating portfolio management and backoffice functions. 40 customers including UBS Global Asset Management. Since 2001. |
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Source: Internal Research. |
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“We really felt that investment management had become a utility just like the electricity at your house,” says Matthew Blattmachr, who runs the Alaska Trust system. “But we didn’t want to outsource the actual management. We wanted to make sure those assets stayed in-house.”
Flexibility, customization
It took Alaska Trust about a year to pick an overlay vendor once they decided to make the change. After auditioning several platforms, they chose Concord because it offered the best combination of flexibility and a-la-carte pricing.
“We just wanted the overlay,” Blattmachr says. “Our backoffice already provides some of the other capabilities that go into an UMA solution. And we wanted to make sure we weren’t going to get a cookie-cutter solution.”
Cost was another factor. A Concord system starts at around $50,000, which can be relatively inexpensive depending on the number and complexity of the investment accounts a would-be customer is working with.
Robert Testa says that while other trust providers use similar criteria to find the best match, their motivations are often different.
“The bank trust departments in particular are looking to move away from proprietary asset management in order to streamline their operations and costs,” he says. “And some want to move away from the old stodgy image by offering more esoteric products.”
Developments in the larger accounting and compliance environment are giving some trust companies—banks and independent operators alike—a new incentive to consider switching to an overlay approach.
Trust officers looking for a way to break out investment fees from other expenses in the wake of Knight vs. Commissioner may need to change their accounting systems anyway, Testa says. “This presents them with an opportunity to offer UMA-style vehicles as part of the normal upgrade cycle,” he says.
A lower-cost solution
Depending on the exact solution a trust company picks, the long-term savings can be profound.
Just moving from a traditional SMA approach will provide access to the same institutional-level investment options at a lower price—not to mention cutting down on the amount of time and money it takes to manage the managers.
Many overlay systems also contain built-in due diligence and reporting functions that lighten the administrative load of coordinating with the underlying money managers. That’s especially attractive for a fiduciary institution that needs to ensure compliance with a trust account’s investment policy statement, but might not have the internal resources to keep one eye on the portfolio at all times.
In fact, there are overlay systems out there that let trust companies cut their fiduciary compliance costs by 75%.
“You can reorganize your staff,” Testa observes. “Bringing in a third-party solution relieves trust officers of the responsibility of being pseudo-portfolio managers and lets them go back to being full-time relationship managers.”
Finding a way to outsource the models while keeping the assets in-house was important for Alaska Trust for both fiduciary and client service reasons, Matthew Blattmachr says.
“A trust company can have a difficult enough time convincing clients to give us control of their assets without telling them that those assets would be managed by someone else,” he explains. “We didn’t think a lot of people would be receptive to that.”
Best of both worlds
To put this story together, the Trust Advisor team talked to a lot of other great overlay companies—the chart above lists a few of the top players out there—and each has its strong points. With about 70 clients, Concord is not the biggest shop out there, but it won points for giving independent trust companies like Alaska Trust a “best of both worlds” solution.
Most overlay vendors focus on either the RIA market or on the big banks. RIA specialists tend to provide more comprehensive systems that completely outsource the investment management piece, while those that mostly work with big banks often end up selling just the models and not the software that an independent trust company needs.
Trust companies often fall in the gap between the two models, says Roy Wheeler, who heads up business development at Concord. While they generally prefer to hire and fire their own third-party managers (like a bank), they often need technological support to make the process more efficient.
“On the trust side, they want the overlay, but they need to be the overlay manager,” he explains. “That’s where an overlay system can add value.”
Either way, business is booming. All the overlay providers we talked to say their client pipelines are packed with banks and trust companies, and some are looking at 75% to 100% growth over the next year.
It isn’t hard to see why. UMAs have been working their way through the RIA world for a few years now, and should represent a $327 billion market by 2013 according to data from industry research firm Celent.
Banks and independent trust companies have been relatively slow to catch on, but they’re moving in with a vengeance, Robert Testa says.
“Some of the vendors are very busy right now,” he explains. “Even trust providers often complain that they can move at a glacial pace, but this is where the industry gets going on the overlay front. This really is the way of the future.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes and Jerry Cooper contributed to the internal research.
Permalink: http://thetrustadvisor.com/news/overlay
Would the Actors Heirs Have Been Better Off With an Alaskan Will?
Posted by Scott Martin in News on June 26, 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
Feds Order Trust Firms to “Unbundle” Fees
Posted by Scott Martin in News on May 8, 2010
Trust clients expecting to deduct bundled fees to the limit of the law may need to find providers who can break down fees as the IRS requires.
