Custodians square off in a newly competitive trust services market.

    The baby boomers are coming.
    In financial planning circles, that seems to be one of the predominant rallying cries these days, with study after study noting that baby boomers are getting ready to transfer a gargantuan sum of money to their heirs. These boomers are going to need estate and trust services to handle the trillions of dollars in assets that are going to move from one generation to another over the next three to four decades-a little fact that some have advisors have taken as a wakeup call.
    At the same time, there's been an explosion in the number of nonbank trust companies, and a new emphasis on advisors adopting a comprehensive service model in which they play a key role in their client's estate and trust service needs, as well as retaining management over their clients' trust accounts. 
    Custodians, meanwhile, are feeling the pressure and ramping up trust services for what they feel will be increased demand among advisors. The Bank of New York has been in the trust business for 175 years, and has provided trust services to advisors on a limited basis since 1998 through its advisory custody platform.
    It wasn't until September 2004, however, that the bank launched a serious trust services program for advisors, through its Pershing clearing and custody unit. The service, now made available through the Pershing platform, is currently being used by advisors at 50 broker-dealer firms, says Tom Scaturro, Pershing's managing director and director of sales and marketing for trust services. "It's a major part of our growth strategy," he says.
    In addition to playing a part in the frequently cited asset transfers of the baby boomer generation, trust services provide advisors with longer lasting relationships, Scaturro says. On average,  he says, a trust account lasts an average of 15 years. The Bank of New York's average is higher, with an average account life of 22 years.
    What's changed to make the market more open to competition is that consolidation in the banking industry has left some trust customers unhappy with their services.
    "In the past, nobody ever made a change," he says.
    Pershing has about $750 million in its directed trust accounts, with more than $200 million of the total moving to Pershing since the 2004 launch of its expanded trust services.   
    Other custodians also have utilized established trust companies to provide services to independent advisors in recent years. Charles Schwab, which acquired U.S. Trust in 2000, provides services through that company as part of its wealth management offerings.
    Fidelity launched its trust services program three years ago, starting with an administrative trustee service and, since then, adding fiduciary reporting services and a trust custody service.
    The company is also on the verge of launching a referral program, which will start out as a list of nine trust companies to which Fidelity will refer clients who need more than one trust relationship. "Advisors have complicated trust relationships and it's very common for them to need multiple relationships with multiple trust companies," says Donna Cournoyer, Fidelity's vice president for trust services.
    In cases where more than one relationship is needed, the referral program will provide advisors and their clients with a central accounting and recording platform, and uniform standards in the areas of technology and investment oversight. "All firms that participate will agree to delegate investment authority to advisors who have existing relationships," Cournoyer says.
    Fidelity has about $30 billion in trust accounts on its platform and 6,500 accounts, through relationships with about 35 advisors, she adds. Education programs are becoming an increasingly important part of Fidelity's trust services offerings, she says.
    "We have a lot of ongoing seminars and education around this area so advisors can not only identify opportunities, but learn how to talk to customers about it," Cournoyer says. "The types of trusts that have evolved over the last five years have become much more complicated."
    Ameritrade offers trust services through relationships with two Delaware-based companies: American Guaranty & Trust and Capital Trust Co., says James Wangsness, Ameritrade's senior vice president of advisor services. Wangsness, who formerly worked in the personal trust division of JP Morgan, says that most advisors who make use of the company's trust services are dealing with the transfer of existing trust accounts.
    "There aren't a lot of new trusts being written," he says. "The business is not in writing a new trust, it is actually in the advisor taking over management of an existing trust."
    Wangsness, however, feels there is not yet a universal need for trust services among advisors-primarily because the typical client has no need for trust strategies until their assets reach multi-million-dollar levels. "I think there is a little more talk than there is real action here,  except for firms that have a true high-net-worth  clientele," he says.
    Yet Ameritrade, which has put a focus on serving the smaller-sized advisor accounts that have been shunned by custodians such as Schwab and Fidelity, still sees a growing need for trust services, he adds, due to increased demands for trust and estate services and charitable giving expertise. "This is a place where we will be moving," he says.
    Smaller companies are also seeing an up tick in demand for trust services among advisors. National Advisors Trust has reached $2.8 billion in trust assets, three years after its founding as a trust company specifically focused on the needs of independent advisors. The company supports 125 advisory firms, about a dozen of which were added in the past year. The company only serves advisors who are shareholders.
    The company's affiliated advisors manage assets totaling about $60 billion, and National Advisors Trust believes it has the potential to eventually custody up to 25% of that amount, says company president David Roberts. He adds that advisors with the capability to add a planning component to their investment advisory services are the most likely to adopt a trust services offering. "I can tell you there are more that are getting into it," Roberts says.