Posts Tagged directed trust
Powerhouses LPL, Reliance, National Advisors Trust Find Gold Rolling Out Red Carpets for Advisors
Posted by Scott Martin in News on April 9, 2012
Our list of advisor-friendly administrators has expanded by 35% in under three months. Vendors keep coming out of the woodwork to cooperate with advisors instead of fight them for clients.
With close to $7 trillion at stake as wealthy American families shift their liquid assets into trust, more independent trust companies are targeting advisors — the key center of influence — to get their share.
Our latest survey of the trust industry (click the cover to the right for a copy) turned up another four corporate trustees that have all decided to align their interests with the advisors that ultimately push accounts their way.
To download our newly expanded and updated list of trust companies with a similar mindset, click here.
After all, there’s plenty of assets for everyone to get what they need, says Michael Roberts, who runs the personal trust business at Atlanta-based Reliance Trust.
Firms like ours simply don’t have a natural delivery channel sending us clients, so for our financial well being we need to work with and not against the advisors,” he explains.
“I know the first time I ever stole a client from an advisor, it would be the last from that advisor, and it’s a small industry and people talk.”
For advisors and sometimes owned by them, too
The four firms joining the club this quarter are Reliance, LPL’s Private Trust Company, Casper-based Wyoming Trust and advisor-owned National Advisors Trust.
The first thing that you’ll notice is that half of them are owned by advisors or by independent brokerage firms on behalf of their advisor affiliates.
LPL runs Private Trust Co. primarily as a way to give its nearly 13,000 brokers a way to offer their clients trust services without fear of handing the AUM to a potential competitor.
And National Advisors Trust has pioneered a similar approach, initially for the consortium of advisors who created it — the “shareholders” — and now as a more open institution.
Both companies will happily accept business from non-affiliates. National Advisors Trust, in particular, is actively courting non-shareholder RIAs.
“There’s still a conception that you have to buy into the company to use our services, but we actually opened up about five years ago,” says CEO Ronald Ferguson. “We are absolutely interested in talking to new firms and working with new advisors.”
Like other advisor-friendly trust companies, these institutions 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 in most cases, they don’t even mind if your preferred custodian hangs onto the money.
Widening the playing field
Given their national focus, Private Trust and National Advisors Trust have national trust charters to ensure that they can serve any advisor and his or her clientele.
However, every company we talked to is willing and able to work with advisors around the country, and the number of hot trust jurisdictions is expanding rapidly.
This quarter opens the list to Wyoming, which offers wealthy families no state income tax and a wide range of specialized trust vehicles but has as yet remained in the shadow of more famous trust havens like Alaska, Nevada, South Dakota or Delaware.
According to Wyoming Trust trust officer Tassma Powers, Wyoming can offer everything that nearby South Dakota can, only hundreds of miles closer to the ranches and ski lodges of the elite.
Like its counterparts, Wyoming’s trust charter supports dynastic trusts that theoretically last up to 1,000 years, as well as asset protection trusts designed to shield family wealth from lawsuits. Moreover, there’s no state income tax.
And as in equally vacation-home-rich New Mexico, Wyoming trust companies also excel at administering trusts built around real estate holdings as a way to keep those ranches
As such, saving the plane ticket can make the difference for advisors who already schedule an annual trip or two to Jackson Hole to meet their clients.
Support for the centers of influence
The ability to support directed and delegated trusts, in which advisors go on managing the assets even after they pass into a trust, is a necessity. But every firm on our list goes a lot farther.
With no in-house wealth management operation, a truly advisor-friendly trust company looking to grow its business needs to work overtime to help the advisors it works with grow theirs.
Just about every company on our list offers some form of marketing support to help advisors integrate trusts into their other client service offerings.
National Advisors Trust, for example, feeds its affiliates — not just the shareholders, but the entire book of business — with plenty of training materials and even a private label program that lets advisors market themselves as a full-fledged trust company.
Naturally, National Advisors Trust is still doing all the paperwork and other heavy lifting, but the advisor now has a new competitive lever to pull when prospecting for trust-hungry clients and the lawyers and accountants who have their ears.
“We’re not expecting them to become trust officers, but we want to give them an entree, the confidence to knock on those doors,” explains Ron Ferguson. “We want them to feel comfortable that they have something that differentiates them from the investment advisor down the street.”
That proposition in itself aligns these companies not only with the interests of the advisors they work with, but with the future of the industry.
