Posts Tagged Bernard Garbo
New 401(k) Disclosure Regs Put DOL Cops in Frying Pan on Agency Webcast
Posted by Scott Martin in News on September 18, 2011
Endless questions and clarifications highlight the extent of confusion out there after Labor Department crackdown on disclosure and third-party responsibilities.
UPDATE: EBSA has further complicated the situation by tabling its proposed rules for professionals who provide advice or other services to retirement plans. Previously, plan advisors were looking at being held to an even stricter code of conduct than the fiduciary standard that RIAs currently uphold. Rep. Barney Frank (D-MA) was instrumental in getting the Labor Department to reconsider.
Things are looking unsettled in the 401(k) world as the Employee Benefits Security Administration keeps ironing out exactly what plans need to say, what they can charge and who’s to blame when things go wrong.
Even once-routine aspects of the the $13 trillion retirement business are becoming controversial. Read the rest of this entry »
With OTS Gone, Trust Banks Prepare for Tougher OCC Oversight
Posted by Scott Martin in News on August 7, 2011
Now that the OCC has absorbed the old Office of Thrift Supervision, the process of “streamlining” grandfathered regulations has already begun.
On July 21, the Office of Thrift Supervision ceased to exist and about 700 trust banks, thrifts and other institutions entered a brave new regulatory world.
The good news is that their new watchdog, the Office of the Comptroller of the Currency, has so far vowed to let them continue with business as usual.
The bad news? Nobody expects the status quo to last very long — maybe a year or two — and there are still some big question marks. Read the rest of this entry »
The IRS Tightens Screws on Trust Tax Returns
Posted by Scott Martin in News on April 24, 2011
Even though the number of fiduciary returns declined during the recession, the number of audits surged. A field visit can easily cost a trust an extra $221,000 and a good-sized estate $800,000.
The Internal Revenue Service learned last year that it can basically soak up free money by sending a field agent out to examine a trust or estate’s records, and it has no incentive to go easy on fiduciaries this year.
Audits on estate tax returns filed for the 2009 fiscal year translated into an extra $1.65 billion for a cash-hungry federal government, according to recent IRS numbers crunched by Bernard Garbo and the staff of Trust Regulatory News.
That’s about 9 times what the IRS recovered from all individuals, trusts and corporations put together, Garbo says.
“Overall, obviously, the government needs revenue, and people may be checking more closely in the areas where they know they can get it,” he explains.
And in the face of last year’s estate tax holiday, those auditors may redouble their efforts to squeeze that revenue out of irrevocable life insurance trusts, charitable trusts — whatever they can find.
Trusts and estates file Form 1041 on their income, whereas taxable estates have to file Form 706 as well.
Although only 1 in 800 Form 1041 returns were singled out for special attention in 2007, that audit rate soared 40% over the last few years.
This year, the IRS staff who used to comb through Form 706 returns will have a lot more time on their hands — and a roughly $1.4 billion hole in their productivity to fill.
The game of auditor roulette just got more dangerous
The IRS has yet another motive to lavish special care on every Form 1041 return it receives: there are a lot fewer of them out there than there were even a few years ago.
In 2007, trusts and estates filed 3.9 million 1041 forms, but by last year, that number had dropped to 3.1 million.
Nobody seems to know why.
“It may very well be that this is due to the recession,” says Sonja Pippin, a taxation professor at the University of Nevada – Reno.
“The threshold for filing is quite low, but I guess it is possible that some trusts and estates did not have enough gross income and no taxable income,” she adds.
Still, 2.4 million of all fiduciary returns filed in 2009 had no taxable income — their trustees submitted the paperwork even though they didn’t have to — and close to 1 million reported no income at all.
All Bernard Garbo knows is that while the number of 1041 filings was dropping 20%, the number of audits jumped 15%.
“They are obviously checking the ones they have closer,” he says.
If that trend continues, it would be an ominous echo of what happened with estate tax audits over the last decade.