Two years ago, the US Supreme Court in Knight v. Commissioner held to be eligible to deduct investment management fees in a trust, they cannot be grouped together or bundled with trustee fees in one bill. As a result of this famous case, trust firms in the US are now getting ready to comply with an IRS directive requiring trustee and IM fees to be billed separately for a taxpayer to gain a deduction.
A decade ago, Michael Knight was under the impression that investment management fees for trusts were fully deductible. After all, hiring the best possible advice was part of his fiduciary duty as trustee for a $2.8 million Pepperidge Farm family trust.
He was surprised when the IRS bounced most of the deduction back, leaving the trust with a $4,000 tax bill and gnawing questions about how to account for pure trust expenses (which are fully deductible) versus investment expenses going forward. He took the case all the way to the Supreme Court, only to lose in 2008.
The Supreme Court ordered trustees to split or “unbundle” pure trust expenses from everything else if they want to make sure their accounts get all the deductions they deserve. Two years later, Knight and everyone else in the trust business is still trying to figure out how to obey that order as the IRS delays issuing firm guidance on more than a year-to-year basis.
“You know they just extended the review process again a few weeks ago,” Knight told me. “That means they’ve deferred yet again on making a decision on unbundling. At this point, I wonder if I lost the battle only to win the war,” he added.
“A real pain”
If and when the IRS makes up its mind, trust companies that currently don’t break out their expenses are looking at headaches ahead.
“The Supreme Court ruled in their favor, but I agree that if that’s what’s going to happen, it’s going to be a real pain,” Douglas Blattmachr of Alaska Trust told me.
Other trust companies are steeled for what they see as inevitable. Reno-based Dunham Trust has the accounting systems in place to unbundle its fees as soon as the government tells it to push the button, Tommy Tucker, the company’s president, told me.
“When I checked into it, my operational people said we’re ready to go,” he says.
In fact, there are software fixes out there, says Les Revzon, president of Advisors Institutional, a firm that helps trust companies form in South Dakota and provides back office support for about a dozen trust company clients.
“Most trust accounting systems like SEI, Sungard, Infovisa and HWA can easily break fees down any way the trust company wants,” he says.
While the technology may not be a hurdle, figuring out where to assign every basis point of a previously unified fee may cause some consternation. Firms like Alaska Trust simply charge one all-in fee based on assets and service level, and so, Blattmachr tells me, they’re still working on what an itemized fee breakdown would look like.
Even asking trust companies to do this is pointless, as far as Texas lawyer Carol Cantrell, who argued Knight’s case against the IRS, is concerned.
“I am not sure it can even be done,” she told me. “It would be like asking a real estate broker to unbundle his real estate commission among the various duties he performed,” she added, noting the complexity of all the unique variables involved.
“No two trusts are alike”
Cantrell points to another serious issue: What happens when trust companies disagree in how they split up the basis points, even as far as trusts administered by the same company are concerned?
On the one hand, every trust and every trust company is different, but ultimately the line-item approach will force fee allocations to converge throughout the industry, Cantrell says. That could lead to a competitive race to the bottom, but it’s not likely to happen any time soon.
As things currently stand, there’s no need to unbundle unless the IRS mandates it. The Supreme Court’s issue was not so much with fee transparency but with whether bundled fees are fully deductible. Theoretically, any trust officer could simply charge a wrap fee and accept potentially less favorable tax treatment.
In the meantime, Dunham Trust, for example, is still treating all of its fees—trust and investment management alike—as deductible. However, Tommy Tucker has talked to colleagues who are being told to unbundle and not write off a cent of their investment fees.
Michael Knight originally argued that making sure his accounts were invested in the best possible way was part of his fiduciary duty, and so investment management necessarily qualifies as a fiducuary expense. It’s a great point, and there are efforts in Congress to change the law to accommodate it.
Whether that happens this year is anybody’s guess, given Washington’s distracted and fractious mood. Nobody I talked to expects anything to shake out before the November elections, and even when it does, there could probably be a long wait before new rules go into effect.
As for Knight, he told me he’s really just scratching his head when it comes to the Supreme Court decision.
“The lack of focus on the fiduciary relationship was disconcerting to me,” he says. “Some of these judges have been in private practice. I guess they didn’t do a lot of trustee work.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/unbundling
Who’s Charging What for Trust Services?
Posted by Scott Martin in News on April 3, 2010
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.
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Who’s Charging What for Trust Services |
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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 & |
$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
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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