As Michael Roberts of Reliance Trust reminds me, the stranglehold the money center banks and wirehouses once had on the high-net-worth market is loosening fast.
“I spent 20 years working with a national bank trust department and saw them losing share, but my efforts to get people to team up with investment advisors fell on deaf ears,” he says.
“Advisors know how to talk about investments and their clients demand better investment products. This way, we let them do what they do best and concentrate on what we do well, and everyone wins.”
Scott Martin, senior editor, The Trust Advisor
Permalink: http://thetrustadvisor.com/news/advisorfriendly2q12
11 Top Trust Firms Make the Winners’ List for Advisor Friendliness in Our New Special Report
Posted by Scott Martin in News on February 6, 2012
Teamwork is key for a whole generation of trust officers who have little motive and less opportunity to cut the advisor out of the game. Unlike football, everybody wins.
After decades of financial advisors and trust companies fighting over client loyalty, a few members of each of faction are realizing that it’s more profitable to work together.
That’s what we found out when we surveyed the industry and learned that the trust companies that actively court long-term relationships with financial advisors are winning big accounts — without stealing them from the advisors themselves.
The most advisor-friendly of all made it into our latest special report. (Download it here.)
They’re an eclectic bunch of organizations, ranging from white-glove institutions to high-tech entrepreneurial upstarts. Pretty much all they have in common is their independence and their eagerness to prove that they’re not a threat to your business.
They don’t have in-house wealth managers hungry for commissions or management fees, so the motive to ingratiate themselves into the lives of your best clients and squeeze you out just isn’t there.
They don’t have proprietary investment products to push into trust portfolios. And they don’t even mind if your preferred custodian hangs onto the money.
Get inside the list
Operationally, the most advisor-friendly trust companies out there emphasize flexibility and service.
Whether they’ve been around for a few years or close to a century, every single one is willing to work with any custodian you care to name: TD Ameritrade, Pershing, Schwab, Fidelity.
Between them, just about all the major accounting platforms are on the table, so if you want plug-and-play integration with Schwab, SunGard or anything else, you’re probably going to find it somewhere on the list.
And big surprise: all of the top trust jurisdictions are well represented.
Advisors have been flocking to trust companies that operate in Alaska, Nevada, South Dakota and Delaware — not to mention New Mexico — in order to get their clients access to the most flexible trust statutes and best tax treatment in the country.
Dynastic trusts, which run for centuries or even forever, are a popular offering. So are asset protection trusts, unitrusts and other specialized vehicles.
On the service side, most have the in-house expertise in place to promise extremely fast turnaround. A trust that could take weeks to set up elsewhere can be up and running in under a day here.
Not willing to hog the ball
The very idea of an “advisor-friendly” trust company might come as a shock to the 85% of advisors worried about losing the assets their clients move move into trust.
For too long, that account “migration” was a painful fact of life for advisors who wanted the best for their clients.
Wealthy clients quite rightly demanded the ability to incorporate trusts into their financial plan to protect their property from taxes, nuisance lawsuits and ultimately mortality itself.
But when advisors located a conventional trust company to serve as corporate trustee, it generally meant handing over about $1 million in assets — roughly half the typical high-net-worth investor’s net worth — as well as the associated management fees.
The clients were happy. The trust company was overjoyed to get the business and active management rights over the portfolio. And the advisor suffered.
Needless to say, a lot of advisors were less than eager to recommend that their best clients take their assets elsewhere, and so the adoption of trusts lagged.
As a result, according to Fidelity, a full 40% of high-net-worth households have yet to set up trust arrangements, even if it’s in their financial interest to do so.
A shot at a shared win
The trust companies on our list saw that natural resistance as an opportunity to offer advisors a better deal and capture that elusive 40% of the market.
Every single one of them supports an arrangement known as directed trust, in which the client assigns the right to manage the assets to an advisor — usually the one he or she is already working with.
The trust company does what it does best: run the trust.
All the bookkeeping, reporting and fiduciary responsibilities remain with the trust company, which earns a nominal fee for the service. If there’s a problem, it’s up to the trust company to deal with.
From the advisor’s point of view, nothing changes. The assets remain on the book of business and keep generating the same fees. With few exceptions, the trust company has no legal right or duty to interfere in the investment choices.
The client is happy to have an advisor looking out for his or her ultimate best interests. The advisor-friendly trust company gets new trust accounts to run. And the advisor doesn’t lose.
