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

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

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.

Now that he’s worth a reported $150 million, that lack of planning probably cost him dearly now that he’s given her a divorce.

I wouldn’t be surprised if his settlement — still under wraps — gave her everything she wanted.

Had the case gone to court, she would likely have gotten at least an even split of his money, plus spousal support through at least 2016. After all, he was unquestionably the cheating party here.

“As the Bryants have lived in California, if their assets were acquired during the marriage and it was the result of the efforts during marriage and there was no prenuptial agreement, inheritance of these assets will be presumed community property,” says Beverly Hills lawyer Evan Sussman.

“In Kobe Bryant’s case, that means that the $150 million of assets will be divided evenly among Vanessa and him.”

No trust possible in this case

Given Vanessa’s volatile nature and California’s community property rules, there was probably no way he could have squirreled any of that money away after they reconciled back in 2003.

Any transfer to an asset protection trust designed to shield his money from the divorce court would have required both spouses to sign.

Vanessa would have naturally wondered exactly what potential creditors her husband was thinking about, and given his history, leaving her name off the list of beneficiaries would not have gone over well.

This is in sharp contrast to the circumstances surrounding Tiger Woods’ divorce, where ex-wife Elin Nordegren walked away with a mere 20% to 25% of his $500 million fortune.

Tiger and Elin lived in Florida, where community property rules don’t apply and under the right circumstances he could have funded a trust and left her name off the paperwork.

As estate lawyer David Shaftel of Anchorage, Alaska, told me at the time, even people who’ve been married for years can set up an asset protection trust to ensure that assets aren’t divided if the marriage sours.

“We can do them after the marriage,” he said.

But community property laws can raise questions about trusts funded with marital assets without spousal consent, Shaftel said, and since Kobe lives in California, a community property state, things would have gotten dicey.

Ironically, the time to set up an asset protection trust would have been in 2004, after Kobe’s sexual assault case finally settled.

At that point, there were no outstanding claims on his property, and a trust would have significantly reduced the risk that a copycat accusation would strike pay dirt.

Before the Honeymoon Even Starts

Estate planners around the country have warned their clients not to follow in Kobe’s footsteps. They’re showing a lot of interest in asset protection trusts before walking down the aisle.

“I’ve probably set up as many asset protection trusts as I have prenuptial agreements since we had the trust option, Brian Howard, a founding partner of Nashville, Tennessee estate planning firm Howard & Mobley LLC, told us awhile back.

“More than half of the 20-somethings don’t do prenuptial agreements any more. Protecting these assets is just not something that occurs to young kids. But it definitely occurs to their wealthy parents.”

In fact, Howard says his clients are so enthusiastic about these trusts that they’re setting them up for the kids before that special someone is even in the picture.

Unlike a traditional prenup, which requires a bride or groom to sign the papers, an asset management trust can be created early on and then filed away; even if the kids elope, the assets are safe.

This sort of preemptive divorce protection works well for Shaftel too.

Since so many couples prefer not to talk about the money, getting the transaction out of the way before they’re even a couple keeps it from getting bogged down in personal issues or questions of marital consent.

Opinions vary as to whether couples need both a prenup and a trust. Howard has a belt and suspenders philosophy and recommends both types of paperwork for his clients if possible.

He argues that a prenup provides a useful structure for discussions about alimony — Tennessee trusts are vulnerable if payments are delinquent — and wealth that the couple may acquire during marriage.

Alaska, Nevada and Beyond

If the next hot NBA draft prospect’s lawyers decide he needs a trust, where should they go?

In most asset protection states, spouses are “exempted creditors,” which means that they can get around the protection that trusts normally provide.

But in Alaska and Nevada, an ex-spouse is considered just another creditor, says Douglas Blattmachr, founder of the Alaska Trust Company.

“We’re one of the only states that I’m aware of that doesn’t have that special class of creditor,” he told me. “In Delaware, there’s a whole string of creditors that can get the assets. Same with South Dakota.”

It’s a relatively minor difference, but one that still drives some out-of-state trust traffic to Alaska, says Blattmachr, who knows the state’s statutes better than most. His brother drafted the law that opened the state up to independent trust companies in the first place.

As for Kobe, he seems to have been happy to sign any number of contracts that earned him money, but paperwork that protected that cash once he’d earned it was a different story.

