Posts Tagged Wilmington Trust
Advisors Predict Obama Tax Deal Will Hurt Trust Business
Posted by Jerry Cooper in News on December 12, 2010
With a new 35% estate tax, $5 million individual exemption and portability, experts say tax savings will no longer motivate clients to hire estate planners. Advisors and planners alike are going to need to change marketing messages to stay ahead.
In a stunning turn of events, on December 6 President Obama announced that he reached a deal with Republicans on estate tax and to extend the Bush tax cuts.
Under the deal, the 2010 repeal of the estate tax will not be extended, ending the long uncertainty about the future of federal estate taxes that allowed billionaires to die tax-free this year.
If Congress had not reached an agreement, the estate tax was scheduled to come back next year at a top rate of 55% and in some cases 60% with an exemption of only $1 million for individuals.
Under those circumstances, estate planning attorneys and trust firms insisted that their thriving practices would continue to help wealthy Americans avoid estate taxes and plan for generations to come.
However, as a complete surprise to the trust community, the defeat that Obama suffered in the November 5 election forced him to accept a Republican proposal that will give Americans a tax rate of 35% — the lowest rate since the 1920s — with a $5 million exemption for individuals and $10 million for couples.
On the surface, you would think that that would be great news for wealthy Americans. However this week I have spent hours on the phone listening to financial planners crying the blues about what is going to happen to their practice since the main reason people came to them was to avoid paying estate taxes.
Martin Shenkman, author and estate tax attorney, told me, “Estate planners have had the wind knocked out of their sails.” He added, “They are going to need to work harder to offer new products to get the wealthy clients into their office.”
He added, “What’s going to happen in many cases is that clients are not going to appreciate the benefit of what the planners are doing if a tax motive is not there. They are going to be less inclined to spend the money to do it right, and more inclined to do something on the cheap with a general practice attorney — or on their own because they will argue, ‘How can I screw this up if no taxes are involved?’”
“Dead as a doornail”
To make matters worse, Howard Zaritsky, a Virginia-based estate planning expert, told me that if the current bill passes, “estate planning as we know it may be dead as a doornail.”
“Most clients under $10 million will need very little in the way of tax planning,” he added. “That will as a practical matter almost eviscerate the rank-and-file financial planning business, because that’s the bulk of clients.”
Portability of exemptions is the key here. Historically, while married couples were always allowed full estate tax exemptions for both spouses, they often needed good legal advice to get the value of both exemptions.
The Senate bill has a “portable” exemption that makes this planning much easier. After the death of the first spouse, any unused portion of the spouse’s $5 million exemption may go to the surviving spouse’s future estate.
Up until now, a couple would be required to establish a complex QTIP trust that permits the surviving spouse to receive the credit — but under the proposed portability rule, the credit becomes automatic.
Tony Barnard, a trust marketing expert with Financial Marketing Associates, told me, “Estate planners and trust firms are going to now have to rethink their strategies in order to sustain their current practices.”
“Two reasons that a wealthy client will walk into a planner’s office are to maximize profits or to protect assets from litigation or taxes. Now taxes will become more obscure. Planners are going to have to do a better job at profit and asset protection benefits in order to continue to have conversations with clients.”
New products for the new world
Richard Nenno, an estate planning strategist with Wilmington Trust, told me that without an apparent estate tax hurdle, the equation will have to be more along the lines of directed trust and asset protection trust as opposed to dynasty trusts and other vehicles that deliver tax protection from estate taxes.
Darlynn Morgan of the Morgan Law Group said she agrees that the $5 million exemption will likely chill estate planning for a while, but most of her clients do estate planning for other reasons — including incapacity planning, family dynamics or planning for blended or nontraditional families. She sees no shortage of clients coming in the door to have these critical conversations.
Martin Shenkman added that under the current rules, he still sees a market for GRATs (grantor retained annuity trusts) and other vehicles that permit the protection of taxes for the long haul.
