Exclusive

Banks and advisors continue to flock to top-rated South Dakota for favorable trust laws and cost-efficient operations.

PIERRE, SD., Feb 12 – Denver-based United Western Bancorp (Nasdaq: UWBK) has applied to receive a trust charter in South Dakota, according to a report released this week by the South Dakota Division of Banking.

A United Western spokesman confirmed to the Trust Advisor Blog that it has filed with the South Dakota Division of Banking to restart its current Texas-based trust operation, once part of Sterling Trust, with a South Dakota charter.

United Western, according to its website, is the third-largest savings bank in the western United States, with eight full-service community banking branches scattered across Colorado’s affluent Front Range, $2 billion in deposits and about 370 employees.

In April last year, United Western sold most of its lucrative Sterling Trust Company, a pricy alternative asset custodian, for $61 million to the Ohio-based owner and operator of Equity Trust Company of South Dakota. The deal closed in June. The remainder firm, known as United Western Trust Company or UW Trust Company, is now a relatively small Waco-headquartered and chartered trust company with roughly 12 employees and $26 million in trust (as of September 30, 2009). In its present form, the company primarily provides legacy, escrow, life insurance settlement and paying agent service accounts.

Restarting UW Trust under a South Dakota charter would immediately enable United Western to take advantage of that state’s bank-favorable regulatory environment, says Denver estate attorney David Kirch. “States have been enacting more trust-friendly laws and South Dakota is definitely one of the friendly types,” he told The Trust Advisor. “That’s probably why they chose it.”

Jon C. Walls, a banking industry expert and former Lehman Brothers investment banker, told the Trust Advisor that “United Western’s Scott T. Wetzel is a veteran banker with experience at both Compass Bancshares and KeyBank. He understands the important role non-spread businesses can play in diversifying the revenue mix of a community bank.”

Walls added, “While capital adequacy issues seemingly prompted the sale of the bank’s trust division in mid-2009, its successful common stock offering last September put it at levels exceeding regulatory requirements.”

“This announced charter move seems to signal the bank’s intention to rebuild that potentially important business on the stronger platform offered by the South Dakota trust laws. This would be consistent with Wetzel’s strategy of transforming the wholesale institution he took over back in 2005 into a full service community bank,” Walls added.

UW Trust Company is part of a recent trend of wealth management firms launching in South Dakota as public trust companies. South Dakota public trust company start-ups surged last year. With six public trust company start-ups, 2009 was a record year for the state.

Benefits for South Dakota

According to public records, South Dakota now has 39 trust companies and is the top choice. Delaware is next, with 32 trust companies, followed by Nevada with 29.

There’s strong evidence that the state benefits. According to the state’s 2009 annual report, the South Dakota Division of Banking brought in a record $262,651 in combined examination and supervision fees from hosting trust companies. To keep the fees flowing, state lawmakers are considering a bill that would further “strengthen the legal and regulatory framework for public trust companies.”

As states bid for trust business, they often will not tax those assets they are betting on for increased economic activity that will bring other prosperity to the state in the form of job creation, corporate tax revenue collected from trust companies and corporate tax assessments from the trust companies.

It is for this reason South Dakota and other states continue to sharpen their pencils and enact new laws designed to attract wealthy baby boomers and their parents’ estates for future generations. Trust accounts have been an important part of the investment landscape.

Trusts can be created for a variety of other purposes, including avoiding probate, passing on a family home to heirs, protecting money from creditors, caring for a disabled child or even providing for a pet after one dies. Trusts continue to grow in popularity thanks to the aging population, more aggressive marketing by financial firms and concerns about maximizing trusts’ growth performance.

Asset protection trusts have gained in popularity as marketing vehicles for advisors. Doctors, business executives and other professionals have become increasingly interested in these trusts, advisors say.

With these, you transfer assets into a trust run by an independent trustee who can give your client distributions from time to time. These trusts, if set up properly, are in most cases able to keep the assets of the trust out of reach of creditors.

For wealth management organizations, advisors can gain additional income and provide more value to their service by bundling trust services within investment management.

Last year, several advisory firms launched their own trust companies in order to be better positioned to provide these services. These included Wealth Advisors Trust Company and Dominion Trust Company in South Dakota, with both launches targeting wealthy clients from a wealth-friendly trust state. This trend was featured in an Investment News article last summer, More Advisory Firms Expected to Start Trust Companies.

Advisors Institutional Services (www.advisorsinstitutional.com), which I support, helps wealth managers, advisors, broker-dealers, banks, law firms, and pension plan administrators create and operate trust companies in South Dakota. This can permit a bank or advisor to replicate both the Sterling and UW Trust company business models.

The firm offers a complimentary special report called Launching a South Dakota Trust Company Guide to Operating Nationwide which is available on-line at (www.advisorsinstitutional.com/s/southdakotareports.asp).

Jerry Cooper, senior editor, The Trust Advisor Blog. Scott Martin and Steven Maimes contributed.

Permalink: http://thetrustadvisor.com/news/uw