Vanessa came to the marriage without much in the way of money — she was a hopeful 17-year-old singer and actress on the fringes of the hip-hop scene.

Kobe had already been playing big ball for years and was bringing down high 8-digit contracts.

His management and family undoubtedly wanted Vanessa to sign a prenup. After all, there’s a reason they didn’t even go to the wedding.

He’s probably the one who dragged his feet, and he might be regretting that now.

Scott Martin, senior editor, The Trust Advisor Blog.

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

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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.

That decision pushed a lot of lawyers over the edge muttering that domestic asset protection trusts like Mortensen’s were an endangered species and that sending their clients’ money offshore was once again the only real way to keep it safe.

Granted, the judge’s description of the trust as “a clever but fundamentally flawed scheme” to cheat potential creditors doesn’t exactly inspire confidence.

But trust companies that rely on asset protection as a selling point say the ruling is a fluke that won’t affect truly well-constructed vehicles of this type — and the estate planners who know most about the field agree.

Overruling state statute

Alaska is one of 13 states that allow assets to be placed in self-settled spendthrift trusts, in which the former owner gives up legal ownership of the property while retaining full access to it.

Under Alaska rules, Mortensen’s trust was well “seasoned” once the state’s four-year statute of limitations was satisfied in early 2009.

“That’s still the case,” says Doug Blattmachr, founder of Alaska Trust — which had nothing to do with the Mortensen trust. “As long as that statute runs out, you’re in pretty good shape.”

However, when Mortensen filed for bankruptcy shortly thereafter, he exposed his trust to the 2005 revisions to the bankruptcy code, which extended the statute of limitations to a full decade in cases where the transfer seems motivated by an attempt to evade looming debts.

Mortensen failed that test and automatically earned what Blattmachr calls a “badge of fraud” by arguing in court that the trust was designed to defeat his creditors — the equivalent of an undocumented foreign national telling the border guards he’s hoping to work under the table.

As a result, the judge naturally thought his trust looked suspicious and applied the 10-year rule, so the credit card companies have a claim on the property.

But it’s not the end of the asset protection world, lawyers with their eye on the ball tell me.

“If there was ever an illustration of how extreme facts contradict the law, this might be it,” says Wisconsin estate planner Bob Keebler.

“The sky is not falling on domestic asset protection trusts,” he says. “This is really not a surprise to anyone.”

Cutting through the speculation

Maybe, but there’s still enough confusion about whether Alaska trusts need to be seasoned for a full decade that Keebler recently ran an elite estate planning seminar on the topic with Nevada asset protection guru Steve Oshins.

In their expert opinion, the 10-year rule only applies in circumstances when there’s real suspicion that the goal of the transfer was to weasel out of debt.

Mortensen’s financial condition was already deteriorating when he signed essentially all of his real assets over to the trust. His credit card bills were ballooning and his income was spotty at best.

“It was pretty clear he was using this to protect his assets from claims of creditors,” Keebler says.

“Someone with good solvency who moves a portion of his property into a domestic asset protection trust looks a lot less repugnant here than someone who is already in trouble and transfers most of his net worth.”

No reasonable suspicion that someone is looking to evade existing or likely future debt, no problem, says Alaska lawyer David Shaftel.

“You have to show an actual attempt to defraud,” he explains.

“Asset protection planning itself is not a badge of fraud. It’s still reasonable to want to protect your securities account or other assets from a car accident or the divorces of your children who might be your beneficiaries. Most attorneys will still say, ‘What’s wrong with that?’”

The dangers of do-it-yourself law

The coup de grace for Mortensen was filing for bankruptcy, Steve Oshins points out. Before that point, there was no reason for the 2005 federal statute of limitations to apply whatsoever, and the property would have been safe under the state’s rules.

Had there been no bankruptcy, the 10-year timeframe would never have come up.

Oshins wouldn’t have taken Mortensen — who had net worth of maybe $3,000 and who designed his own trust from boilerplate forms he found online — as a client in the first place.

“He was not an ideal candidate for a domestic asset protection trust,” he says. “This is a situation where he shouldn’t have been doing a self-settled asset protection trust in the first place.”

For the professionals and other high-net-worth people these trusts were built to protect, the rules remain the same.