Trafficking in portability credits?
Estate planners in the American Bar Association’s email discussion group for probate and trust law (ABA-PTL) are going back and forth with “what if” scenarios over the proposal and alternative planning opportunities that it could spawn.
According to Arlington, Virginia estate planner Douglas Blair, the wave of the future may end up as something like a “Nevada Domestic Portability Partnership” or “Alaska Domestic Portability Partnership,” neither of which exists as yet but could theoretically be created by filing documents (or perhaps filling out forms online) from anywhere in the country.
“Mail ‘em in or enter your signature keys, pay your filing fee, and poof! You’re Nevada Domestic Portability Partners, entitled to take full advantage of your partner’s unused portable exemption if he should, sadly, predecease you,” he notes. “And who’s to say you could have only one Nevada Domestic Portability Partner at a time, if you have real need for those unused exemptions? Or, a clever programmer could set up a system of cascading Nevada Domestic Portability Partner online applications, so that when one died, the new partner would be ‘online’ with his exemption waiting, milliseconds later, until the full $10 million was filled up.”
Napa Valley estate planner David Diamond — tongue in cheek — wonders if this could spin out into an entire new business for today’s estate planners:
“Maybe I should retire from the practice of law, get ordained so I can perform marriages, and start a match-making service where I pair up and marry destitute seniors in nursing homes to wealthy unmarried individuals. What’s a $5 million exemption worth? At least $1,750,000 in today’s dollars. Even taking life expectancy into account and discounting to present value, a fee of $50,000 to $100,000 doesn’t seem unreasonable for this service. Putting a few marriages together per year would sure beat sweating out 1,500 billable hours.”
Jerry Cooper, senior editor, The Trust Advisor Blog.
Permalink: http://thetrustadvisor.com/news/estatedeal
Wilmington’s Wealthy Clients Rattled as Loan Loss Scandal Unfolds
Posted by Scott Martin in News on December 4, 2010
As shareholders complain that merging with M&T destroys the legendary trust bank’s reputation, the jury’s still out on whether the deal will dilute its brand. Either way, new filings reveal that regulators already unnerved clientele.
When Wilmington Trust sold itself to Buffalo-based M&T Bank a month ago, industry observers were shocked to see the high-end business go to a retail-oriented competitor — and investors balked at the steeply discounted price.
But SEC filings confirm that Wilmington management really didn’t have a choice if they wanted to keep scandal-wary clients on board.
As it turns out, after regulators discovered that the bank had failed to mark down its deteriorating loan portfolio, they basically gave management an ultimatum.
“Without a strategic translation acceptable to its regulators, Wilmington Trust would likely face significant regulatory actions in the near term, which would likely result in a significant impairment of its business prospects,” the latest filing, released November 18, reveals.
Management knew that a formal enforcement action would cause “serious deterioration” to its crown jewel — the still-lucrative trust business the du Pont family built back in 1903 — and so in order to shield that franchise, they started courting offers.
M&T won the day with a $350 million offer that enraged shareholders by asking them to take a 46% haircut on the deal.
Multiple pension funds and smaller investors have already sued, alleging that Wilmington’s accounting methods hid the impact of its failing commercial loan portfolio until it was too late.
If so, they’d might as well sue the Office of Thrift Supervision and the FDIC too for giving the bank the chance to ride its losses until they exploded.
“They thought they could wait it out until things got better, but that’s just not what happened,” says analyst Tom Alonso, who covers the banking sector for Macquarie Equity Research.
“When it became apparent they couldn’t take the pain, the regulators stepped in,” he adds.
Tightening the screws
From January to September, Wilmington had to divert a staggering $564 million in cash flow to its reserves to protect itself from bad loan losses. Since the entire operation only brought in $510 million over the same period, the situation was clearly getting dangerous.