Scott Martin, senior editor, The Trust Advisor. Steven Maimes assisted with the research.
Trust Firm Launches “Why Pay More for Trust Services” Marketing Campaign
Posted by Scott Martin in News on September 10, 2011
Alaska Trust says frugal fees are better for both clients and advisors alike. New low fixed fees and advisor controlled directed trust program makes Alaska Trust a top choice for trust services.
Best known as a provider of full-service managed trusts at made-to-measure prices, Alaska Trust has started turning heads for offering its directed trusts at a flat fee.
As part of the company’s push into the advisory market, it has eliminated basis point pricing and is simply charging a fixed, flat fee, typically $3,500 a year, for all directed trusts — large or small. Read the rest of this entry »
Trust Baron Jeff Dunham Wows Advisors with Dynastic Trusts
Posted by Scott Martin in News on January 30, 2011
Dunham Trust’s multi-generational trusts help advisors lock down accounts nearly forever. As advisors start looking to their own succession plans, nailing down management fees across generations has become a natural sell for the Nevada-based trust company.
Where some independent trust companies have had trouble competing for new accounts, Dunham Trust has found a way to woo increasingly finicky advisors and add $300 million to its platform in the process.
The secret boils down to a 40-second proposition, says CEO Jeffrey Dunham, who runs the $1.2 billion trust company as part of a financial supermarket that includes its own mutual fund company and FINRA-registered broker-dealer.
“If investment advisors paused for 40 seconds and asked their best clients this question, I predict the results will be very successful 80% or 90% of the time,” he explains.
“After that, the only thing left to do is to find the right trust company,” he adds.
Based on its growth rate, Reno-based Dunham has evidently been the right partner for a lot of advisors out there.
Back in 2009, when the industry was still picking its way out of the credit crash, Dunham had $900 million in client assets. Now, the company boasts north of $1.2 billion.
Not counting M&A, Dunham has posted compound organic growth of 16% a year — twice the average in its size bracket and easily triple the performance of slightly smaller trust companies, according to the latest issue of Bernard Garbo’s Trust Performance Report.
The next best thing since…directed trust
Jeffrey Dunham tells us he expects his AUM to double in the next several years.
What’s feeding the excitement, he says, is that the company’s next-generation directed trust arrangements lock down long-term relationships for advisors and clients alike.
“Everyone is talking about directed trust like it’s the best thing since sliced bread,” he explains.
“Directed trusts are nice and we do work with directed trusts, but for advisors, the bigger story in my opinion is capturing customer relationships beyond the current generation.”
Traditional directed trusts have become a hot property with advisors who want to help clients transfer property into a trust without sending their biggest accounts to a potential competitor.
With a directed trust, the advisor retains control of how the assets are invested, as well as the associated management fees, while the directed trust company sticks to the work of running the trust itself.
Thanks to that simple premise, directed trust has roughly doubled its share of the $1 trillion trust business over the last decade and is now a $360 billion piece of the pie, according to data from the Spectrem Group.
However, Dunham notes, although directed trust keeps the assets under an advisor’s control as long as the original grantor is alive, the beneficiaries get the power to reassign management duties after that — and there’s nothing stopping them from picking someone new.
“What happens is that the matriarch passes and the advisor gets a letter from the beneficiary’s advisor thanking him or her for doing such a good job for Mrs. Jones, but here are the wire instructions for delivering the assets,” he says.
When and if advisors get that letter, there’s not a thing they can do about it.
The “direction” in a directed trust only means that the grantor or beneficiary can “direct” the trust to obey a given advisor, not that a given advisor has any power in his or her own right.
Making directed trust multi-generational
The solution is to insert the advisor into the trust documents as a successor trustee, Dunham says.
That’s where that 40-second conversation with an 80% to 90% success rate comes in.
“It’s a simple question to ask the clients with whom you have already spent years building a strong rapport,” Dunham says.
“That question is, ‘Do you want to set us up as the advisor a successor trustee needs to work with? We’d be happy to continue to be involved when you’re gone, if that’s what you want.”
From there, as long as you’ve got the right trust company, the assets can theoretically travel with the advisor for generations — up to 365 years, given Nevada’s dynastic trust rules — and keep generating fees.
And because Dunham already counts incentive trusts — which incorporate restrictions on beneficiary behavior — among its specialties, building that twist into directed trusts was a natural play for the company.
