South Dakota is becoming the top choice for trust providers. With ten new launches this year and a roster of 50 institutions shortly, it’s easy to see why banks and advisors alike are flocking to the wealth-friendly state. But despite the welcome mat, screening for new players “isn’t easy.”

This week, the South Dakota Division of Banking announced that Pittsburgh-based Mid Atlantic Capital Group, a $19 billion wealth manager and trust technology provider, applied to receive a charter. Approval is expected before July 1.

Mid Atlantic’s not the only Pennsylvania trust operation to set up shop in South Dakota. Earlier this year, Consohocken, PA-based multi-family office Sterling Trustees decided too that South Dakota’s compelling trust benefits made it better than the other no-tax dynasty trust states.

Sterling’s president Antony Joffe told me, “We picked South Dakota because we wanted the best trust law environment and thought they had what we needed.”

They just received official approval this week and are now ramping up ambitious plans to offer trust services to registered investment advisors, as well as more effectively run the roughly $500 million in high-net-worth trust accounts they already have.

Sterling is one of seven public trust company going through South Dakota’s approval process this year. Denver-based United Western Bancorp’s UW Trust Company, with $2.6 billion in assets, received its approval at the end of March.

Counting Mid Atlantic, three other applications in the pipeline, and private trust companies, and a record 10 companies have entered the South Dakota system so far this year.

One of them, Kingsbridge Trust Company, was launched by Kingsbridge Private Wealth Management of Las Vegas to complete its suite of family office services. CEO David Dunn told the Trust Advisor Blog that the process “isn’t easy,” with hours of meeting with regulators and answering tough questions. “It required a great deal of background work just to file the application,” he says.

“We’re okay with startups”

What’s driving the flood? Five months ago, Les Revzon, president of trust consulting firm Advisors Institutional, who assisted Mid Atlantic with its trust charter application, attended a meeting in Pittsburgh with Mid Atlantic VIP’s to lay out the case for why South Dakota might be the best place to host its new trust company operations.

It didn’t take more than 10 minutes for the honchos at the table to overwhelmingly agree that South Dakota would be their new home. With the benefits adding up—no taxes, dynasty trusts, asset protection trusts, directed trusts, low capital requirements and affordable on-the-ground services—they were sold. All of that sounded a lot better than posting $1 million in regulatory capital in Nevada or Delaware, big staffing costs and waiting over a year for a trust charter.

The interest in the state’s trust environment isn’t too surprising, says Bret Afdahl, counsel for the South Dakota Division of Banking.

“We’re business-friendly, which means that we want our trust companies to succeed,” he told me. “Profit is not a swear word in our state.”

Afdahl likes to discuss the advantages of his state’s trust jurisdiction, and with good reason: According to state statistics, the Division of Banking booked a record $262,651 in trust-oriented revenue last year in the form of examination and supervision fees.

To attract new institutions that measure up, capital requirements are low. A trust company needs to post $200,000 to set up shop in the state. Other centers of the trust industry like Delaware and Nevada require $1 million or more to obtain a trust charter.

New legislation kicks in July 1 to tighten the capital requirements at regulators’ discretion, but this is aimed at established institutions that might run into trouble, Afdahl told me. “We’ll keep it low on the front end to allow for startups,” he says.

Although the new rules also mandate additional background checks for principals and key employees, the South Dakota approval process is streamlined compared to other jurisdictions.

Antony Joffe got the green light in about five weeks, compared to an estimated year to move an application through the Delaware system or up to two years of dealing with the FDIC for a federal trust charter.

Nevada’s quest for modernization

By sheer number of operating trust companies, South Dakota has leapt ahead of Nevada and even Delaware.

Nevada’s lack of appeal for new trust institutions seems odd when you consider that the state went through a great show of modernizing its trust statutes late last year in order to attract new business.

State regulators wouldn’t comment on success or failure. However, a source familiar with local politics says “updating” the rules was less about making the state friendlier to public trust companies and more about setting up barriers to entry.

“You can probably read behind the lines and see that the number of public trust companies in the state hasn’t budged this year,” my source told me. “The new capital requirements make it more difficult for public companies to be formed.”

We were unable to interview officials from Delaware, but according to Bret Afdahl, the issue for that state’s regulators is “quality,” or at least exclusivity. Delaware is legendary for enforcing extremely stringent audit and residence standards that can be too expensive for smaller players to consider.

“Delaware’s rules only really allow for big companies,” he told me. “You need X square feet and Y full-time employees, of whom Z must be trust officers. It doesn’t disallow startups, but you need to be pretty big to cover the initial expenses.”

When it comes to operating on the ground in South Dakota, Sterling Trustees’ Antony Joffe is excited. He plans to set up an office and move all his existing fiduciary activities there.

“We’ll still manage some trusts here in Philadelphia on an individual basis, but we’re going to try to run as much as we can out of South Dakota,” he told me.

Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes and senior editor Jerry Cooper contributed.

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