Meanwhile, the regulators were clamping down. In August, Wilmington got word that any new executive appointments would have to get watchdog approval, and that Washington would not welcome any efforts to grow the bank out of the crisis.
The message was clear: “sell out or find an investor by your next earnings release, or your credit rating will crash, your clients will leave, we will make a match for you and your shareholders will be unhappy anyway.”
Unfortunately, while management scrambled to set up talks with at least two potential partners, the offers came with too many strings and weren’t big enough to stop the bleeding — and the clock was ticking.
As of October 18, two weeks before Wall Street expected Wilmington’s earnings, the best deal to emerge was for $269 million and maybe some added cash down the road. Since that was only 37% of what the stock was company was worth at the time, the bank kept looking.
The next day, the regulators told Wilmington to skip its next dividend payment. With blood in the water, the offers shrank to practically insulting levels.
On October 27, five days before the unofficial deadline, M&T stepped up with a promise to pay fair book value, or roughly $3.84 a share for the now-dying bank.
Disgruntled shareholders may want to consider the fact that by that point, bids had shrunk to the level of 50 cents a share in cash and a piece of whatever income the loan portfolio could generate.
As of November 1, Wilmington had a new corporate parent and M&T had won one of the best franchises in the trust business.
Going forward
Since the regulators were intimately involved with this particular merger — consider it an unofficial FDIC sale with dignity, if you like — everyone involved expects it to sail through the approval process fairly fast.
Mark Graham, who runs Wilmington’s wealth advisory services operation, says his team is currently working hard to fit their business around M&T’s retail banking network by the middle of next year.
Now that the shotgun wedding is on the books, he notes that it’s actually a pretty good match because the two institutions come out of such different cultures.
“M&T has a strong community banking footprint and we’re certainly a major player in the national large family office business,” he explains.
“There are some interesting opportunities here to reach small business owners in particular that we frankly haven’t had before,” he adds.
Retail Wilmington branches will switch to the M&T name when the deal closes, but Graham confirms that there aren’t any plans to retire the Wilmington brand in either the corporate or private trust sides.
Changing the name risks alienating existing high-net-worth clients — including some of the du Ponts, after all these years — while doing little to help sell higher-end services to the entrepreneurs that M&T currently focuses on
And since Wilmington is known for its high-touch offering, M&T is taking a hands-off approach to the people who work closely with those wealthy accounts.
“The people at M&T have been very vocal with our folks about wanting them to stay exactly where they are,” Graham says. “Clients will not see any unusual interruptions in their relationships during the transition or after.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and reporting.
Wilmington Trust’s Sale to M&T Bank Beginning to Show Signs of Defections
Posted by Scott Martin in News on November 6, 2010
When $178 billion in trust assets are sold for $351 million a greater price down the road may be paid. Analysts say the legendary trust bank’s forced merger may benefit rivals and independent trust firms as Wilmington HNW clients, fiduciary officers and wealth managers may now be in play.
When Wilmington Trust agreed to a $351 million merger with Buffalo’s M & T Bank last week, bankers and analysts like Andy Stapp applauded M & T for getting a bargain.
But in the trust industry, there was a lot more muttering about just how low the deal valued Wilmington’s $178 billion in fiduciary assets — a full $30 billion of it actively managed — or why the bank’s lucrative fee business didn’t earn a premium.
For its $351 million, M & T basically bought a little over a year of Wilmington’s fiduciary income and got the trust bank’s $8 billion in deposits and $8 billion loan portfolio for free.
That’s a pretty alarming discount to the old rule of thumb that trust companies should sell for about 2% of their managed assets, but Wall Street analysts we talked to say Wilmington was a special case.
“It was just a distressed deal that won’t have any impact on valuations elsewhere in the industry,” says Andy Stapp, who covered Wilmington for Los Angeles investment bank B. Riley & Co.
“Wilmington’s corporate client services business is still doing very well,” he adds. “If they had stuck to their knitting and hadn’t been so aggressive in lending, they would never have needed to sell at any price.”