His team is happy to go into greater detail on how the twist on dynastic directed trust works. Click here to contact them.
Succession planning for planners
Granted, not many advisors plan on living that long, but that’s the genius of this twist on the directed trust.
If the trust assigns management rights in perpetuity to the advisor or his or her professional heirs, then those fees become annuitized income to count on for decades if not centuries.
And in a world where the average RIA principal is turning 55 this year and thinking about retirement, that kind of annuity income can double or triple the value of your business when you sell.
Even though M&A activity in the advisory world has gone through the roof, deal valuations have favored sellers who can demonstrate that their business can keep making money without them.
Remember, a purely commission-based RIA maybe goes for 1.3 times annual production, while a book that generates recurring fees can go for 3 times revenue or more. Show a potential buyer that the fees can theoretically keep accruing for centuries, and your business looks even more attractive than ever.
And in the final analysis, why not ensure that whoever you hand-pick to take over your practice can count on these accounts down the road?
“Advisors have done a good job creating a strong relationship with the matriarch or patriarch over the years, but a poor job suggesting that that role should continue after the first generation dies,” Dunham says.
Scott Martin, contributing editor, The Trust Advisor Blog. Steve Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/dunham
Who’s Charging What for Trust Services? Part 3
Posted by Scott Martin in News on October 2, 2010
Our new trust industry survey for the third quarter of 2010 reveals who’s charging what for directed trusts and for investment management. We found providers charge about the same price for similar services. Our report offers guidance on what to look for to gain the best value for your client.
To offer us clues which trust company provides the best value proposition, we went to Rafi Mohammed, author of The Art of Pricing and The 1% Windfall, for insight as to what differentiates these similarly priced vendors.
When reviewing our research, one would think that advisors pick pricing as the only factor in deciding which trust firm offers the best deal for their clients.
|
Who’s Charging What for Directed Trust Services |
|||||
|
Trust Company |
State |
Trust account minimum |
Minimum annual fee |
First $1 million |
Next $1 million |
|
|
DE |
$500,000 |
$3,500 |
0.50% |
0.40% |
|
|
TX |
$1,500 |
$1,500 |
1.10% |
0.75% |
|
|
DE |
None |
$6,000 |
0.60% |
0.60% |
|
|
DE |
None |
$4,000 |
$5k fee to $1.5M |
$7k fee to $5M |
|
|
Fed |
None |
$6,000 |
$1,200 +1.33% |
0.75% |
|
|
KY |
$1 million |
$10,000 |
1.00% |
1.00% |
|
|
NH |
None |
$3,000 |
0.90% |
0.55% |
|
|
IL & DE |
$5 million |
$20,000 |
0.40% |
0.40% |
|
|
NV |
None |
Varies |
0.60% |
0.50% |
|
|
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 |
None |
$3,000 |
0.50% |
0.45% |
|
|
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: Edward Jones is a subsidiary of The Jones Financial Companies, a federally chartered savings and loan association. 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 January 2011 of this survey, please let us know. We will be expanding coverage; please also include any other services offered such as investment management, special purpose trusts, HSAs, etc. Advisors and estate planners may reproduce this survey upon request. To contact us, click here. |
|||||
|
Source: Websites and telephone interviews. ©2010 TheTrustAdvisor.com |
|||||
But, based on our conversations with pricing expert Mohammed, we can find plenty of factors that should go into the decision of which trust company to hire:
- Critical mass. The amount of assets already under administration may be an important way to determine whether a provider is a right fit for a client. But recently, we have found that independent trust companies have taken a big share of the market from the trust banks that traditionally rule this space. Therefore the marketplace is telling us that the amount of assets under administration is not a key factor.
- Technology. Although most providers rely on their clearing firms or custody vendors to determine what fancy technology may be available, trust firms that have enhanced trust accounting systems and slick reporting — especially when it comes to servicing advisors — may have a big edge.
- Overlay systems. Although overlay systems have been sleepers in the advisory community, when mixed into the trust environment they become powerful high-tech incentives to consider when choosing a provider. Our research told us that both Reliance Trust, which relies heavily on GlobalBridge overlay systems, and Alaska Trust, which relies heavily on Concord, may be emerging as winners in this space because of their arrangement with overlay management systems.
