Advisor’s frozen in time since last October’s Meltdown have begun to warm up to attracting more “sticky” trust relationships. Our data shows that among the four major custodians, Pershing is the best choice based on more independent options and the best ongoing support.

As the financial winter appears to be behind us, advisory firms are now dusting off their growth agendas in pursuit of capturing more assets and higher quality accounts.  With the surge in M & A activity beginning, advisors are looking to support different avenues of growth for developing new trust account relationships. 

Joseph Spatucci, Vice President, of Pershing, LLC. says “Seventy percent of high wealth accounts over $1 million are associated with trusts.” This statistic gives RIA’s plenty of motivation to pursue attracting new trust account business. 

With bank trust departments no longer interested in accounts less than $5 million there lies plenty of opportunity for the advisor to land new relationships. However, they must have the know how, expertise and support of a trustee firm to harvest this business.  The first place an advisor will likely go to for support is their custodian. 

This report looks closely at four of the major custodians, Schwab, Fidelity, TD and Pershing as to what their “recommendations” are for bringing in new trust business. 

At first, one might think that Charles Schwab, with 52 percent of the market share, $575 billion under administration would be their first choice to go to for such highly complex support. 

However, the Trust Advisor team spent several weeks researching all the custodial firms to determine who offers the best support and resources to help bring in new trust relationships. 

Pershing Advisor Solutions, the fourth rank, low man on the totem pole custodian outranked its other three competitors for several compelling reasons.  First and foremost, given the fact that a trust relationship generally speaking average account size is $1 million to $5 million that coincides with selecting a custodian that is best suited to support the high end market – Pershing. 

Last year, quoted in Fundfire, Mark Tibergien, Managing Director and CEO of Pershing Advisor Solutions said “We can’t out Schwab Schwab in serving the masses.”  He added “We are focusing on larger teams wanting to grow their business serving larger clients.  We look through the advisor to the end client so the measure of success is not the size of the advisor firm; it is the size of the client.”  Tibergien added, “Emphasis is on the wealthier client who aligns itself perfectly to being the best suited custodian for supporting trust business since its average account size is $1.3 million.”  

Tibergien’s words are reflected in the account concentration analysis show below. Despite Pershing’s small size, it packs a mean punch when it comes to hosting larger firms with large size accounts. 

Last year Pershing launched a “Trust Network”open architecture platform of trust administration providers.  This network is unique since Pershing does not have its own in-house trust company as Fidelity, Schwab, and TD have. 

They have no agenda or preconceived trust provider to send clients to.  They offer a selection of highly qualified and competent trust only administrators who perform trustee and administration services for directed trust relationships.  

In this process, the RIA firm is assured of keeping the account relationship since it retains the investment management functions.  In addition the providers listed on Pershing’s “Trust Network” offer no custody of assets in competition with Pershing, making a perfect fit for hosting assets on Pershing’s custody platform. 

This chart below, Trust Friendly RIA Custodians provides a snapshot of the important features of a trust provider for developing new business.  

Particular emphasis is placed on being directed to providers that support the creation of GST exempt trusts or dynasty trusts, asset protection trusts, these are trusts that protect assets from unwarranted lawsuits and the risk of litigation, and supports directed trusts which permits the investment management to be delegated to the advisor so the client continues to have a seamless relationship with the advisory firm.  

In addition, trust providers should recommend trust relationships in tax free states which in particular amongst the three providers noted accomplishing this are, Pershing, Schwab, Fidelity with recommended resources in Delaware. 

I spoke Spatucci, at the June 2008 Insite Conference.  Spatucci said, Bank of New York Mellon agreed to serve as the trustee for directed trust accounts provided the assets were in the bank’s custody.  “That did not square off with us at Pershing”. He added, it forced his team to go off and find a better solution. 