As far as Stapp is concerned, Wilmington management was “asleep at the wheel” when it came to lending to real estate developers in Virginia and its native Delaware.
In all, M & T due diligence estimates that a staggering 17% of all the loans on Wilmington’s books have either defaulted since the 2008 credit crisis or will do so in the foreseeable future. That vaporizes $1.5 billion in paper assets right there.
Wilmington had tried to raise added reserves to weather the slump, but it now looks like last quarter was the turning point. On Monday, the bank had to confess that it bled another $4 a share, with no relief in sight. Then it revealed that it was selling out to M & T.
Analysts we talked to note the timing of the merger announcement — at the exact same time Wilmington’s latest earnings statement hit the market — is no coincidence.
“At that point, it was clear they had to sell,” Stapp says. “It was their sixth quarter of losses and those losses were building a big capital hole. The stock was going down anyway.”
The FDIC might have forced their hand.
“We believe Wilmington had a gun to its head held by the regulators,” says Gerard Cassidy, bank analyst at RBC Capital Markets. “They were told to do something this dramatic or else.”
Wilmington clients are in play
M & T currently recognizes that even Wilmington’s name embodies the reputation of Delaware as a center of the buttoned-down traditional trust industry.
At the moment, there aren’t any plans to retire the Wilmington brand or integrate its high-end wealth management services into M & T’s more retail-oriented business.
To the apparent relief of Delaware governor Jack Markell, there also aren’t any plans to move Wilmington’s core offices to M & T’s Buffalo headquarters or give up its prestigious Delaware trust charter.
“Wilmington in the trust business has a very good reputation,” says Tom Alonso of Macquarie Equity Research. “In that market, not as many people know the M & T brand, so the goal here may be to keep the high-reputation brand and push high-net-worth business to it.”
Gerard Cassidy at RBC Capital Markets agrees. “It’s a great name with a great heritage — started by the DuPont family as it was. M & T doesn’t have that kind of cachet or history.”
In fact, Cassidy says he wouldn’t be surprised to see at least a few of Wilmington’s clients abandon ship unless the new owners act fast to reassure them that the merger won’t affect the service they receive.
This may be an opportunity for everyone from white-glove competitors like Bessemer Trust to start-up independent trust companies to get aggressive about courting Wilmington accounts. Any dilution of the old DuPont legacy will at least get rich families thinking about change, and that’s a potential win for the companies who convince them to move their money.
M & T is clearly thinking about this, so the window may close fast. In the conference call announcing the merger, M & T chief financial officer Rene Jones made an unusual direct appeal to “customers of the corporate client service business” to stick around.
Clients “should value the fact that M & T, like Wilmington Trust, is not part of a global investment bank and will continue in a unique position as the leading independent service provider,” he said.
Before the deal, Wilmington was ranked 16th-biggest U.S. trust company and M & T Trust Co. was pretty far down the list at No. 25, right behind Marshall & Ilsley, Charles Schwab Bank and the U.S. unit of Japan’s Mizuho Bank.
Factoring in a little attrition, the merged operation will leap up the list to No. 12 with around $270 billion in fiduciary assets, effectively becoming the king of the traditional trust banks.
Only Northern Trust, the custodians (BNY Mellon, State Street, Fidelity) and those global investment banks will have a bigger footprint in the trust business.
And those banks may be calling around the Wilmington offices to recruit disaffected talent even as we speak, says Tom Alonso.
“I think Northern Trust, everyone has lined up lists of people to call,” he tells me. “I’m sure the phones are ringing.”
Permalink: http://thetrustadvisor.com/news/wilmington
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and reporting.
Marital Trusts May Block Steinbrenner and Kluge Heirs Reaping Billions from 2010 Estate Tax Loophole
Posted by Scott Martin in News on September 25, 2010
While even Forbes is grousing about how billionaires like John Kluge are cheating the IRS by dying during the federal death tax holiday, executors are still working overtime to get the heirs the best outcome no matter what happens in Washington.
