Posts Tagged Les Revzon
WSJ Reports on Firm That Helps Wealth Advisors Start Trust Companies
MARSHFIELD, Mass., May 28 /PRNewswire/ — The Wall Street Journal recently profiled Advisors Institutional Services in the context of increased interest from wealth managers, investment advisors, broker-dealers and other financial institutions in creating and operating trust companies in South Dakota.
Helping Wealth Firms Start Trust Companies
As the WSJ story points out, South Dakota is becoming the top choice for trust providers. With ten new launches this year and a roster of 50 institutions currently conducting trust business in the wealth-friendly state, it’s easy to see why banks and advisors alike are flocking to South Dakota.
Advisors Institutional Services helps financial professionals, law firms, pension plan administrators and banks determine whether a South Dakota-based trust company would complement their current service offerings and, if so, assists them in applying for a trust company license in the state and lining up operational support.
Most recently, Advisors International helped Pittsburgh-based fund processor Mid Atlantic Capital Group apply for a South Dakota trust charter, said President Les Revzon.
“The aging of the baby boomers has created an enormous need for trust services,” Mr. Revzon said. “Our outstanding launch team has helped both boutique wealth managers and large institutions like Mid Atlantic Capital Group – which has $19 billion on its platform — compete in this increasingly important market.”
In fact, the WSJ story highlights a 2007 study by asset manager Franklin Templeton that concluded that some independent investment advisors could see 80% of the assets they manage move into trust accounts over the next decade as aging clients retire.
“A full 40% of today’s wealthiest Americans have no will or trust in place,” Mr. Revzon said. “The opportunities for those who provide such services are enormous.”
South Dakota offers would-be trust providers numerous operational advantages, including low capital requirements, no state taxes on corporations or individuals, the ability to support all major types of trust structures (including asset protection trusts and multi-generational or “dynastic” trusts), and a favorable view on out-of-state entities setting up trust representative offices elsewhere.
For more on the opportunity that operating a trust business in South Dakota represents for financial professionals around the country, Advisors Institutional Services has published a special report, “Launching a South Dakota Trust Company: Guide to Operating Nationwide.”
South Dakota Sets Record for New Trust Companies
Posted by Scott Martin in News on May 15th, 2010
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.
Permalink: http://thetrustadvisor.com/news/sd-record
Feds Order Trust Firms to “Unbundle” Fees
Posted by Scott Martin in News on May 8th, 2010
Trust clients expecting to deduct bundled fees to the limit of the law may need to find providers who can break down fees as the IRS requires.
Two years ago, the US Supreme Court in Knight v. Commissioner held to be eligible to deduct investment management fees in a trust, they cannot be grouped together or bundled with trustee fees in one bill. As a result of this famous case, trust firms in the US are now getting ready to comply with an IRS directive requiring trustee and IM fees to be billed separately for a taxpayer to gain a deduction.
A decade ago, Michael Knight was under the impression that investment management fees for trusts were fully deductible. After all, hiring the best possible advice was part of his fiduciary duty as trustee for a $2.8 million Pepperidge Farm family trust.
He was surprised when the IRS bounced most of the deduction back, leaving the trust with a $4,000 tax bill and gnawing questions about how to account for pure trust expenses (which are fully deductible) versus investment expenses going forward. He took the case all the way to the Supreme Court, only to lose in 2008.
The Supreme Court ordered trustees to split or “unbundle” pure trust expenses from everything else if they want to make sure their accounts get all the deductions they deserve. Two years later, Knight and everyone else in the trust business is still trying to figure out how to obey that order as the IRS delays issuing firm guidance on more than a year-to-year basis.
“You know they just extended the review process again a few weeks ago,” Knight told me. “That means they’ve deferred yet again on making a decision on unbundling. At this point, I wonder if I lost the battle only to win the war,” he added.
“A real pain”
If and when the IRS makes up its mind, trust companies that currently don’t break out their expenses are looking at headaches ahead.
“The Supreme Court ruled in their favor, but I agree that if that’s what’s going to happen, it’s going to be a real pain,” Douglas Blattmachr of Alaska Trust told me.