The number of Form 706 returns the IRS got plunged from 108,000 to 38,000 between 2001 and 2007, which makes sense as the exemption climbed and fewer and fewer estates were taxable.
But over that period, the number of estate tax audits soared. By 2009, IRS examiners were looking at a full 10% of estate tax returns — and those were all in-depth field audits that required an on-site interview.
Trusts tended to get postal or “correspondence” audits, at least in part because these long-distance reviews cost the IRS less and rarely recover quite so much lost tax revenue.
Field audits can be lethal. The vast majority (85%) of estate and fiduciary returns that get an on-site visit contain substantial enough errors to cost a big estate $800,000 and the average trust $221,000 in unpaid tax, Garbo says.
“As one might expect, they find more errors that way than someone just looking over the numbers somewhere might find,” he explains.
Red flags remain mysterious
The IRS continues to keep its audit triggers under tight wraps in order to keep preparers from gaming the system.
As a result, trustees who prepare 1041 returns may simply have to resign themselves to a greater possibility that their math will be checked more carefully this year.
“The amount examiners have been finding has been increasing and the average change per return has been increasing,” Garbo says.
Sonja Pippin agrees that the risk of an audit simply increases with higher income, and so the bigger the trust — or the wealthier the beneficiaries — the more likely it (and your clients) will be to trigger IRS attention.
“The relatively high revenue capture seems to be a factor,” she says.
“They have started a program of matching the information on returns to uncover pass-through income that is not reported.”
So if the audit can come out of the blue, the key is to minimize errors that can cost a trust hundreds of thousands of dollars.
Even professional preparers can mismatch names and even fiscal years on complex 1041 returns, especially when multiple K-1 schedules are in play, Pippin says.
Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper and Steve Maimes contributed to the editing and research.
Permalink: http://thetrustadvisor.com/news/irs
Provident Trust Launches Campaign to Help Advisors Get Smarter, Wealthier
Posted by Scott Martin in News on February 12, 2011
CEO says the “Professional Advisors Alliance” creates a pathway to provide RIAs, estate planners, CPAs and others everything they need to sell, support and profit from trust relationships. The Nevada-based trust company says advisors can sample support with a “free guide” at www.providentfreereport.com.
Provident Trust Group, the fast-tracked trust provider that was the focus of our rags to riches story last year, intends to redefine the way advisors handle trust business going forward.
“Advisors have been given the short end of the stick when it comes to hand-holding lucrative client relationships.” says Theresa Fette, Provident’s co-founder and CEO.
The near $1 billion Las Vegas-based powerhouse sees advisors and estate planners as the key to growing itself and along with it, the advisors’ business as well.
Its latest strategic marketing campaign is stunning in its outside-the-box audacity.
“The state of the art in the industry right now seems to be reassuring advisors, accountants and lawyers who work with high-net-worth clients that the trust company is not going to actively compete against the advisor,” Fette added.
A full platform for “trust advisor” support
To achieve this goal, Provident is reaching out with a wide range of issue-oriented, product-agnostic educational materials, white-label marketing support and even consulting fees for advisors who help their clients move their money into the company’s trust vehicles.
The fee proposition in itself represents a quantum leap forward for an industry that is still coming to terms with the fee-splitting aspects of directed trust arrangements.
While Provident does embrace directed trusts, in which outside advisors can go on investing their clients’ wealth — and booking the management fees — even after it is granted to a trust, the consulting fee gives advisors a way to go beyond simply protecting their existing business.
In fact, creating an incentive for recommending various forms of trust can make “trust advisor” a separate profit center for advisors who previously relied on retirement planning, investment selection or some other specialty to pay the rent.
“This provides them with a way to justify the time and expertise they put into helping their best clients set up trusts and capture recurring revenue as well,” Fette explains.
Naturally, Provident reaps its own rewards in the form of administration and custody fees, as well as the sheer economies of scale that increased market share is already creating.