Pershing execs, with Spatucci in charge, came up with the idea of the Trust Network which supported the concept of open architecture, meaning that an advisor would not be steered to an in-house custodian-owned trust company, but instead would be fully supported using outside trust providers that it checked out and were added to its network. 

In May 2008 Pershing announced the launch of the Network and unveiled its first showcase of providers at the 2008 Insight Conference in June.  In attendance, Wilmington Trust, AST Capital Trust, now Advisory Trust and Santa Fe Trust Company all substantial and quality administrative trust providers. 

I have had several contacts with the Pershing team since 2008. I have received great feedback from several advisors. For more information on the Pershing Trust Network, call Shadia Kirk, Vice President of Pershing who handles the program.  Shadia is very trust literate, understands the issues and can be reached at 1‑630‑472‑6741. 

CHARLES SCHWAB 

All in one provider Schwab has always been keenly aware of the requirement to support trust relationships with the fact that it must agree with Spatucci’s 70 percent trust relationship metric has gone to considerably to make certain that it hosts a comfortable environment for its 5,500 RIA firms that depend on it for custody and clearing. 

The first good decision Schwab made was to host its trust providing resource in the State of Delaware.  This permits its trust company to host GST exempt trusts or dynasty trusts, asset protection trusts and directed trusts.  Last year, Schwab announced that it would create a stand-alone trust provider in Delaware. For more detailed information on their support call Thomas Forrest, President of Personal Trusts, Charles Schwab Bank in Delaware.  His telephone number is 302‑622‑3616. 

FIDELITY

According to a 2005 news article, Fidelity seemed to be on a path similar to one that Pershing took last year for a referral program.  The program from what we can determine was run by Donna Cournoyer, Fidelity’s vice president for trust services. 

From what our research shows Fidelity has done it right by hosting its own trust provider in Delaware, Fidelity Personal Trust Company.  This would permit this trust provider to host the special purpose trusts that are required to support these types of relationships.  At this point. Donna appears to have left Fidelity last year, with no clear successor. Therefore,  the only missing link is to determine who is in charge of Fidelity to connect all the dots.  In other words who is the resource person there to contact should one wish to arrange for supported trust services. 

TD INSTITUTIONAL

From what I can determine TD Institutional before it was TD and only Ameritrade seemed to be on the right track.  It announced in the same 2005 press report that it offered trust services through an open architecture program and referred its advisors to two Delaware based institutions, American Guarantee and Trust and Capital Trust. 

Then, an announcement came in January 2007 by Tom Bradley at TD Ameritrade’s chief that it had purchased the business assets of Gayle Weiss and Associates including its trust company subsidiary International Clearing Trust Company. 

It was not clear from the announcement how much TD invested for this enterprise but it did say that the purpose of the trust company was not to support its advisors for directed trust relationships but to support defined benefit contribution plan and retirement plans.  

The odd fact about this acquisition is that International Clearing Trust Company, ICTC, was chartered in the State of Maine. 

Maine is not a GST exempt trust state nor is it a state that supports the type of trust business that advisors are looking for such as from Delaware, South Dakota, Nevada, or Alaska. On April 15, 2008 the State of Maine approved the name change from International Clearing Trust Company to TD Ameritrade Trust Company.

Again another odd move TD Ameritrade purchased a Fiserv Trust Company as a Colorado industrial bank and merged its assets into what appears to be the Maine trust company.  Fiserv hosts a thriving business of supporting a custodial and retirement account trusteeships mostly for alternative assets at relatively pricey fees. 

I have placed several calls to TD Ameritrade to find out exactly what their trust support policies were and was not able to learn much. I was not able  to find a key resource person to let me know whether or not TD supports the directed trust relationships for the creation of special purpose trusts that many advisory firms are interested in pursuing.

As more and more trust business is created,  the four major custodians and others are going to zero in on supporting trusts.  Pershing in particular at this point seems best suited based on our findings to host this business. 

Jerry Cooper, senior editor, The Trust Advisor Blog. Steven Maimes contributed to the research.