Other trust companies are steeled for what they see as inevitable. Reno-based Dunham Trust has the accounting systems in place to unbundle its fees as soon as the government tells it to push the button, Tommy Tucker, the company’s president, told me.
“When I checked into it, my operational people said we’re ready to go,” he says.
In fact, there are software fixes out there, says Les Revzon, president of Advisors Institutional, a firm that helps trust companies form in South Dakota and provides back office support for about a dozen trust company clients.
“Most trust accounting systems like SEI, Sungard, Infovisa and HWA can easily break fees down any way the trust company wants,” he says.
While the technology may not be a hurdle, figuring out where to assign every basis point of a previously unified fee may cause some consternation. Firms like Alaska Trust simply charge one all-in fee based on assets and service level, and so, Blattmachr tells me, they’re still working on what an itemized fee breakdown would look like.
Even asking trust companies to do this is pointless, as far as Texas lawyer Carol Cantrell, who argued Knight’s case against the IRS, is concerned.
“I am not sure it can even be done,” she told me. “It would be like asking a real estate broker to unbundle his real estate commission among the various duties he performed,” she added, noting the complexity of all the unique variables involved.
“No two trusts are alike”
Cantrell points to another serious issue: What happens when trust companies disagree in how they split up the basis points, even as far as trusts administered by the same company are concerned?
On the one hand, every trust and every trust company is different, but ultimately the line-item approach will force fee allocations to converge throughout the industry, Cantrell says. That could lead to a competitive race to the bottom, but it’s not likely to happen any time soon.
As things currently stand, there’s no need to unbundle unless the IRS mandates it. The Supreme Court’s issue was not so much with fee transparency but with whether bundled fees are fully deductible. Theoretically, any trust officer could simply charge a wrap fee and accept potentially less favorable tax treatment.
In the meantime, Dunham Trust, for example, is still treating all of its fees—trust and investment management alike—as deductible. However, Tommy Tucker has talked to colleagues who are being told to unbundle and not write off a cent of their investment fees.
Michael Knight originally argued that making sure his accounts were invested in the best possible way was part of his fiduciary duty, and so investment management necessarily qualifies as a fiducuary expense. It’s a great point, and there are efforts in Congress to change the law to accommodate it.
Whether that happens this year is anybody’s guess, given Washington’s distracted and fractious mood. Nobody I talked to expects anything to shake out before the November elections, and even when it does, there could probably be a long wait before new rules go into effect.
As for Knight, he told me he’s really just scratching his head when it comes to the Supreme Court decision.
“The lack of focus on the fiduciary relationship was disconcerting to me,” he says. “Some of these judges have been in private practice. I guess they didn’t do a lot of trustee work.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/unbundling
Nevada’s New Trust Company Rules Set to Begin October 1st
Posted by Jerry Cooper in News on September 25th, 2009
After two failed attempts, determined regulator succeeds in closing Nevada’s low capital loophole.
LAS VEGAS, NV. Sept 25 – This Thursday, October 1st, Nevada’s Financial Institutions Division, the state agency that supervises trust companies, and its Commissioner George E. Burns can celebrate a long fought victory for promoting major trust company regulatory reforms and carrying them through the legislature to the Governors’ desk.
The new law, Nevada Senate Bill SB-310, provides for $1 million in capital to be posted, a 330% increase in the requirement needed to license and maintain a retail trust company in the state. In addition to the need for additional capital, other major requirements include:
- Verifiable physical office to administer trust business in Nevada.
- Nevada employee with trust experience “satisfactory” to the Commissioner.
- Original or “true” copies of business records and accounts readily available for examination.
- Maintenance of the required cash portion of the capital requirement in a Nevada financial institution.
- Services provided to Nevada residents consistent with the business plan.
- Other conditions that the Commissioner may require to protect the “public interest.”
To give time to the state’s currently licensed 17 public trust companies to comply, the new law calls these grandfathered trust companies and provides for a reasonable time to meet the new $1 million requirement:
- $500,000 by October 1, 2010
- $750,000 by October 1, 2011
- $1,000,000 by October 1, 2012
SB-365 Establishes Provisions Relating to Family Trust Companies
A second law, Nevada Senate Bill SB-365, establishes provisions relating to family trust companies. Private family trust companies do not do business with the public and are a lessor concern to Commissioner Burns.