Kluge, for example, amassed about $6.5 billion in his lifetime, making this self-made media baron the 35th richest man in America when he died on September 7.
Although the details of John Kluge’s will haven’t been made public, his lawyers would have at least thought about putting some or all of his taxable wealth into a qualified terminable interest trust (QTIP).
A QTIP is a form of marital trust that gives executors up to 15 months to choose whether to pay the prevailing estate tax liability — currently zero — or deferring the bill until the surviving spouse dies.
These trusts are traditionally favored in complex situations like Kluge’s (four wives, three kids) because they also limit the surviving spouse’s access to the underlying assets, but their flexibility has also made them popular tax planning vehicles.
“The control part is very important, but even totally harmonious families were using QTIP trusts purely for tax purposes,” explains Donna Barwick, a senior fiduciary officer at Wilmington Trust’s Atlanta office.
As far as harmonious families go, Kluge’s fellow billionaire George Steinbrenner was happily married to the same woman since 1956. But based on published reports, he probably put most of his $1.1 billion estate into a QTIP trust — not to keep Joan from spending their children’s inheritance, but for the tax treatment.
Smart planning in any other year?
Far from being the cut-and-dried billion-dollar windfall that Forbes and other publications are fretting about, the one-year repeal of the federal estate tax actually creates new headaches for blue-chip estate planners.
A lack of guidance from Washington is at the top. Unless Congress acts this year to change the rules, the estate tax is set to return January 1 at a maximum rate of 55% for all assets over $1 million.
Dan Rubin, a top estate planner at New York City law firm Moses & Singer, agrees that QTIP is probably the way for billionaires to go, but the details can be tricky
For one thing, no one knows for sure if the benefit of having no estate tax will in 2010 will be passed on when the spouse dies.
And the Kluge or Steinbrenner lawyers may not be able to defer the liability even if they wanted to.
“Normally in order to get the deferral, an election would need to be made on the estate tax return,” he notes. “With no estate tax on the books this year, there’s some question whether you can even make that election.”
Getting the better basis
Estate tax elections aside, simply having the assets in a QTIP-capable trust shields billionaire heirs from a bit of their future capital gains burden.
Although there’s no 2010 federal estate tax, the current basis rules mean that beyond a certain threshold ($1.3 million plus $3 million extra for spousal property) inherited property no longer “steps up” on the previous owner’s death.
A QTIP trust gets that spousal exemption while other forms of trust do not, Dan Rubin explains.
“If you rewrote a billionaire’s will in 2010 to exchange a QTIP trust and put in a credit shelter trust instead because you thought you no longer needed the marital election, you would be wasting $3 billion in basis allocation,” he says.
Rubin also notes the persistence of state estate taxes. As a Palm Beach resident, Kluge wasn’t worried about Florida taking a piece of his fortune, but George Steinbrenner’s lawyers did need to deal with New York’s tax code.
“Steinbrenner’s attorney is a close friend of mine,” says Donna Barwick. “My guess is that Steinbrenner’s estate was so well planned that this was not an issue. You could say that about any billionaire, no matter what the exemptions are in any given year.”
Visibility still hard to come by
For estate planners who are working with slightly smaller clients, the sad fact is that it’s already late September and nobody really knows whether the estate tax will reset 2-1/2 months from now with an exemption of $1 million, $5 million or somewhere in between.
Senator Mitch McConnell (R-Kentucky) has introduced a bill that would “patch” the tax code and reset the estate tax (and the capital gains treatment of inherited assets) at 2009 levels.
But McConnell aide Don Stewart tells The Trust Advisor he isn’t holding his breath for any progress on the bill before the November election.
A lame duck Congress may go either way. On one hand, a $1 million exemption will generate extra revenue for a cash-starved government. But on the other, exposing upper-middle-class families to an added tax burden is still extremely controversial in Washington.