Back in September, the company only had $750 million in custody across maybe 10,000 accounts.
Now, Fette tells us Provident has captured another 2,000 accounts and another $75 million, which translates into annualized growth of about 20%.
Compare that to what Bernard Garbo at Trust Updates has determined is an 8% average growth rate for trust companies in this size bracket, and the success story becomes crystal clear.
Business development through private label reports
Along with Jason Helquist, the company’s co-founder and chief compliance officer, Fette is devoted to the idea that the more an advisor knows — especially about a complex field like trusts — the better equipped he or she will be to turn it into a profitable business.
“We believe very strongly that business development is rooted in education,” Fette says.
“Based on a webinar we did recently, one referring advisor was able to take a product idea using 401(k)s and alternative investments and turn it in $25 million in AUM,” she adds.
Provident’s educational support also plays into this theme as well.
The first reports include “The Extended Bush Tax Cuts in Plain English,” which lays out the impact of the 2011 tax overhaul on investors and small business owners. (Click HERE to receive it.)
Provident retained San Francisco based, Financial Marketing Associates to help develop its marketing strategy, produce reports and launch an email marketing campaign to trust firms, estate planners, financial advisors, life insurance agents and FINRA broker-dealers.
The first report and others on asset protection trusts and directed trusts can be branded to include the advisor’s name on the cover and content they may contribute.
Future publications in the series will focus on tax planning and other topics.
The goal here is not to sell Provident’s products, but to expand the pool of professional advisors out there who can recognize when it might be appropriate to suggest that a client investigate a trust.
As the provider of all this information, Provident is likely to be the first company that advisors call when and if they do need help setting up a trust for a client.
That’s fine with Fette, but it’s not the immediate goal, she says.
“These are product-neutral. Of course we can help with the implementation, but they’re really about improving the level of practice out there to everyone’s benefit,” she explains.
“Some practitioners use old and cold law and that’s ultimately unfortunate for their client.”
More progress down the road
Provident has lined up brochures and other client-oriented marketing materials along with a trust savvy sales team to support the advisor. The strategy parallels the role of a traditional mutual fund or direct participation program wholesaler, but in the trust space.
Like a wholesaler, Provident aims to teach its affiliates — members of what Fette calls the Professional Advisor Alliance Program — how to sell trusts to clients who could benefit from them.
The clients win because they get the benefit of the finest estate and tax planning expertise out there, along with the most sophisticated vehicles and strategies.
The advisors win. And Provident gets a shot at becoming a much bigger player in the trust industry.
It’s ambitious, but that’s the way Fette and Helquist think.
“I consider Nevada the most progressive state in the country as far as trust law is concerned,” Fette says.
“We have some of the best attorneys in the country and one of the most progressive environments for setting up trusts,” she adds.
“I want Provident to be the most progressive trust company in the most progressive state in the country.”
Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper and Steve Maimes contributed to the reporting and research.
GlobalBridge UMA Platforms Continue to Win More Trust Firms
Posted by Scott Martin in News on December 18, 2010
Trust banks and independents are flocking to the firm’s easy-to-use manager selection and monitoring as their preferred choice for UMA overlay management.
In an environment where financial institutions are grappling with the notion that you can be both too big to fail and too big to earn a decent profit, banks and trust companies alike are adopting unified managed account (UMA) overlay wealth management as the answer.
GlobalBridge, a Minneapolis-based UMA overlay solutions provider, has seen demand for its services surge as the logic of outsourcing day-to-day investment decisions in order to focus on client relationships becomes crystal-clear.
The company now distributes the money management expertise that runs $440 million in client assets for 65 banks, independent trust companies like Atlanta’s Reliance Trust, a few independent broker-dealers and even a number of advisory firms.
Most recently, the company added River Rock Asset Management to the list and is currently negotiating with several other potential customers.
Delegating non-core wealth management functions like trading and back off routines, manager due diligence and research is a big part of the modern strategic landscape for any trust operation, explains GlobalBridge CEO Kelly Coughlin.
