Posts Tagged Northern Trust
Confidence in Banks Falls to New Low; Farming Out Investment Decisions to Top Advisory Firms Seen as Best Way to Restore Trust
Posted by Scott Martin in News on June 26, 2011
UMAs offering best of breed managers are now in fashion for bank distribution channels while bank crisis refuses to go away.
According to a new poll by Gallup released last week, 36 percent of Americans now say they have “very little” or “no” confidence in U.S. banks, the highest percentage on record since Gallup first started tracking that data.
Safe to say it’s been a tough year in the banks’ public relations departments. The nation’s five largest mortgage firms — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — have been the focus of a federal investigation into whether they defrauded taxpayers in their handling of foreclosures.
All of this coupled with market turmoil are good reasons for UMAs (unified managed accounts) to restore image and help clients properly diversify, rebalance portfolios and soothe nerves.
Investors scarred by one of the worst decades in market history are still finding plenty of reasons to be a little edgy, and they’re leaning harder than ever on their advisors to ease their nerves.
Trust Firms’ Profits Stay Positive in First Quarter
Posted by Scott Martin in News on May 1, 2010
Full-service banks are still fighting headwinds, but business is booming in their trust departments. More specialized trust companies are making a lot of money.
It was another bumpy season for the big banks, but when you drill down into the numbers, the trust business is ramping up in terms of both activity and profits.
Most of the publicly held names in the trust industry booked a solid first-quarter profit as trust fee income expanded by about 20% to 25%. Northern Trust, Washington Trust and Westwood Trust all improved their bottom line.
The best performers attribute the improvement to a mix of tactical business development and old-fashioned organic growth. For example, Westwood Holdings, the parent of Dallas-based Westwood Trust, boosted its trust income 24% to $3 million in the quarter.
“We’ve hired a new trust officer and are hoping he will help us grow,” William Hardcastle, the company’s chief financial officer, told me.
“But about 3/4 of our new cash flows are from referrals or new assets from existing clients,” he added. “Clients are not quite as afraid as they were. That’s very welcome.”
Northern Trust reported a 25% increase in trust and other fees. Washington Trust bumped up its wealth management revenue by 16%.
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Selected Trust Institutions: |
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|
Fiduciary |
Fiduciary Revenue |
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|
Institution |
12/31/09 |
Change from 12/31/08 |
12/31/09 |
Change from 12/31/08 |
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|
Northern Trust (IL) |
$3.9 trillion |
20% |
$2.2 billion |
-4% |
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Wilmington Trust (DE) |
$185 billion |
10% |
$288 million |
96% |
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|
Bessemer Trust (NY) |
$47 billion |
4% |
$284 million |
18% |
|||
|
Wellington Trust (MA) |
$31 billion |
25% |
$188 million |
-4% |
|||
|
Glenmede Trust (PA) |
$18 billion |
10% |
$80 million |
25% |
|||
|
Boston Trust (MA) |
$4 billion |
14% |
$20 million |
26% |
|||
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Lehman Bros. Trust (NY) |
$3 billion |
9% |
$18 million |
-29% |
|||
|
Haverford Trust (PA) |
$3 billion |
13% |
$13 million |
7% |
|||
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Washington Trust (RI) |
$2 billion |
15% |
$1 million |
19% |
|||
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Westwood Trust (TX) |
$2 billion |
29% |
$10.3 million |
-6% |
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Legacy Trust (MA) |
$1.7 billion |
38% |
$8.5 million |
23% |
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Trust Co. of Toledo (OH) |
$1.7 billion |
21% |
$4 million |
22% |
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Unified Trust (KY) |
$1.6 billion |
30% |
$13.5 million |
26% |
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Philadelphia Trust (PA) |
$1.3 billion |
18% |
$6 million |
19% |
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Source: Trust Performance Report, A.M. Publishing, Chicago, IL. and SEC website. Representative sample only; not a comprehensive list. |
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Drilling down
That’s nice for the big institutions, but most trust companies aren’t publicly traded and don’t announce their results. To get the score on smaller trust operations, we got in touch with the expert number-trackers at Trust Updates in Chicago.
First-quarter numbers are just trickling in now, but Bernard Garbo, publisher of the company’s Trust Performance Report, told me that if early indications are any guide, the rising tide is still lifting all the boats.
“Larger institutions seem to be doing fairly well, but the rest are reporting that assets are up as well,” he says.
Garbo sees the best growth potential in institutional markets like employee benefits programs and other corporate trust services. However, the biggest trend he’s noticed is that the trust companies that can squeeze the most profits out of their assets tend to be specialists.
“Institutions that tend to specialize in fewer account categories are often the most profitable,” he told me.
“That’s not to say that some full-service operations aren’t making money, but especially among the independent trust companies, it seems difficult to be all things to all clients,” he added.
Trust works when lending fails
If specialists are reaping big rewards, the reverse also seems to be true. Full-service banks where trust is only a slice of a larger service platform don’t seem to be doing so well.
Among the big integrated trust banks, Wilmington Trust lost $29 million and Marshall & Ilsley lost $140 million. Both confessed that problems in their loan portfolios dragged their results down, but it wasn’t the trust departments’ fault. In fact, both banks singled out their wealth management operations as a bright spot.
Bank analyst Richard Bove at Rochdale Securities told me this is a natural part of the business cycle.
“The trust business is all about regular fee income and incremental growth,” he says.
“Because of this, it rarely suffers when the market does poorly, and in fact can provide a buffer when the environment turns against an institution’s riskier activities.”
Wilmington has tweaked its business to take advantage of the trend. The bank saw its core trust revenue climb 11% in the first quarter and its assets under administration surge 22%, thanks in part to an aggressive new sales campaign.
