Posts Tagged alaska trust
Concord Wins Top Honor as Most Trust-Friendly Overlay Provider
Posted by Scott Martin in News on July 10th, 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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Company |
Comments |
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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 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
Feds Order Trust Firms to “Unbundle” Fees
Posted by Scott Martin in News on May 8th, 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 3rd, 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 |
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DE |
$500,000 |
$3,000 |
0.50% |
0.40% |
0.30% |
0.25% |
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DE |
$1 million |
$6,000 |
0.60% |
* |
0.45% |
Neg. |
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NH |
None |
$3,000 |
0.90% |
0.55% |
0.45% |
0.35% |
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IL & |
$5 million |
$20,000 |
0.40% |
0.40% |
0.40% |
0.20% |
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GA |
None |
$3,000 |
0.60% |
0.35% |
0.35% |
0.35% |
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NM |
None |
$4,000 |
0.75% |
0.75% |
0.50% |
0.35% |
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NV |
None |
$1,000 |
0.50% |
0.50% |
0.50% |
0.40% |
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NV |
$100 |
$100 |
1.00% |
0.80% |
0.70% |
Neg. |
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SD |
None |
$4,000 |
0.50% |
0.50% |
0.42% |
0.35% |
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DE |
$1 million |
$8,000 |
0.60% |
0.40% |
0.40% |
0.25% |
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* 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. |
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Source: Websites and telephone interviews. ©2010 TheTrustAdvisor.com |
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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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