And in any event, the clock is still ticking on all transfers.

“If it had been 10 years and a day, the judge couldn’t have done anything,” Doug Blattmachr says. “If you’re going to do one, do it now.”

Scott Martin, senior editor, The Trust Advisor Blog. Jerry Cooper contributed to the research.

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

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.

“It’s squarely aimed at the advisors who are a big gatekeeper for a lot of high-net-worth clients,” says Matt Blattmachr, CFP®, a trust officer.

“The flat fee lets us bring Alaska’s unique trust laws to a broader audience than we’ve reached in the past and lets advisors offer enhanced services at a lower price.”

Alaska Trust announced the revolutionary flat-rate policy as part of the launch of “Directed Trust 2.0,” its new white paper laying out the benefits advisors can reap from integrating Alaska-based trusts into their practice. (Click for a free copy.)

The white paper, in turn, kicks off one of the biggest marketing campaigns in the company’s 14-year history.

Given a rough average administration fee of roughly 75 basis points a year in the industry, that $3,500 flat pricing means that every trust bigger than around $470,000 will be saving money.

And the savings go up with the value of the trust. A $500,000 trust would save only $250 a year in fees, but one worth $1 million would recoup a total of $4,000 in fees that would otherwise be lost to the trustee.

Multiply that $4,000 by decades or even a century or two — Alaska is a dynasty trust state — and that “fee drag” can add up to a vast amount of money.

As a bonus, in almost all cases, it’s truly a flat fee. Unless an account truly requires above-and-beyond effort to administer, there are no “alternative asset class management fees,” lock-up charges or other nuisance costs.

No threat to the advisors

Traditional trust companies kept both the administration and investment management functions to themselves.

In effect, advisors who recommended that their clients open a trust were surrendering a portion of their AUM to the trust company, as well as the associated fees.

But the move into directed trust signals Alaska Trust’s willingness to work with advisors and not against them.

As the company points out in “Directed Trusts 2.0,” directed trusts eliminate conflicts of interest between trustee and the grantor’s legacy advisor by appointing the advisor to go on “directing” the trustee’s investment choices.

“A trust company serves as trustee, but the advisor goes right on running the investments and everyone wins,” writes Brandon Cintula, the company’s senior vice president and senior trust officer.

The goal here is to open up new markets for Alaska Trust while helping advisors integrate trusts into their larger service platform.

“A lot of advisors are not necessarily opposed to trusts, but need someone to remind them of what trusts can do for them,” Matt Blattmachr says.

“Ultimately, offering to facilitate these types of accounts and go on managing the underlying assets helps them form even stronger relationships with clients and their clients’ heirs.”

The freedom of the Alaskan frontier

Blattmachr says simply doing business in Alaska is a value add in itself.

First, the state’s pioneering trust rules support all major forms of trusts, including truly “perpetual” dynastic trusts and some of the tightest asset protection provisions anywhere in the United States. All can be built into a standard directed trust.

Second, there is no state income tax or capital gains tax on trusts.

And while some states that allow directed trust insist that the trustee keep watching over the advisor’s shoulder, the Alaska trust code limits the trustee’s monitoring responsibility to making sure no obvious criminal activity is going on.

Beyond that perfunctory duty, Alaska Trust promises that it will never second-guess the way outside advisors invest the trust’s portfolio. And because Alaska allows trusts to hold just about any asset class — including real estate and limited partnerships — the sky is truly the limit.

“It gives the advisors more freedom than they would get elsewhere,” Matt Blattmachr explains.

But although Alaska routinely ranks in the top tier of trust-friendly states, advisors have sometimes been at a loss as to how to provide those great provisions to their clients.

Alaska Trust traditionally focused on getting estate planners and other attorneys to refer business northward — and obviously, since the investment advisor was often left out of that loop, it didn’t matter whether the trusts were directed or not.

Now that the company is moving in a different direction, directed trust at a low flat fee has become the way to introduce Alaska to a new population of high-net-worth investors.

Whether the flat fee becomes an industry standard or simply another of the unique features of the Alaskan trust landscape remains to be seen, but we’ll be watching.

Scott Martin, senior editor, The Trust Advisor Blog.

Permalink: http://thetrustadvisor.com/news/directedtrust2