Posts Tagged Kathy Roberts
Santa Fe Trust Eyes South Dakota for Dynastic Trusts
Posted by Scott Martin in News on February 20, 2011
CEO grabs wealth-friendly state’s features to attract new clients. If all goes well, New Mexico’s bellwether independent trust firm will soon be on the ground in South Dakota.
Ever since it opened its doors in 1997, Santa Fe Trust has been intimately associated with the New Mexico trust industry, so the news that the company was looking out of state took a lot of local competitors and estate planners off guard.
But the Santa Fe-based independent trust company has in fact applied for a South Dakota state trust charter, confirms CEO Kathy Roberts.
“That’s an obvious matter of the public record,” she says. “Beyond that, we’re in the public hearing period, so I can’t really give you anything definitive about the process.”
However, Roberts can squelch a few possibilities before they grow into rumors.
First, whatever happens with the application, the core operation will remain in New Mexico — after all, the company’s letterhead would look awkward if the name said “Santa Fe” and the address read “Sioux Falls.”
And with that in mind, there are no plans to give up the New Mexico charter, Roberts says.
Reaction highlights split between local and national markets
The move still met with mixed response from the local trust community. Ed Kraft, founder of Albuquerque-based Zia Trust, was unaware that Santa Fe Trust had applied for another charter.
Likewise, most of the estate planners we talked to indicated that New Mexico already had the key ingredient most local clients want when it comes to picking a trust jurisdiction.
“For most folks, convenience is the biggest factor,” says Jeanine Steffy, an estate planner at Albuquerque law firm Swaim & Finlayson.
“If individuals are residents of the state, they seek out an attorney in the state and obtain a revocable trust that serves their needs well under New Mexico law, without having to travel.”
However, it’s the non-revocable trusts — and specifically, the ability to make them dynastic in scope — that Santa Fe Trust probably wants to court.
South Dakota allows irrevocable trusts to operate theoretically forever, whereas New Mexico still follows the uniform statutory rule that closes the list of beneficiaries after a theoretical maximum of a little over a century.
For high-net-worth families looking to shield their assets from taxation as long as legally possible, the difference between 90 years and forever is far from trivial and well worth a little inconvenience.
The difference has turned some states — like South Dakota — into national centers of the irrevocable trust market, while the rest of the country simply tries to keep local wealth from flowing across state borders.
And since Santa Fe Trust in particular already competes on a national level for out-of-state clients, it’s critical that it, too, has the ability to provide those clients with a proposition comparable to what they’d get elsewhere.
A long time coming?
In fact, while the company’s prospective grab for a South Dakota charter may come as a surprise in New Mexico, other nationally focused trust companies say the move was a long time coming.
One Nevada trust company co-founder we talked to says there have been rumors of this happening for months.
Kathy Roberts even tipped her hand in her conversations with me almost a year ago.
Back in March, she told me that while Santa Fe Trust wasn’t actively looking for an out-of-state charter at the time, “that’s not to say we won’t go out and pursue others, or partnerships that allow us to better serve our clients.”
Even then, she suspected that the ability to offer dynastic trusts could become an issue.
Now, she not only remembers that conversation but amplifies it.
“When we first started talking, we said we would probably look for a proliferation of different state charters,” she recalls, adding, “There may be others we go after.”
Lighting a fire under local lawmakers?
Meanwhile, the New Mexico state legislature suddenly seems a little more motivated to update its trust code in order to help locally chartered companies compete for national accounts.
After going nowhere for years, efforts are finally moving forward in Santa Fe to repeal the state’s rule against perpetuities, which currently keeps local trusts from providing dynastic protection.
Unfortunately, they’re still thinking locally, not globally.
House Bill 219 would only roll back the rule another 20 years where it applies to water rights — a matter of life and death for land-rich ranchers in an arid state, but not really something dot-com billionaires or Wall Street moguls vacationing in Taos or Santa Fe care about.
As a result, while the bill may pass before the current legislative session closes a month from now, it may not be enough to make New Mexico a true trust haven.
Again, a bonus for local grantors and the estate planners who serve them, but by that point, Santa Fe Trust will already have a foot across the border anyway.
Roberts is definitely courting that national market. While she wouldn’t give us any numbers, she says the number of advisory network reps coming to Santa Fe to pursue a relationship is downright “healthy.”
“Word of mouth is spreading in the bigger advisor organizations,” she says. “The more independents there are out there, the more they value our role as a truly independent partner.”
Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper and Steve Maimes contributed to the editing and research.
Permalink: http://thetrustadvisor.com/news/santafe
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
Who’s Charging What for Trust Services?