However the new rules end up, the prospect of making them retroactive to the start of 2010 looks slim. Every billionaire that dies only raises the odds that any attempt to tax these huge inheritances will end up in years — maybe decades — of litigation.
If so, even the best executors have a lot of work ahead of them.
Would the Actors Heirs Have Been Better Off With an Alaskan Will?
Posted by Scott Martin in News on June 26, 2010
Alaska’s new will testing statute allows for “death rehearsals” to give families a chance to correct mistakes before they happen. But some estate planners think the law is just a marketing gimmick.
If Gary Coleman or Dennis Hopper had been able to take advantage of the new Alaskan probate rules, local trust industry leaders say their estates might not be in turmoil today.
Starting in September, Alaska will become one of only a few states that allows for pre-mortem probate, which theoretically lets people resolve disputes around their wills before they die. (Read the new rule here.)
As a result, the state’s estate planners have gotten a lot of calls from non-residents looking to prevent the ugliness surrounding the Coleman and Hopper inheritance battles.
“We’ve gotten a lot of interest in this,” Douglas Blattmachr, CEO of Alaska Trust, told me. “I’m not sure how much we will get on the trust company side, but I think Alaska’s lawyers will get a lot of work out of it,” he added.
But while the lawyers in Anchorage may be generating a lot of out-of-state leads, it remains to be seen whether probate judges in the state where the death actually takes place will surrender their jurisdiction to the Alaskan process.
Settling the arguments in advance
In pre-mortem probate, residents and non-residents alike have the option of distributing their will to interested parties, who then have a limited amount of time to raise any legal objections.
If they fail to contest the will at this point, they forfeit the chance to do so later. Meanwhile, the person who wrote the will is still alive and available to clarify his or her wishes and mental competence in probate court.
Had Dennis Hopper gone this route, for example, he might have been able to argue personally that his estranged wife was not actually living with him, which would have technically broken her pre-nuptial agreement. His art collection would have gone to his children, and not to her.
And if Gary Coleman’s ex-wife or girlfriend wanted to contest his will with spurious or outdated paperwork of her own, the judge could have simply asked Coleman to point to which of the competing documents really represented his plans for his estate after his death.
The sticky point is that while out-of-state trusts have become a familiar part of the estate planning landscape, out-of-state wills are in more nebulous territory.
“I don’t think this would help Dennis Hopper or Gary Coleman,” Delaware probate attorney Peter Gordon of Gordon Fournaris & Mammarella told me. “Coleman is a classic example of a will that is going to be a nightmare because, among other things, a Utah judge sitting in a Utah court with a Utah resident is not going to send the case to Alaska.”
California resident Hopper would be similarly hard-pressed to get a California judge to hear his case early whether his will was drafted in Alaska or not. Unlike trusts, which are separate legal entities resident in the state where they are chartered, a will is simply a document that expresses the deceased person’s instructions about his or her estate, Gordon says.
In other words, in most cases, the will still needs to be probated where the person lived. While the Alaska rules are great for residents, estate planner Steve Oshins has deep reservations about how useful for accounts coming from out of state.
“I don’t see how an Alaska will would work for a non-resident given the jurisdictional issues involved,” he says. “An Alaska trust would have a better chance of success.”
Better for trusts
The Alaska rules extend to both wills and trusts. Someone can set up a trust in Alaska—a popular destination for wealthy individuals looking to take advantage of favorable laws—and distribute an estate plan for pre-mortem testing.
While states like Delaware do not allow pre-mortem probate for wills, this kind of testing has a longer track record where trusts are concerned. Peter Gordon says he’s personally made use of the trust testing rules several times since Delaware authorized them in 2003.
Wilmington Trust managing director Richard Nenno, known universally as “the font” of information on this topic, notes that if the assets are in trust, arguing about the terms of the will is a lot less likely to derail someone’s final wishes.
