Posts Tagged Santa Fe Trust
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.
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
TD and Fidelity Win Top Honor as Advisors’ Most Trust-Friendly RIA Custodians
Posted by Scott Martin in News on October 9, 2010
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.
|
Trust Friendly RIA Custodians |
||||||||
|
Custodian |
Trust Provider |
Architecture |
Marketing Support |
GST Exempt Trusts |
Asset Protection Trusts |
Directed Trusts |
State Tax |
Score |
|
|
Trust Network |
Open |
Yes |
Yes |
Yes |
Yes |
No |
6 |
|
|
Varies |
Open |
Yes |
Yes |
Yes |
Yes |
No |
6 |
|
|
Trust Network |
Open |
Limited |
Yes |
Yes |
Yes |
No |
5 |
|
|
Charles Schwab Bank |
Closed |
No |
Yes |
Yes |
Yes |
No |
4 |
|
Source: Internal Research. ©2010 TheTrustAdvisor.com |
||||||||
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.
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 |
|||||||
|
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
Are Directed Trusts Too Good to Be True?
Posted by Jerry Cooper in News on February 5, 2010
Decade-old trust feature that splits trustee and advisor into separate operations has become accepted practice for banks and trust companies nationwide; but questions remain: will they last?
On the surface, directed trusts are an obvious win for everyone. Splitting the administration of a newly created trust from the responsibility of managing the assets within it lets legacy advisors keep their accounts and custody provider—such as Schwab or Fidelity. Trustees avoid the headaches of managing exotic assets, while their clients can feel secure knowing that experts are in charge of every aspect of their wealth.
Jeffrey Lauterbach gets credit for turning the concept into a trust operation that propelled his firm, Capital Trust, from zero to $6 billion in trust assets in six years. “It was always market driven,” he told me in a recent interview. “Advisors told us want they wanted, and we delivered.”
Lauterbach sold his operation in 2005, which was subsequently sold to Wilmington Trust in 2007. He added, “Wilmington tried to make a go of it by itself, but didn’t stick with it long enough to make it work. We did”
Today, firms like Advisory Trust of Delaware (Capital Trust’s successor, owned by Wilmington Trust), Santa Fe Trust, Reliance Trust and Wealth Advisors Trust Company of South Dakota are actively courting advisors who want to add value without handing off the relationships they’ve worked so hard to build. Fees are generally split between trustee and investment manager, which helps make sure everyone stays happy.
These advisor-oriented trust companies are also promoting the directed trust model directly to wealthy people who may benefit from a trust but don’t feel like handing the reins of a family business, for example, to a relative stranger who knows nothing about how to keep the business going. In these cases, setting up a directed trust lets insiders stay in charge and still enjoy the other advantages of ownership under the trust structure.
“A corporate trustee doesn’t want to get involved in running a closely held business, and families don’t want corporate trustees interfering in a lot of their decisions,” trusts and estates lawyer Bruce Stone told Lawyers USA (a professional monthly for the legal profession) back in 2007. “With a directed trust, the corporate trustee only has to do certain things.”
Liability in the Details
So far so good, but if things go wrong, the question of who gets blamed still gets decided on a state-by-state basis. The limits of a trustee’s responsibility to monitor the advisors assigned to direct the trust’s investments are often nebulous, and some have been sued for failing to spot and stop misconduct fast enough.
It’s a controversial topic even among The Trust Advisor’s readership. When we posted back in January our analysis of the most trust-favorable states, estate planners piped up with corrections.
“In your chart, you indicated that Florida doesn’t have a power to direct,” wrote Lester Law, a senior vice president at U.S. Trust Bank of America Private Wealth Management working in Naples, Florida. “Can you review the … statute and let me know what you think?” And Boulder, Colorado attorney Scott Robinson alerted us that “The chart indicates that Wyoming does not have a directed trust statute. Wyoming does in fact have such a statute.”
Two Approaches
In an influential 2007 white paper on the subject which may be downloaded, ”Directed Trusts: Can Directed Trustees Limit Their Liability?,” trust guru Richard Nenno, a managing director at Wilmington Trust Company of Delaware, divides the roughly 30 states that allow directed trust arrangements into two main groups. Most (including, according to the white paper, Florida and Wyoming) followed the approach laid down by Section 808(b) of the Uniform Trust Code.
In these states, trustees have to monitor what’s going on in the investment side and step in if the terms of the trust are in danger of being broken. This means the trustee’s potential liability still exists—in whole or in part—even though the work of managing the assets has been assigned to someone else. “Unless the governing instrument provides otherwise, a directed trustee must devote considerable resources” to the job, Nenno writes. In plainer terms, in these states, second-guessing the legacy money manager can be a grind.
However, other states, including Delaware, South Dakota and most of the Trust Advisor top tier, take what Nenno calls “a more protective approach” based on statutes that go beyond the UTC. In these states, trustees are held more-or-less blameless for anything that goes wrong in an area the trust grantor explicitly assigned someone else to handle.
Utah, for example, assigns directed investment advisors separate fiduciary responsibility; the trust company is almost completely off the hook for following the advisor’s investment calls except in cases of gross negligence or willful misconduct.
In these states, Jeff Lauterbach told The Trust Advisor, it’s cut and dried. “The trustee was directed to do something and the trustee did what he was supposed to do, he’s not liable. The advisor’s liable.”
“A Competitive Issue”
Whether a state has been content to go the UTC route or opted for more comprehensive directed trust rules can make or break its ability to support advisors cultivating directed trust arrangements. Joan Crain, a senior director at BNY Mellon Wealth Management in Fort Lauderdale, told Lawyers USA that it’s “a competitive issue” and that the 2007-era Florida rules didn’t go far enough to protect trustees.
“You still have the duty to oversee, to monitor, to intervene,” she said. “The directed trustee statutes in the few states that have strong ones are explicit as to the lack of responsibility on the part of the trustee for reviewing the actions of the investment manager.”
Even in relatively protected states like Delaware, where directed trust statutes go back to 1986, lawsuits still happen. Nenno’s own Wilmington Trust was a defendant in 2004 after the securities lawyer directed to oversee a trust’s assets sued the trust company for following his advice. The court found Wilmington blameless, noting that the investment advisor was happy to collect management fees and so was implicitly accepting the wages of failure.
As Leo Strine, the court chancellor who heard the case, summed up: “Had he wished for Wilmington Trust to be investment advisor to run a high-risk portfolio, I’m sure Wilmington Trust likes to make money. It would be willing to do it. It costs a lot more.”
Jerry Cooper, senior editor, The Trust Advisor Blog. Scott Martin and Steven Maimes contributed.
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