Posted by Scott Martin in News on April 3, 2010
Trust fees are headed higher according to our pricing survey completed this week. Some firms work strictly from a rate card. Others decide what your client will pay when the business is placed on the table. Either way, it’s good to know what the “market value” of trust services.
There’s still a fair amount of mystery surrounding exactly what’s baked into each of those basis points.
“It’s never as simple as just lining up the fees,” says Mike Flinn, a Phoenix-based trust consultant at Advisory Trust Company. “Once you start drilling down into the basis points, it becomes pretty clear that different firms really do different things,” he added.
To find out where the sizzle hits the steak for various types of trust company, The Trust Advisor Blog conducted a survey below of what they’re charging.
|
Who’s Charging What for Trust Services |
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|
Trust Company |
State |
Trust account minimum |
Minimum annual fee |
First $1 million |
Next $2 to $3 million |
$3 to $5 million |
Above $5 million |
|
|
DE |
$500,000 |
$3,000 |
0.50% |
0.40% |
0.30% |
0.25% |
|
|
DE |
$1 million |
$6,000 |
0.60% |
* |
0.45% |
Neg. |
|
|
NH |
None |
$3,000 |
0.90% |
0.55% |
0.45% |
0.35% |
|
|
IL & |
$5 million |
$20,000 |
0.40% |
0.40% |
0.40% |
0.20% |
|
|
GA |
None |
$3,000 |
0.60% |
0.35% |
0.35% |
0.35% |
|
|
NM |
None |
$4,000 |
0.75% |
0.75% |
0.50% |
0.35% |
|
|
NV |
None |
$1,000 |
0.50% |
0.50% |
0.50% |
0.40% |
|
|
NV |
$100 |
$100 |
1.00% |
0.80% |
0.70% |
Neg. |
|
|
SD |
None |
$4,000 |
0.50% |
0.50% |
0.42% |
0.35% |
|
|
DE |
$1 million |
$8,000 |
0.60% |
0.40% |
0.40% |
0.25% |
|
* Breakpoint is $2 million. 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 July 2nd edition 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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The Basic Account
One thing we discovered: if you just want a no-frills account, Flinn adds, it’s probably going to cost at least $3,000 a year. “That’s really the minimum anyone can comfortably charge.”
“Maybe $2,500,” he conceded. “But at that level, it’s going to be very difficult to stay in the business.”
While $3,000 happens to be what Advisory Trust charges on the low end, it does seem to be an informal sweet spot within the trust industry. Other companies that start at that level include New Hampshire Trust and Georgia-based Reliance Trust.
There are companies that charge small accounts less (Nevada’s Summit Trust will go as low as $100 a year), but plenty start their fees at $4,000 and up. It all depends on the size of account they’re courting and what makes economic sense, Christopher Holtby, president of Wealth Advisors Trust Company, told me.
“Hitting the sweet spot is part art, part science,” he explains. “There are very specific things that every trust has to do, and everything else is extra.”
Good scale for big fish
Northern Trust doesn’t publish its fee scale, but president Dan Lindley was kind enough to give The Trust Advisor a peek.
Although the $20,000 minimum fee looks steep at first, it makes a lot more sense when you consider that Northern Trust isn’t really interested in personal directed trust accounts with less than $5 million in assets. For a client with that kind of wealth, the $20,000 translates into at most 40 basis points a year—pretty low by industry standards.
(Really big clients get institutional-strength discounts. Once a Northern Trust account grows beyond $30 million, the company will only charge 5 basis points: $500 a year per $1 million.)
The upshot is that by concentrating on high-end clients, a white-glove firm like Northern Trust can build a lot of sizzle into its steak, even though the cost per dollar of AUM is comparable to what bare-bones vendors charge.
“Northern Trust in Delaware charges a reasonable, competitive fee and in return provides comprehensive services to our directed trust clients backed by more than 120 years of experience as a fiduciary,” Lindley told me.
Other high-end trust companies argue that at this level, it’s pointless to advertise your fees because high-net-worth clients and their advisors are happy to pay for the service.
Some vendors refused to participate in the survey because they either work on an a la carte basis (Alaska Trust) or figure out what to charge once they see the trust paperwork (Commonwealth Trust). As Alaska Trust founder Douglas Blattmachr told me, it’s pointless to advertise how much a generic offering would cost when the fact is that at this level, one size fits none.
“It really does depend on what the client wants us to provide,” he says.
When asked to present a benchmark, he estimated that a relatively bare-bones Alaska Trust account might charge 50 basis points a year or an annual minimum of $3,500. That’s about where vanilla Commonwealth trusts start, Jim McMackin, who runs the company’s marketing, told me.
Splitting smaller pies
Naturally, it’s going to cost extra if the trust company also manages the underlying assets. But there are a lot of vendors out there that are happy to offload the investment responsibilities and knock a bit off their fees in return.