“Successful firms in the industry are focusing on their core competencies and offloading the rest,” he says. “This is a common theme in modern business, but it’s more important now than ever.”
Specialization is the key
Globalbridge’s UMA overlay system gives clients the benefits of world-class investment ideas at a better price than its competitors — for both the investor and the firm applying the overlay.
As industry analyst Robert Testa of Cerulli Associates has pointed out, freeing trust officers from the responsibility of performing as “pseudo-portfolio managers” eliminates distractions and lets them focus on their core competency: managing relationships with trust grantors and beneficiaries.
But refusing to delegate may be strangling bank trust departments in particular. Bernard Garbo, publisher of Trust Updates, notes that trying to do everything in-house can have a serious negative impact on profitability in today’s financial services industry.
“The most profitable trust institutions are simply not full-service organizations,” he says. “They are generally focused on only two or three markets, whereas 90% of the bank trust departments take a full-service approach to as many as five or six key account categories.”
On the independent trust company side, overlay can be a competitive advantage by giving a firm with limited in-house proprietary wealth management expertise present an investment services profile that compares with its biggest white-glove rivals.
Here, too, specialization is the secret. An independent trust company or regional bank can still focus on differentiating its investment platform in one or two proprietary strategies — large-cap value, for example, or municipal bonds — without having to support everything other asset class under the sun.
In fact, in June, $70 billion Reliance Trust teamed up with GlobalBridge to co-develop and cross-sell overlay solutions into the RIA and independent broker-dealer channels.
By letting both Reliance and GlobalBridge focus on what they do best — trust and custodial services, on the one hand, and managed accounts on the other — the deal “puts both firms in a solid position to deliver industry-leading open architecture investment platforms,” said Reliance CEO Anthony Guthrie when the deal was announced.
The UMA advantage
While older forms of open architecture investment management — separately managed accounts or SMAs — have failed to catch on with fiduciaries unwilling to actually sign over the underlying assets to the outside managers, systems like what GlobalBridge offers take a more sophisticated approach.
Instead of SMAs forcing a bank or trust company to export client funds, these new products work on a unified managed account or UMA model that keeps the assets in-house and imports the expertise of third-party managers.
This expertise is then applied or “overlaid” onto the UMA assets, creating a mirror of what the outside manager would do with the money — but without ever giving up control of the funds.
The bank or trust officer chooses which managers to use and how to allocate the portfolio among their strategies — GlobalBridge has about 70 managers and over 100 separate strategies to choose from, for example.
Because the funds remain in-house in a UMA system, trust officers can monitor and tweak the models to reflect their in-depth knowledge of their clients’ situations and overriding wishes.
Tax efficiency and the ability to screen investments to comply with a trust grantor’s investment policy statement are only the tip of the iceberg here.
Integrated solutions like what GlobalBridge offers can streamline the work of “managing the managers” by as much as 75% or even more, ensuring that both compliance and the fiduciary duty to invest client money the best way available are satisfied.
That kind of cooperative approach is the heart of the overlay philosophy, Coughlin says.
“We want to build our business around clients we enjoy and have mutual respect for,” he says. “Each of us wants to make sure the other is creating value, not trying to find who can do something for the lowest price. It’s always got to be a mutual thing.”
Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper contributed to the editing.
Permalink: http://thetrustadvisor.com/news/globalbridge
Expert Says Banks No Longer Key Player in Personal Trust Business
Posted by Scott Martin in News on September 18, 2010
New Tiburon report shows independent trust firms ahead and winning the race for profitability and amassing personal trust assets. Warns banks to wake up and change or lose big.
A generation ago, banks had an iron grip on the trust business, but according to recently released research from San Francisco research firm Tiburon Strategic Advisors, that once-commanding position is a lot weaker today.
“Banks have lost huge market share in terms of consumers’ assets,” says Tiburon managing principal Chip Roame, who says banks are spending too much time optimizing a “dead” business model.