This bill, promoted both by the Nevada Bar Association and noted private trust company expert John P. C. Duncan retains the existing $300,000 capital requirement for licensed private family trust companies. In addition to the lock on lower capital, the bill provides for better definitions of what a family trust company is and a reduced annual fee of $1500.
Most significant about SB-365 is the option to be regulated or unregulated. Section 13 of SB-365 states:
A family trust company:
- Is not required to be licensed pursuant to this chapter or chapter 669 of NRS.
- May apply for a license as: a) A trust company pursuant to chapter 669 of NRS; or b) A licensed family trust company pursuant to this chapter.
This means that an organizer of a private family trust company can choose to be unlicensed and carry on its business with the full blessing of the state without obtaining a trust license from Nevada’s Financial Institutions Division.
Reaction to the New Laws
The reaction to Nevada’s trust company overhaul has been mixed. Les Revzon, an officer with Summit Trust Company, which has been in business since 2004, said reforms were needed. Revzon said: “By promoting the increase in capital and entry requirement standards, Nevada is raising the bar and will attract higher quality institutions.” Revzon added: “Summit already maintains $1 million in regulatory capital and we are pleased to see that now everyone else needs to measure up.”
Christopher Holtby, a Dallas-based wealth manager, said for a wealth manager that has less than $1 billion under management, Nevada makes no economic sense. The cost to maintain $1 million of capital and to support a stand-alone office with full-time staff makes Nevada cost prohibitive for any start-up.
Holtby and several other Dallas area wealth managers chose South Dakota over Nevada to launch Wealth Advisors Trust Company when they learned of the proposed changes in Nevada earlier this year. “The $1 million requirement did not bother us, but we felt that made no sense for a non-custodial institution. Also, that together with our group’s overriding concerns with Nevada’s surge of bank failures and reputation with gambling made South Dakota a better choice.”
Holtby continued: “Perhaps if you are a Morgan Stanley or LPL, Nevada may be the right fit for a trust company. But, I see those firms selecting Delaware over Nevada now with similar requirements. Delaware is a mature well-known trust center with close proximity to the east coast, with plenty of trust talent.”
All of the trust companies interviewed had no problems with the new law. They were pleased with the new rules because they are specific and clear. Most were pleased with the way Commissioner Burns was running the agency, including the handling of examinations. Revzon said: “The two examinations he oversaw on behalf of Summit Trust, the auditor was well trained, very professional, fair and reasonable.”
The Road to Reform
Reforming Nevada’s trust statues which go back to the 1940’s was no easy task. The quest to increase the capital requirements and modernize the licensing and supervision rules governing trust companies began over two years ago in early 2007.
The first proposal was introduced by Commissioner Burns’ predecessor Steve Kondrup for the 2007 Nevada legislative session. The bill, SB-537, asked for similar reforms found in SB-310 but with a $2 million capital requirement. The bill died before it could be heard since the Senate Committee Commerce Chairman Randolph J. Townsend thought the proposal was out of touch with the needs of the industry.
FID’s second attempt to close the loophole came in the form of proposed regulations by the Commissioner of Financial Institutions. On August 20, 2008, proposed regulations to the existing trust company law, NRS 669, were introduced. The regulations titled LCB File No. R134-08 were posted on the agency’s web site.
Most of the content from the 2007 Nevada legislative attempt was inserted into these regulations almost verbatim, making it seem the Commissioner was trying to bypass the approval required by the Nevada Legislature and Governor Jim Gibbons.
This proposal included a requirement that a trust company maintain $2 million in regulatory capital. In addition, there was an unusual provision added in Section 9 of the proposed regulations. It states: “Evidenced that a majority of the operations of the trust company serve residents of the state.” This meant a Nevada trust company would have to do more than half its business only with Nevada residents. This unusual requirement had no precedent anywhere in the country.
