Looking for an RIA custodian that supports trust accounts?  Our survey reveals that Fidelity and TD Ameritrade in particular have come a long way to provide a flexible trust platform that really helps advisors.

A decade ago, all an advisor had to do was provide financial planning and wealthy clients unhappy with wirehouse service would come rolling in. But value is the key word in today’s custody vendor consideration.

Trust services have become a key differentiating factor, and all four of the major custodians — TD Ameritrade, Fidelity, Pershing and Schwab — now provide plenty of institutional support to their affiliates who want to incorporate trust in their business.

“We know that this is an important need for advisors,” says Matt Judge, head of TDA’s wealth management solutions group, adding that “the high-net-worth clients are definitely looking for this and going to advisors who can provide it.”

In fact, Judge estimates that 20% of the assets on the $100 billion TDA custody platform, or about $20 billion, is in now in “some kind of trust account.”

Based on conversations with other custodians, that’s probably the leading edge of the industry. For example, Fidelity, with $300 billion on its RIA books, only reports about $6.6 billion in advisor trust assets.

But the real story is how fast the numbers are growing as advisors wake up to the possibility that they can now put their hard-won clients’ money into a trust without losing the account to a traditional bank trust department.

At Fidelity, trust assets doubled over the last 15 months, says spokesman Steve Austin.

With all four of the big custodians actively competing with each other to offer the best trust platform, strategies vary. This year, TDA wins the trust-friendly prize because its trust support can match any of its competitors, even though we ranked it so low last year.

Fidelity is close behind with the most extensive “a la carte” approach, while previously top-ranked Pershing and Schwab — each of which still offer high-quality trust hosting service — slip down the list primarily because they have not been innovating as aggressively.

TD AMERITRADE

Although TDA built out its in-house trust operation two years ago through its $225 million acquisition of Fiserv, that business — now rolled into the Maine-based TD Ameritrade Trust Company — primarily caters to retirement plans.

Since retirement accounts operate on a tax-deferred basis, Maine’s state income tax is not a downside factor here. And at this end of the trust business, the ability to offer asset protection, dynastic trust or other sophisticated vehicles that are not available in Maine is irrelevant as well.

For affiliated RIAs, TDA refers trust business to various directed trust service providers, including Advisory Trust Company and Wealth Advisors Trust. Based in Delaware and South Dakota, respectively, they can support all major trust types and do not subject clients to state income tax.

TDA is talking to a few additional trust companies to join its network and add to the menu of options that affiliates can choose from. They promised us an announcement could come soon.

However, if an advisor has a favored trust company outside the network, TDA will accommodate the accounts and any assets in them, Matt Judge says.

“It’s a truly open architecture,” he explains. “While we have partners to refer an advisor to, we can work with anyone that you want to work with.”

In theory, these third-party trustees could even be traditional bank trust departments or outside wealth managers, but Judge recognizes that advisors usually view these trust providers as potential competitors.

“Our partners focus only on the RIA market and don’t compete on advice,” he says. “Advisors retain the responsibility of managing these assets.”

TDA provides extensive marketing and educational support — including a monthly webinar and breakout conference sessions — for advisors looking to either add trust to their business or beef up their existing trust activities.

FIDELITY

Fidelity takes a segmented approach, giving affiliated advisors a tiered menu of ways they can structure their trust relationships.

At the most simple, Fidelity is happy to wrap trust assets into an RIA’s main brokerage statement and let the advisor act as trustee. This option is becoming a lot less popular after Rule 206  clamped down on the practice, but Deborah Gaff, the head of Fidelity’s trust services unit, tells me she still sees it from time to time.

Next up the pyramid, the company will act as agent for an advisor who is somewhat comfortable as trustee but still needs a little help running the disbursements and other transactions. At this level, each advisor effectively gets a dedicated trust officer to backstop the accounts.

For those who want to totally divorce themselves from the trustee role, Delaware-based captive Fidelity Personal Trust Company will take over as corporate trustee. All accounts are directed — the advisor is clearly spelled out as the investment manager of record.

Fidelity Personal Trust supports all major types of trust except special needs trusts, in which the firm prefers to act as an agent for a family member, Gaff says.

Finally, Fidelity will refer advisors to its own growing network of independent trust companies, which include First American Trust, Colonial Trust, Santa Fe Trust, and others.

In any event, the company has ramped up its marketing support for affiliates who want to offer trust to their clients and prospects.

PERSHING

The smallest of the four major custodians, Pershing still shines by pioneering the “trust network” or open architecture approach to trust services.

Like TDA, the company has no true in-house trust company that faces the advisory channel. Instead, affiliates are referred to various directed trust vendors: Advisory Trust, Reliance Trust, Santa Fe Trust and Wilmington.

Between them, they provide all major trust types and will serve a wide variety of accounts.

While the network remains great, Pershing slips down the list this year simply because its competitors have adopted many of its best features.

At this point, open architecture is no longer a differentiator but a de facto industry standard, and we look forward to seeing how the company innovates next year.

SCHWAB

Although Schwab is by far the biggest RIA custodian with 5,500 affiliates and $600 billion on its platform, it is also the only one that has maintained a closed shop where trust assets are concerned.

Rather than give affiliates a choice, the default option is to run trust options through Delaware-based Charles Schwab Bank. (Charles Schwab Trust Company is also available to handle retirement plan accounts.)

Alternative assets remain a sore spot for many Schwab advisors and a potential loophole in this system.

Theoretically, Charles Schwab Bank can handle real estate, limited partnerships and other non-traditional assets that have become popular in personal trust accounts. However, the company’s recent back-and-forth policy on whether it would support these assets on its brokerage platform has shaken RIA confidence in how well they will be able to integrate these trust assets into their overall book of business.

To avoid the angst, advisors may look into setting up trust accounts through Millennium Trust instead. Schwab picked Millennium to provide custody of alternatives “orphaned” by its initial decision to dump these assets, and the platform should still mesh well with Schwab’s system.

Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and reporting.