The latest Tiburon estate planning report indicates that banks still control 40% of personal trust accounts. However, that share is concentrated in relatively high-end irrevocable trusts, which are both expensive to administer and hard to capture from competitors.
Revocable trusts now account for about two thirds of the $6.8 trillion in personal trust assets out there, and this is Tiburon where finds that brokerage trust operations and true independent trust companies dominate the market.
Parallels from the advisory business
Most of the early push in this direction came from the brokerage channel, the Tiburon report explains.
Historically, rather than refer client assets to banks and lose the business, the national wirehouses and some regional firms built or bought in-house trust units, while others found banks to partner with.
But this has been a bad decade for the wirehouse model. Full-service brokerage firms saw their controlling share of U.S. wealth contract from 43% to 27% from 2000 to 2007 alone, and the losses intensified after Bear Stearns and Lehman Brothers imploded two years ago.
At this point, the independents and online trading platforms now have a bigger share of the market than the wirehouses—and they want to work with independent trust companies.
“Both independent reps and fee-only financial advisors have taken significant share of assets under management from the banks and full-service brokers,” Roame explains.
“These independent advisors found that as their clients aged, they needed a trust solution. The independent trust companies emerged to fill that need.”
As a result, Roame says the ability to offer directed trusts is a key competitive factor.
“Independent advisors want to manage the money and just hire a trustee for 20 to 30 basis points,” he says.
Boutique operations can shine
Thanks to directed trust, technology and new business models, the number of non-bank competitors that Tiburon tracks has quintupled in recent years.
Because most are start-up operations, these next-generation trust companies tend to be small compared to their counterparts in the banking world.
Trust Performance Report editor Bernard Garbo, who just released a new benchmarking survey on industry assets, says few truly independent trust companies will ever accumulate over $1 billion in assets.
“I see the independents as boutique operations,” he explains. “They tend to stay at mid-size to small because the successful ones generally focus on one or two specific areas of the market.”
Garbo’s most recent numbers support the Tiburon report’s longer-term findings. So far this year, the fiduciary industry gained 10 institutions at the true start-up level, where firms have under $500 million under administration apiece.
Meanwhile, the number of players in the bulge bracket and up—over $1 billion, representing most of the big banks—shrank by about 10%.
Profitability favors the independents
While industry leaders like BNY Mellon and State Street aren’t going away any time soon, the giants are also having a hard time gaining ground in terms of signing accounts and squeezing revenue out of the assets they already have.
Not counting State Street, which reported a spectacular 29% increase in fiduciary assets, on average the top 20 fiduciary institutions (over $100 billion under administration) actually lost 2.7% of their assets last quarter.
The smallest fiduciaries, on the other hand, managed to grow a little.
And when it comes to monetizing those new accounts, the independents definitely have the edge, Garbo says.
“They know their market and are going for it instead of trying to do all things poorly,” he explains. “As a result, they tend to show a higher return on their assets than most bank trust departments.”
Although directed trust may be the secret to growing an independent trust operation, wealth management remains the sweetest slice of the business.
The smaller a trust company is, the more of its fiduciary assets it tends to manage in-house—charging a management fee in the bargain.
As a result, while the Citibanks of the world may oversee several trillion dollars in assets, they only generate 1 or 2 basis points a year on that massive cash hoard.
Meanwhile, smaller players like Bessemer Trust can comfortably generate 30 to 40 times as much fee revenue per dollar in trust.
Without the deep pockets of a depository institution to fall back on, independent trust companies are simply “a bit more price conscious,” in Garbo’s experience.
“When you’re independent, you have got to make money if you are going to survive,” he explains. “There are definitely some bank trust departments that have picked up on that model, but they’re still a little behind.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and reporting.