- High touch services. Trust firms that offer a great deal of mothering to an advisor obviously have an advantage. If the firm offers a lawyer with trust experience, there is obviously an edge and a unique benefit to the relationship. Advisors have told us that service is an important part of the selection process. Trust firms that do not offer any support at all and rely on call centers to support advisors and clients will likely not compete well on this front.
- Price. Finally, the raw cost proposition has traditionally been a key determiner — especially after the financial meltdown — to steer advisor and client to one provider or the next.
More than a commodity play
“Trust administration in itself is really a commodity and is often priced that way,” says Mike Flinn, a Phoenix-based trust consultant with Delaware-chartered Advisory Trust, a long-time directed trust company and a unit of Wilmington Trust since 2008.
Back then, Flinn told an audience at a Pershing Insight Conference that “70% of all brokerage account business involves trusts” and that “after a death, someone has to decide where the assets go. Therefore, the wealthy who leave property behind need trusts.”
“You don’t see a U Haul hitched to the back of a hearse,” he observed.
Directed trust, in which trust companies and investment advisors split the responsibility of administering the trust from the management of the underlying assets — and split the fees — has become a huge way for advisors and trust companies like Advisory Trust to work together.
According to Advisory Trust’s web site, directed trust has become a $1.3 billion business for the company. With about 1,200 accounts, that translates into an average account of a little over $1 million.
“Our direct trust services consistently have the broadest appeal,” says Bryn Mawr Trust president Matt Waschull. Bryn Mawr is a leading directed trust provider, based in Delaware and offering a competitive directed trust service for 60 basis points.
This quarter, we add Edward Jones Trust Company to our list to represent the wirehouse category. Since Edward Jones has about 11,000 reps on the ground, it is clear that the purpose of this trust company is to service its own network.
Advisors should note that relationships with brokerage-affiliated trust firms such as Edward Jones or Raymond James Trust tend to be difficult to move. Naturally, these firms’ allegiances are to their brokerage-tied reps and to making sure accounts stay where they are.
|
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 |
$7k minimum to $5M |
|
|
Fed |
$600 +1.33% |
0.75% |
|
|
KY |
1.00% |
1.00% |
|
|
NH |
0.90% |
0.55% |
|
|
NV |
$2,500 +0.50% |
$2,500 +0.50% |
|
|
NV |
$100 +1.02% |
$100 +0.80% |
|
|
VT |
1.00% |
0.60% |
|
|
SD |
1.25% |
1.00% |
|
NOTE: Edward Jones is a subsidiary of The Jones Financial Companies, a federally chartered savings and loan association. 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 January 2011 of this survey, please let us know. We will be expanding coverage; please also include any other services offered such as investment management, special purpose trusts, HSAs, etc. Advisors and estate planners may reproduce this survey upon request. To contact us, click here. |
|||
|
Source: Websites and telephone interviews. ©2010 TheTrustAdvisor.com |
|||
Value is more than basis points
Our survey tells us that advisors are historically reluctant to rely exclusively on price as a factor when recommending a trust company.
According to data collected by Tiburon Strategic Advisors back in 2001, the overwhelming majority of advisors (92%) said they could find a provider willing to charge under 35 basis points for serving as a corporate trustee. But the trust companies they actually went with tended to charge 40 to 50 basis points.
Almost a decade later, that 35 basis-point level would now be viewed as corporate suicide. While it’s possible to find a lower-cost relationship, the level of service would be so poor that a client may be sold down the river if and when the discount vendor finds it impossible to make a profit.
As to where those extra basis points come from, pricing guru Rafi Mohammed says trust firms — or advisors, for that matter — that differentiate themselves can charge a little extra.
“You do not need to charge what your rivals charge because your products are not exactly the same as theirs,” he says.
“You know your product is best in some way,” he adds. “But when I ask you why I should buy it, most people stumble. You have got to effectively communicate with your clients to understand what value a provider offers.”
For the fourth quarter survey, The Trust Advisor will be collaborating with Cerulli Associates. To make sure your firm’s fees are anonymously reflected in the final data, please fill out the brief “Trust Fee Survey” questionnaire HERE.
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and reporting.
Permalink: http://thetrustadvisor.com/news/fees3q10
Expert Says Delaware and South Dakota Trust Providers Should Boost Fees
Posted by Scott Martin in Practice Management on June 5, 2010
Pricing guru Rafi Mohammed recommends providers in trust-friendly states charge higher fees for services not available elsewhere.