Companies like Wealth Advisors Trust, Advisory Trust and Santa Fe Trust, cater exclusively to investment advisors looking for a place to refer their clients who need to open a trust.
Account minimums tend to be relatively low—Wealth Advisors Trust and Santa Fe Trust can theoretically start a trust with as little as $1—but expenses can be a little higher to cover the fixed cost of administering these tiny trusts.
For example, Santa Fe Trust accepts very small accounts, but according to its published fee scale it will still charge them at least $4,000 a year. At an annual fee of 75 basis points, this suggests that a trust really needs to have more than around $533,000 in it to “earn out” that $4,000 minimum fee.
By comparison, Wealth Advisors Trust’s scale “earns out” at a slightly higher level ($800,000 in the account), which indicates that its platform is built to support a somewhat more affluent clientele. Others on our list (Advisory Trust, Reliance, Saturna, New Hampshire Trust) justify their minimums at lower levels.
Whatever happens, says Kathy Roberts, the CEO of Santa Fe Trust, small accounts shouldn’t be loss leaders.
“We don’t take a trust that isn’t going to be profitable,” she told me. While she’ll take on a tiny trust if the grantor insists, she warns that advisors should recognize that the trust company will pass on the cost of running it and sometimes it just doesn’t make sense.
Where we go from here
Most of the people I talked to say the cost of running a trust has already gone about as low as it can go.
Mike Flinn from Advisory Trust and Douglas Blattmachr of Alaska Trust agree that the cost of fiduciary compliance and routine service probably isn’t going any lower than around $3,000 per trust any time soon, especially given the current trend toward higher regulation.
“It’s expensive to be a fiduciary,” Blattmachr acknowledged in our conversation. “So that provides a floor on what people can offer.”
But beyond that level, technology keeps improving and letting efficient trust companies bring down their overall cost proposition. Blattmachr says low-end players can use technology to better serve the mass market. Kathy Roberts of Santa Fe Trust agrees.
Either way, Christopher Holtby of Wealth Advisors Trust told me that there’s always room for enthusiastic competitors.
“Wherever fees go,” he says, “there are going to be a lot more entrants in the trust service business.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and the editing.
Permalink: http://thetrustadvisor.com/news/fees
Do You Own an Apple iPad?
The Trust Advisor will be publishing an upcoming article on wealth management applications for the new Apple iPad device.
I have seen the device and its amazing. Forbes reported that Apple sold between 600,000 and 700,000 iPads today alone.
We would like to include any comments our readers have about their experience with the device, either good or bad and what applications they may be using.
Click this link to submit your iPad comments
Thank you — Jerry Cooper, Sr. Editor, the Trust Advisor
Sleepy New Mexico Emerges as Important Trust Center
Posted by Scott Martin in News on March 5, 2010
Low start-up and operating costs attract trust companies, but state legislature is dragging its feet to support infrastructure.
UPDATE: Randy Hahn reminded us of First American Bank, which has been operating with trust powers under a federal charter since 1963. We’ve added it to the list.
If you’re a banker, RIA or trust officer ready to get out of the rat race, New Mexico may be the place to go to set up a pet project: starting your own trust company.
Capital requirements for new trust companies are low, only $150,000, and the operating environment couldn’t be better, as long as you’re not married to asset protection or perpetual trusts, don’t mind some taxes and don’t require the prestige of a Delaware or South Dakota.
One local player that’s grown well beyond the hobby level is Santa Fe Trust. With a half billion dollars in assets and an active directed trust model, the company has grown into a significant force since it got up and running in 1997.
Santa Fe CEO Kathy Roberts told me that the state presents companies like hers with a combination of a solid trust-friendly regulatory climate and fringe benefits.
“The operating environment in New Mexico is wonderful,” she explained. “And of course there are the normal positives: wonderful place, wonderful weather. Simply being where we are makes us appealing to both potential clients and their advisors who might be looking for an excuse to get some sun or hit the ski slopes.”
Compared to other Sun Belt states, New Mexico missed most of the real estate boom and so weathered the bust in relatively good shape. The unemployment rate in Santa Fe was 6.6% in December, well below the 8% to 13% that cities in Arizona and Nevada are suffering. Foreclosures are well below the national average, and only one of the state’s banks has failed during the credit crisis.
Labor costs are competitive. According to FDIC data, moving the average financial staffer from Nevada to New Mexico delivers a 2% savings on wages; the same move from Delaware would cut payroll costs 39%. (South Dakota’s still even cheaper.)