Permalink: http://thetrustadvisor.com/news/tiburon
Who’s Charging What for Trust Services? Part 2
Posted by Scott Martin in News on July 3, 2010
Our new expanded trust industry survey for the second quarter of 2010 reveals who’s charging what for directed trusts and for investment management. We found some providers offer a better deal for bundled services. Either way, both plans have their advantages.
When wealthy families pick a trust company, pricing is a factor. But there’s still a lot of debate about just how much value vendors should pack into each of those basis points in order to win accounts.
The Trust Advisor’s latest quarterly survey of independent trust company fees shows that the industry is all over the map when it comes to picking a sweet spot between service and profitability.
Some vendors take a full-service approach and charge a bundled fee for giving clients everything they need or want. Others just provide administrative or custodial service at a rock-bottom price and rely on scale or other operating advantages to boost their margins.
Either way, trust officers agree that unless you’re already one of the biggest banks in the business, it’s important to resist the urge to deliver a one-size-fits-all experience.
“From our point of view, this is not a commodity business,” Anthony Guthrie, president of Atlanta-based Reliance Trust, which offers both bundled and unbundled options, told me. “How we differentiate ourselves from the banks is on service, and that’s not something you can reduce to an in-the-box product or price.”
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Who’s Charging What for Directed Trust Services |
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|
Trust Company |
State |
Trust account minimum |
Minimum annual fee |
First $1 million |
Next $1 million |
|
|
DE |
$500,000 |
$3,000 |
0.50% |
0.40% |
|
|
TX |
N/A |
$1,100 |
1.10% |
0.75% |
|
|
DE |
$1 million |
$6,000 |
0.60% |
0.60% |
|
|
DE |
$1 million |
$5,000 (plus add’l fees) |
$5k fee to $1.5M |
$7.5k fee to $5M |
|
|
KY |
$1 million |
N/A |
1.00% |
1.00% |
|
|
NH |
None |
$3,000 |
0.90% |
0.55% |
|
|
IL & DE |
$5 million |
$20,000 |
0.40% |
0.40% |
|
|
GA |
None |
$3,000 |
0.60% |
0.35% |
|
|
NM |
None |
$4,000 |
0.75% |
0.75% |
|
|
NV |
None |
$1,000 |
0.50% |
0.50% |
|
|
NV |
$5,000 |
$100 |
1.00% |
0.80% |
|
|
VT |
Varies |
N/A |
0.50% |
0.30% |
|
|
SD |
None |
$4,000 |
0.50% |
0.50% |
|
|
DE |
$1 million |
$8,000 |
0.60% |
0.40% |
|
|
NM |
$240,000 |
$2,400 |
1.00% |
0.75% |
|
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 October 2010 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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Finding your niche
In fact, full-service trust companies find that once they focus on a market segment, clients will pay a premium on top of the roughly $3,000 a bare-bones provider would charge just to open the account. If not, they probably weren’t going to be profitable business anyway.
“Our customers are usually need-specific,” says Teresa DeMenge, senior trust officer at Zia Trust, which works with a lot of employee benefits programs and IRAs.
Prospects who need more than what Zia provides “really do need the bigger banks to ‘jumbo’ their services,” she told me.
While these clients may be looking for a trustee or custodian, they often end up requiring private banking services or other add-on expertise that a pure trust provider can’t really provide as a standalone operation.
Because those really big fish tend to demand big discounts, even the biggest banks may not really want their business, Bernard Garbo, publisher of A.M. Publishing’s Trust Performance Report, told me.
“You see people in the banking industry getting out of the trust business because being a full-service vendor is too expensive,” he says.
“Doing too many things is difficult,” he added. “Institutions that do nothing but personal trusts do not have the support of being inside a bank, but they still make a lot of money.”
The sweet spot
Of course, the big trust banks say they make their money by leveraging the sheer scale of their holdings. But while deciphering the basis points is not an exact science, it seems that you need pretty vast scale to overcome minuscule margins.