Trust companies in a position to provide a broader range of products don’t need to cut prices to compete and are even justified in charging higher fees, says Rafi Mohammed Ph.D, a leading pricing expert and author of books like The 1% Windfall and The Art of Pricing.
“If I come to you and say my trust product can avoid taxes for generations to come while others don’t, your eyes would be popping,” he told me. “If consumers are really hooked on the dynasty trust, then vendors should not be afraid to ask for a top-dollar premium on that added value.”
To earn that premium, out-of-state trust companies have to give prospective customers a good reason to move their business out of the local market. In some jurisdictions, the selling point might be the perpetual or “dynasty” trust, which potentially lets beneficiaries avoid generation-skipping taxes for centuries. Or it may be the self-settled asset protection trust, which is designed to shield wealth from litigators.
“This is not a mass-market product,” Mohammed told me. “Articulate how you are different and how it benefits the consumer,” he added. “Especially in high-net-worth markets like this, it’s not always about the best price.”
Some value propositions are easy to demonstrate to a prospective client. Just moving a plain vanilla trust from New York to Nevada, for example, improves its real investment performance by about 113 basis points a year simply by eliminating drag from state taxes.
That’s a huge added value, and trust companies in tax-free states can get a few of those basis points for themselves if they can communicate what those basis points add up to over the decades.
Competing on value, not price
As long as a trust company avoids charging a lot more than rivals that offer comparable value, it should definitely forget about charging less in order to win business, Mohammed says. After all, these are multi-million-dollar trusts, not Volkswagens.
“Your marketing should never be about a race to the bottom,” he told me. “Once you establish that your offering is competitive with what direct competitors are charging, there’s no reason to lower your prices. People are always too quick to lower prices.”
If your offering isn’t competitive in a particular market, don’t compete there. Directed trust companies like Santa Fe Trust or Georgia-based Reliance Trust often operate in states that don’t support some forms of trusts, so they have to refer these accounts to other vendors—and don’t spend much time chasing them.
“Perpetual trust can be an issue,” Santa Fe CEO Kathy Roberts told me recently. “We can provide those services through partnerships in other states, but the advisors we work with are more interested in arrangements that are easier to administer right here.”
The numbers speak for themselves
After Delaware changed its statutes to allow perpetual trusts, trust companies operating in the state doubled their assets in five years as money flowed in from all over the country. Clearly, the trust-friendly environment was good for business.
Harvard law professor Robert Sitkoff has been looking at this issue for years alongside Max Schanzenbach at Northwestern. Not all of the 20 perpetual trust states were created equal, he tells me.
In fact, according to their research, between 1995 and 2003, one out of every ten trust dollars—$100 billion—moved to jurisdictions that, like Delaware, South Dakota and Nevada, support trusts in perpetuity but do not tax out-of-state accounts.
States like Wisconsin, which allow perpetual trusts but tax the assets, didn’t get many of those accounts.
“Once there’s a reason to go out of state to take advantage of more favorable statutes, picking the one with the best tax treatment is an obvious decision for an estate planner to make,” Sitkoff explains. “The added cost is minimal and the benefits are huge,” he added.
Other competitive propositions seem harder to sell. Sitkoff and Schanzenbach have yet to find any proof that asset protection, spendthrift trusts, added confidentiality or other added services have translated into concrete asset flows.
“We’re just not picking any of that up,” Sitkoff says.
Pricing and profitability
Some of the most trust-friendly states provide trust companies with a two-pronged benefit: premium service and better margins.
While Philadelphia-based Sterling Trustees is setting up its trust operation in South Dakota because it likes the regulatory climate, Antony Joffe, the company’s president, tells me cost efficiencies are a nice bonus.
“We can operate more cheaply than the Glenmedes and Wilmingtons of the world,” he says.
Rafi Mohammed says that trust companies that operate in low-cost states like New Mexico or South Dakota offer the same level of service as rivals in high-cost states like Pennsylvania or Delaware, so they should charge the same fees.
“There’s no need to lower your price to pass on your efficiencies to the client,” he advises. “When consumers evaluate your product, they never say ‘The most I’m going to pay is double costs,’” he added. “Your profits should never be part of the conversation,” he added.
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and the editing
Permalink: http://thetrustadvisor.com/practice-management/value
-
Most Popular Stories
Powered by Disqus
-
Archives
- May 2012 (23)
- April 2012 (35)
- March 2012 (25)
- February 2012 (27)
- January 2012 (38)
- December 2011 (37)