“The trust is where most people are putting their funds,” he told me. “Adding it for wills might help one or two situations in exceptionally dysfunctional families, but I don’t think it will be all that relevant in many high-end estate planning situations.”
As such, the new rules do two things for Alaska. First, they bring the trust code in line with other states by allowing pre-mortem testing—and this helps keep the state competitive on the national playing field.
Second, the will testing mechanism is great for state residents, but may not end up as much more than a marketing proposition for Alaska lawyers courting non-resident clients. Although North Dakota, Arkansas and Ohio also allow will testing, none are known as estate planning paradises.
The combination of will and trust may create some residual benefits for people coming to Alaska to get a trust anyway. Steve Oshins says an Alaska co-trustee may be able to work the local system successfully, although he is not convinced that this would do non-residents much good.
As it happens, Alaska Trust could get some add-on business from this, Douglas Blattmachr told me. “We might get appointed as trustees a bit more often,” he says. “A lot of clients are interested in trusts and worried about will contests. This gets those worries out of the way.”
Scott Martin, contributing editor, The Trust Advisor Blog, Jerry Cooper contributed to the reporting, Steven Maimes contributed to the research and editing.
Permalink: http://thetrustadvisor.com/news/premortem
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%.
|
Selected Trust Institutions: |
|||||||
|
|
Fiduciary |
Fiduciary Revenue |
|||||
|
Institution |
12/31/09 |
Change from 12/31/08 |
12/31/09 |
Change from 12/31/08 |
|||
|
Northern Trust (IL) |
$3.9 trillion |
20% |
$2.2 billion |
-4% |
|||
|
Wilmington Trust (DE) |
$185 billion |
10% |
$288 million |
96% |
|||
|
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% |
|||
|
Lehman Bros. Trust (NY) |
$3 billion |
9% |
$18 million |
-29% |
|||
|
Haverford Trust (PA) |
$3 billion |
13% |
$13 million |
7% |
|||
|
Washington Trust (RI) |
$2 billion |
15% |
$1 million |
19% |
|||
|
Westwood Trust (TX) |
$2 billion |
29% |
$10.3 million |
-6% |
|||
|
Legacy Trust (MA) |
$1.7 billion |
38% |
$8.5 million |
23% |
|||
|
Trust Co. of Toledo (OH) |
$1.7 billion |
21% |
$4 million |
22% |
|||
|
Unified Trust (KY) |
$1.6 billion |
30% |
$13.5 million |
26% |
|||
|
Philadelphia Trust (PA) |
$1.3 billion |
18% |
$6 million |
19% |
|||
|
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
Help Wanted: Salesmen Preferred
Posted by Scott Martin in News on April 24, 2010
Looking for a job in the trust industry with a high base salary and lots of perks? Jobs are abundant once again, but product knowledge and sales skills are essential.
The long recession froze hiring budgets throughout the financial industry, but now the trust business is thawing as firms staff up for the growth cycle. Positions are opening, offers are getting made and compensation is on the rise—as long as you’re the kind of candidate that trust companies are hunting.
“We’re seeing more demand for upper management and sales types, anyone who can drum up business,” says Maggie Cunningham, a partner in Tulsa-based national recruiting firm BancSearch and a specialist in filling trust company jobs.
So far, regional trust companies have been fastest to staff up through the recruiter channel, Cunningham told me.
Saturna Trust, based in Reno, is one such expansion-oriented outfit. President Ken Cain told me that his company is taking on new talent at a pretty fast rate. In the last few months, he hired someone to sell into the philanthropic channel and a new wholesaler to cover the Midwest.
“As we bring in new business, we need new bodies,” he says.
The big boys are staffing up too, but as yet they’ve been hiring through their in-house departments instead of going through recruiters.