Crunching Garbo’s data reveals that some of the biggest players in the industry generated revenue of 0.20% or less on their managed assets and net margins under 0.02%. Based on that math, there are banks out there that squeeze less than $250,000 in profit out of every $1 billion they gather.
The more commoditized a trust company’s business it is, the faster its fees have to race to that 0.20% level in order to remain competitive, and the more efficiently it needs to run in order to break even.
Those 20 basis points are also roughly what it costs large and small trust companies to provide custody service, says Reliance Trust’s Anthony Guthrie, so we are unlikely to see pure custodians drop their prices any time soon.
Added service demands richer fees. However, the exact formula for what to charge for administration or investment management varies widely from vendor to vendor, and is often obscure when they simply quote clients an all-in-one bundled rate.
“I’m actually not sure I’ve ever had a discussion about how you bifurcate a wrap fee,” says Guthrie, who estimates that a discretionary trustee could easily charge 50 basis points for administration and support and another 50 basis points for any in-house wealth management service.
Of course, that isn’t pure profit. Companies like Reliance, for example, assign all clients—large and small—their own relationship managers, rather than make the little accounts go through a call center. Throw in expensive frills like local administration or investment expertise, and those basis points get eaten up pretty fast.
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Investment Management Provided by Trust Companies |
|||
|
Trust Company |
State |
First $1 million |
Next $1 million |
|
|
TX |
1.10% |
0.75% |
|
|
DE |
1.00% |
1.00% |
|
|
DE |
$5k minimum to $1.5M |
$7.5k minimum to $5M |
|
|
KY |
1.00% |
1.00% |
|
|
NH |
0.90% |
0.55% |
|
|
NV |
0.50% |
0.50% |
|
|
NV |
0.84% |
0.80% |
|
|
VT |
1.00% |
0.60% |
|
|
SD |
1.25% |
1.00% |
|
NOTE:Accuracy is not guaranteed. Please consult the institution directly to confirm costs. Most institutions require a $1 million minimum trust account and there are can be additional fees for investment services. 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 October 2010 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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Where we go from here
If anything, what’s surprising about independent trust companies’ fee structures is not so much that they are resisting the temptation to race to the bottom, but that prices aren’t on the rise.
According to Guthrie, pricing at Reliance and the rest of the industry hasn’t budged much over the last decade. “There simply hasn’t been much price compression,” he says.
Teresa DeMenge at Zia Trust agrees that pricing at independent trust companies is stable “so far,” but warns that there may be change on the horizon for bank trust departments.
“Large bank fees appear to be rising,” she told me. “Medium-sized banks seem to have a slight increase due to an increase in operation costs.”
If so, this may make the banks even less competitive at a moment when many are already dumping their trust businesses entirely to leave the field to the specialists, Bernard Garbo says.
“It’s an old thing, but it’s as true in the banking business as anywhere else,” he told me. “Doing too many things is difficult.”
Trust Firms’ Profits Stay Positive in First Quarter
Posted by Scott Martin in News on May 1, 2010
Full-service banks are still fighting headwinds, but business is booming in their trust departments. More specialized trust companies are making a lot of money.
It was another bumpy season for the big banks, but when you drill down into the numbers, the trust business is ramping up in terms of both activity and profits.
Most of the publicly held names in the trust industry booked a solid first-quarter profit as trust fee income expanded by about 20% to 25%. Northern Trust, Washington Trust and Westwood Trust all improved their bottom line.
The best performers attribute the improvement to a mix of tactical business development and old-fashioned organic growth. For example, Westwood Holdings, the parent of Dallas-based Westwood Trust, boosted its trust income 24% to $3 million in the quarter.
“We’ve hired a new trust officer and are hoping he will help us grow,” William Hardcastle, the company’s chief financial officer, told me.
“But about 3/4 of our new cash flows are from referrals or new assets from existing clients,” he added. “Clients are not quite as afraid as they were. That’s very welcome.”
Northern Trust reported a 25% increase in trust and other fees. Washington Trust bumped up its wealth management revenue by 16%.