The procedure for promulgating regulations in Nevada requires a public hearing, called workshops so that those affected might have a chance to comment and hopefully prevent unnecessary and over-burdensome rules to be created. Among those in attendance was John P.C. Duncan who testified in opposition.
Duncan was concerned that the family trust companies he formed on behalf of his clients might be affected by these requirements. It was Duncan’s arguments which reportedly led to the Nevada FID withdrawing the regulations without further contention. By the time those regulations were withdrawn the window of time that the Nevada Financial Institution Division could introduce a bill in the next legislative session was coming near.
At that point, the Nevada FID abandoned its further attempt to control the trust companies through regulations. It set its sights on a higher and better target of actually getting the law changed. At that point the Division introduced a first draft of SB-310 on March 16, 2009 which contained much of what was requested in the proposed regulations.
Duncan said, according to my interview, that he followed the bill through the legislative process. He realized that if he didn’t reach out to Commissioner Burns, that his private trust company clients could become trampled and caught up in this new far-reaching proposal.
Duncan persuaded Burns that his chances of success were much greater with his help and his trust company credentials in front of the legislature. Duncan was the architect of New Hampshire’s trust company law overhaul and wrote the model trust company law for the Conference of State Bank Supervisors.
Commissioner Burns, according to Duncan, readily agreed to allow Duncan and the Nevada Bar Association retain its existing dominion over private trust companies if Duncan signed on and supported the Commissioner’s proposal for major retail trust company reform.
On April 6, 2009, Duncan delivered and provided testimony before the Senate Commerce and Labor Committee hearings on SB-310. Duncan said: “Can Nevada not only remain but become an even more attractive state for trust companies and family trusts and the good jobs associated with them, while at the same time providing superior protection to the assets and financial health of their clients and trusts?” He added: “In my opinion the clear answer to this question is yes.”
When the Senators heard him say that jobs might be created they easily went along and approved the bill. It was his testimony urging passage of SB-310 that closed the deal for the Commissioner. With only modest compromises, the bill wound up on the governor’s desk for signing on May 30, 2009.
The question still remains: will the reform of the trust company rules really create employment for Nevada as Duncan suggested? Of course, only the future can tell.
However, can a state deep in debt, suffering from a flood of bank failures and the worst housing and mortgage crisis in modern history find prosperity from tightening trust company rules? The likelihood that J.P. Morgan, Merrill Lynch and Citigroup will be lined up at the Nevada FID’s doorstep next Thursday remains to be seen.
As for John P.C. Duncan, the future is clear. His incredible reputation as a trust company law reformer and the nation’s leading expert on private trust companies has assured him a lucrative franchise by continuing to create both regulated and unregulated Nevada private family trust companies.
Duncan said that family trust companies in Nevada under this new set of rules are groundbreaking. He said: “It provides the best possible environment for hosting family trust companies.” He added that beginning October 1st he has five family trust companies that he will set up under the new rules.
Industry insiders have different opinions what motivated Commissioner Burns to promote reform. Las Vegas based financial institutions attorney Matthew Saltzmanwith the law firm of Kolesar and Leatham said he thought allegations of wrongdoing by several Nevada trust companies last year motivated the Commissioner to push for changes. Saltzman said that Burns did not want to see Nevada become a “Tijuana of Trust Companies” where trust companies establish themselves under Nevada’s relatively low capital requirements and then operate in other states. Saltzman’s firm represents many Nevada trust companies, including several that have been the subject of the regulators compliance actions. He is currently appealing the Nevada FID’s denial of a trust company license application that was filed shortly after Burns was appointed Commissioner.
Scott Walshaw, Nevada’s former FID Commissioner said there was no loophole that needed to be closed. “The Commissioner always had the power under the existing rules to require a trust company to put up any amount of capital he deems fit, including $1 million.”
Walshaw would not comment of what he thought of the new rules, but both Saltzman and Walshaw agree that the proposal will not likely attract the big banks and large financial organizations as promised. Walshaw added: “If they hadn’t come to Nevada already they certainly aren’t going to come now.”
Jerry Cooper, senior editor, The Trust Advisor Blog. Steven Maimes contributed to the reporting.
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