“Our reputation as a superior fiduciary and service provider continues to serve us well,” Mark Graham, executive vice president of Wilmington’s wealth advisory services unit, told me, adding that new account activity is up 34% over last year.
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/earnings
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.
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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% |
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|
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% |
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* 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
Advisor Managed Common Trust Fund Accounts Disappear as Fiduciaries Fear Risk
Posted by Jerry Cooper in News on November 13, 2009
Trust Advisor Survey: Surge in ERISA lawsuits, 2008 Advisor Performance Prompts Trustees to Turn Down New CTF Business; Regardless of Risk Compelling Benefits Remain
Exclusive Report
Common trust funds aren’t so common anymore. Wall Street’s on‐again off‐again love affair with common fund pooling arrangements appears to be on the rocks (at least for the time being), according to research conducted by The Trust Advisor Blog since the beginning of the year.
Chicago‐based Northern Trust, known to be a CTF platform provider of third‐party hosting arrangements for RIAs, reported “they no longer offer their platform for managers,” said Anna Jamroz of Northern Trust’s Global Fund Services group. Several other major banks have also ended the practice of permitting third‐party investment advisors to direct the portfolios held in common trust fund accounts.
These arrangements permit the CTF’s to re‐create mutual fund portfolios. Typically, this helps investors by lowering operating costs. Common fund accounts don’t require the expensive operating costs of a mutual fund such as printing, compliance, call centers, etc. All of this translates into lower expense ratios which benefit investors. Both Morningstar and Lipper maintain databases of over 1,000 funds for the purpose of tracking performance. Most of these CTF’s are hosted by banks or trust companies that also serve as investment advisor to the fund.
The history of common trust funds, or CTF’s, dates back to the Jules Verne era and they are almost as old as Wall Street itself. In simple terms, these arrangements permit the comingling or pooling of investors’ money into one account (known as a common fund) for the purpose of creating a single investment.
In other words, they are much like a mutual fund. However, CTF’s are not required to be registered with the Securities and Exchange Commission and they are not considered to be a security under state and federal securities laws. They are regulated under OCC Regulation 9 (12 CFR 9.18) and are supervised by state or federal bank regulators.
Just 16 months ago, collective funds were the darlings of Wall Street. They were featured in a July 24 article in The Wall Street Journal, “‘Collective Funds’ Gain Traction in 401(k)”. The WSJ reported “collective funds pool investors’ assets and invest in stocks, bonds and other securities. The chief difference: Collective funds are typically available only in retirement plans. Because they aren’t sold directly to the general public, they generally aren’t regulated by the Securities and Exchange Commission.” The story added, “Collective funds tend to be substantially cheaper than mutual funds, largely because they don’t have to comply with SEC regulations or market to retail customers. That’s driving 401(k) plans to embrace these products, which are offered by big fund providers like Fidelity Investments, Vanguard Group and Charles Schwab Corp.”
Risky Third Party Arrangements
In a typical CTF setup, there is a trust and a trustee. The investors are called participants which are similar to shareholders. But because of the very nature of the arrangement as a trust, the trustee maintains full fiduciary responsibility. This includes responsibility for the profit or loss of the fund. The trustee cannot unload, delegate or bifurcate investment responsibility to a third party investment advisor without liability. In other words, the trustee is liable and responsible for the investment decisions of the advisor. If the common trust fund loses money, the trustee may be on the hook to make the investor whole in the event of a claim against the fund for a recovery.
All of this makes trustees very nervous when it comes to serving as trustee of a CTF managed by an investment advisor whose track record may have sustained losses. Since most advisors sustained double‐digit losses last year, it’s easy to see why trustees are scared.
In recent years, trustees have prided themselves on opting into roles that expressly limit their liability. These include directed trusts which permit the trustee to bear no responsibility for investment decisions as long as a directed trust is properly constructed and administered.
The Next Bull Market Scenario
A serious market recovery, renewed investor confidence and a boost in retirement wealth may spark another round of CTF mania in the coming years. If it does, there are mutual benefits for both the investor and the provider.
For the investor: he gains the ability to participate in fractional shares of managed accounts normally reserved for ultra‐high net worth investors who are prepared to put in $3 million to $4 million. With a common trust fund, an investor with as little as $100,000 or $200,000 can buy a share of a managed account and participate in the strategy and the gains (or losses) of a best‐of‐breed advisor.
Models that Work Now
According to reports filed with the Securities and Exchange Commission, Westwood Trust‐owner Westwood Holdings Group (WHG) of Dallas, TX hosts multiple common trust fund accounts. In this case, Westwood is also an investment advisor and also owns a trust company. This all‐in‐one arrangement does not put the responsibility of third‐party risk on its shoulders since the parent/owner is familiar with the strategy of the advisor and owns the trust company.
In a situation where the investment advisor owns a bank or trust company, CTF’s can make a lot of sense. Since there is no outsourcing of risk, the advisor feels comfortable about its strategy and therefore is willing to accept the additional responsibility associated with maintaining the CTF account.
In another scenario, Davidson Trust of Montana is a combined trust company and investment advisory firm which offers its customer CTF accounts of pre‐approved and selected portfolios. I spoke to Davidson Trust Vice President Dennis West, who told me that their CTF accounts are popular with their investors. The firm has six different portfolios to choose from. Although the loads are somewhat heavy for smaller accounts of $1 million or less, the fees become lower when you leave Davidson more funds to work with. For more information, you can reach Dennis West at 1‐888‐389‐8001.
As more investment advisory firms begin to integrate trust operations, it makes more sense to also host common trust funds for these purposes. Given the compelling benefits these arrangements can yield investor savings and an ability to get into a fund with a best‐of‐breed strategy for a lower entry charge.
Jerry Cooper, senior editor, The Trust Advisor Blog. Steven Maimes contributed to the research.
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