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Selected Trust Institutions: |
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Fiduciary |
Fiduciary Revenue |
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Institution |
12/31/09 |
Change from 12/31/08 |
12/31/09 |
Change from 12/31/08 |
|||
|
Northern Trust (IL) |
$3.9 trillion |
20% |
$2.2 billion |
-4% |
|||
|
Wilmington Trust (DE) |
$185 billion |
10% |
$288 million |
96% |
|||
|
Bessemer Trust (NY) |
$47 billion |
4% |
$284 million |
18% |
|||
|
Wellington Trust (MA) |
$31 billion |
25% |
$188 million |
-4% |
|||
|
Glenmede Trust (PA) |
$18 billion |
10% |
$80 million |
25% |
|||
|
Boston Trust (MA) |
$4 billion |
14% |
$20 million |
26% |
|||
|
Lehman Bros. Trust (NY) |
$3 billion |
9% |
$18 million |
-29% |
|||
|
Haverford Trust (PA) |
$3 billion |
13% |
$13 million |
7% |
|||
|
Washington Trust (RI) |
$2 billion |
15% |
$1 million |
19% |
|||
|
Westwood Trust (TX) |
$2 billion |
29% |
$10.3 million |
-6% |
|||
|
Legacy Trust (MA) |
$1.7 billion |
38% |
$8.5 million |
23% |
|||
|
Trust Co. of Toledo (OH) |
$1.7 billion |
21% |
$4 million |
22% |
|||
|
Unified Trust (KY) |
$1.6 billion |
30% |
$13.5 million |
26% |
|||
|
Philadelphia Trust (PA) |
$1.3 billion |
18% |
$6 million |
19% |
|||
|
Source: Trust Performance Report, A.M. Publishing, Chicago, IL. and SEC website. Representative sample only; not a comprehensive list. |
|||||||
Drilling down
That’s nice for the big institutions, but most trust companies aren’t publicly traded and don’t announce their results. To get the score on smaller trust operations, we got in touch with the expert number-trackers at Trust Updates in Chicago.
First-quarter numbers are just trickling in now, but Bernard Garbo, publisher of the company’s Trust Performance Report, told me that if early indications are any guide, the rising tide is still lifting all the boats.
“Larger institutions seem to be doing fairly well, but the rest are reporting that assets are up as well,” he says.
Garbo sees the best growth potential in institutional markets like employee benefits programs and other corporate trust services. However, the biggest trend he’s noticed is that the trust companies that can squeeze the most profits out of their assets tend to be specialists.
“Institutions that tend to specialize in fewer account categories are often the most profitable,” he told me.
“That’s not to say that some full-service operations aren’t making money, but especially among the independent trust companies, it seems difficult to be all things to all clients,” he added.
Trust works when lending fails
If specialists are reaping big rewards, the reverse also seems to be true. Full-service banks where trust is only a slice of a larger service platform don’t seem to be doing so well.
Among the big integrated trust banks, Wilmington Trust lost $29 million and Marshall & Ilsley lost $140 million. Both confessed that problems in their loan portfolios dragged their results down, but it wasn’t the trust departments’ fault. In fact, both banks singled out their wealth management operations as a bright spot.
Bank analyst Richard Bove at Rochdale Securities told me this is a natural part of the business cycle.
“The trust business is all about regular fee income and incremental growth,” he says.
“Because of this, it rarely suffers when the market does poorly, and in fact can provide a buffer when the environment turns against an institution’s riskier activities.”
Wilmington has tweaked its business to take advantage of the trend. The bank saw its core trust revenue climb 11% in the first quarter and its assets under administration surge 22%, thanks in part to an aggressive new sales campaign.
“Our reputation as a superior fiduciary and service provider continues to serve us well,” Mark Graham, executive vice president of Wilmington’s wealth advisory services unit, told me, adding that new account activity is up 34% over last year.
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/earnings
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