Wilmington Trust, in spite of reporting a loss yesterday in the first quarter this year, remained positive about its wealth management and trust businesses. The firm added a total of 18 new wealth managers to its Atlanta team in the last six months. More hires are on the way as the gigantic trust company looks for opportunities to cross-sell its trust and investment services to high-net-worth clients throughout the Southeast.
Relationships are Everything
Significantly, Wilmington is looking for people who not only know how to crunch the numbers but can manage client relationships. Most of the recruiters I talked to for this story confirm that relationship managers are in and traditionally paperwork-oriented administrators or fiduciary staff are out.
“We’re just not seeing a lot of call for pure trust administration,” Cunningham told me.
While a lot of managers admit that they need to hire administrators, she says, not many are pushing the button.
Instead, they’re betting that better back office technology will help their existing support teams handle more accounts. And they’re routing more of their basic service requests away from trust officers and to front-line support, Cunningham says.
“Some of the larger banks now, if there’s under $3 million in the account, it goes straight to the call center now,” she told me. “Smaller organizations will still assign a trust officer to relatively small accounts, but even there, under $1 million can go to the call center instead.”
Other recruiters agree that you need to be able to do more than run the numbers to get a job in the trust business right now.
“You’ve got to have the interpersonal skills to deal with clients,” David Glaser, president of New York headhunting firm EGC Resources, told me. “There’s just not a real home anymore for somebody that’s just a strong technician like there was years ago.”
Glaser says the way it usually works is that trust companies wait until the rainmakers prove they can front new business, and then they bring in the support. But because the typical trust operation runs lean anyway, that could take awhile.
What People Are Making
In any event, the days when a trust department ran on commissions seem to be over as well. Instead, more managers are offering new trust officers that can bring in business a relatively high base and a performance bonus.
Saturna’s not paying anyone on commission. “We just don’t do it,” says Ken Cain.
As for base and bonus, Glaser estimates that the typical split probably breaks down into 70/30. On a plain vanilla trust officer compensation package, that translates to a base that starts at around $80,000 a year.
That fits the offers Maggie Cunningham is seeing. She says that bank trust departments tend to pay higher salaries in order to keep people aboard through boom and bust. But even trust officers getting jobs at RIA firms are working on salary now—although it’s likely to be a smaller one.
“They’re still in a different type of world because a lot of them got started in the wirehouses and so have that performance-based compensation model in their heads,” she told me.
Packages vary widely depending on where you are. High-growth markets like Nevada are competing harder for relatively scarce talent, but in the Midwest, years of bank mergers have brought trust company compensation down.
“Here in the auto belt, there’s been a real compensation reset,” notes Hunter Judson, who heads a banking-focused recruiting firm based in Grand Rapids, Michigan.
“Other markets are less affected, but in places like Detroit, you’re having people take 20% lower salaries than what they got at their old bank before they got consolidated out,” he told me.
People are settling because even though new jobs are finally opening up again, there’s still a lot of competition for each spot. Cunningham says she’s finally placing people who were laid off seven months ago, and even those who kept their jobs are getting restless.
“There’s a lot of dissatisfaction out there,” she told me. “If bonuses don’t pick up this year, a lot of people will start looking to move if they haven’t already.”
What’s the best advice for these people? Brush up your interpersonal skills so you can prove you can deal smoothly with clients. And don’t get hung up on your title, Judson says.
“It’s gotten impossible to generalize in the trust business from company to company and even from position to position within a department,” he told me.
“What a title means at one bank is very different from what you’ll end up doing at another bank, and if you go to a smaller outfit you’ll almost certainly have to do more things. Don’t get stuck on your old title. You can’t eat it.”
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/jobs
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. |
|||||||
|
Source: Websites and telephone interviews. ©2010 TheTrustAdvisor.com |
|||||||
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
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.
Pershing’s “Trust Network” Wins it Top Honor as the RIA’s Most Trust-Friendly Custodian
Posted by Jerry Cooper in News, Practice Management on October 16, 2009
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.
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