Prospective clients are a healthy blend of moneyed refugees from the big city, three- and four-home types who usually end up retiring in the area, and pockets of old money families, many of which have most of their wealth tied up in real estate and so can readily see the value proposition of moving that ranchland into trust and managing it effectively once it’s there.
Too Good to Be True?
A search of New Mexico’s Regulation & Licensing Department’s records reveals ten active trust companies in the state. Three are captive departments of local banks; the rest range from relative giants like Santa Fe Trust and Avalon Trust to niche IRA and escrow servicers.
That’s not bad for a state that didn’t make our list of most trust-friendly jurisdictions. In fact, only four of the states that scored higher (Delaware, Nevada, South Dakota and New Hampshire) have attracted a larger trust company presence, and some like Wyoming and top-tier Alaska have given out far fewer charters despite their reputation as trust havens.
On one hand, New Mexico has a few things going for it on the statute side: Directed trusts are authorized in statute and any company incorporated in the state can get a trust business going as long as it can meet the $150,000 capital requirement and post $100,000 for the bond and $500 for the application.
Support for directed trusts was enough for Santa Fe Trust and Taos-based Heritage Trust. By design, neither has an in-house investment specialist on the payroll. Both were set up with the goal of wooing wealth managers eager to hand off the administration of a client’s trust as long as they could go on managing the money in it.
However, tax treatment could be better. There’s no state inheritance tax, but residents do pay local income tax. “It’s a relatively minor thing, but beneficiaries who live in non-income-tax states still have to file a New Mexico tax return,” Roberts explains. “Whether they actually owe any money depends on the situation, but there are those out there who may get offended simply because the state makes them file in the first place.”
|
New Mexico Trust Companies |
Specialty |
City-Phone |
|
Trust & Investment Mgmt., Family Office |
Santa Fe |
|
|
Trust Management |
Clovis |
|
|
Wealth Management, Estate Planning |
Farmington |
|
|
Desert State Life Management Services |
Trust Management |
Albuquerque |
|
Trust Management |
Artesia |
|
|
Trust & Investment Mgmt., Family Office |
Taos |
|
|
Trust & Investment Mgmt., Family Office |
Santa Fe |
|
|
Self-Directed IRAs |
Albuquerque |
|
|
Trust Management |
Clovis |
|
|
Trust & Investment Mgmt., Family Office |
Carlsbad |
|
|
Trust Management |
Albuquerque |
|
|
Source: New Mexico Registration & Licensing Department and federal regulator websites. © 2010 TheTrustAdvisor.com |
||
On the column to your right, our research department compiled a list of 11 active trust companies in New Mexico; each name clicks through to the institution’s website. Please note that Desert State Life Management Services does not have a web site that we could locate.
Answering the Perpetual Question
Both Roberts and Heritage Trust founder Fred Winter acknowledge that because New Mexico still prohibits perpetual trusts, a company with a local charter can be a bit less flexible than a competitor from South Dakota or elsewhere in the same time zone (two hours behind New York).
Perpetual or “dynastic” trusts have become increasingly popular among families looking to shield their wealth not just for a single generation, but for centuries or even forever. In fact, Winter told me he has at least one client who’s thinking in dynastic terms. “It has actually come up in recent discussions,” he says. “They wouldn’t mind seeing our charter move.”
It probably won’t come to that. Kathy Roberts at Santa Fe Trust says that even if her clients were clamoring for perpetual trusts, it would take a lot to get her to move the charter. “We could always find a partnership with someone who can offer that kind of capability,” she told me.
Trust companies in the state can also wait for the rules to change. New Mexico lawmakers have argued several times to roll back the restriction on perpetual trusts, but so far nothing’s come of it.
Daniel Montoya, who works closely with Winter as secretary of Heritage Trust, says that the fact that so much of the state’s wealth is tied up in land is the sticky point here. The state’s lawyers just don’t want to see that real estate locked up for generations, he says.
“However, this year gives us a good opportunity to get things settled,” he told me. “I suspect something will happen.”
In the meantime, as long as a trust is located in a state that does allow perpetual trust or any other structure, New Mexico administrators will be happy to follow the rules.
Regulators Offer “Red Carpet” Treatment
Local land lobbies notwithstanding, every New Mexico trust officer I talked to loves the state’s regulators, especially Bill Verant, who runs the Financial Institutions Division, and Adrian Martinez, who has direct responsibility for trust companies in particular. “They’re both incredibly welcoming,” says Winter.
Kathy Roberts says that compared to life back in Wilmington, Santa Fe is “a very positive place to be” when it comes to getting things done. “It’s easy to talk to people,” she told me. “You can get in touch with the regulators or just call them up without any impediments—go to lunch. And the bankers’ association is what I would call proactive.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and editing.
Permalink: http://thetrustadvisor.com/news/nm
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