Some advisors have built a strategy on making a complete transition from RIA to trust company.
As financial advisors seek to expand the breadth of their services, to a level that can be safely called comprehensive wealth management, trust services are becoming more and more a part of the advisor's domain.
But is it worth it for advisors to go even further-by transforming their practices into trust companies?
The answer depends on what type of practice you have, and what type you want to offer, but some advisors have indeed built their strategies on such a transformation.
It's a step that shouldn't be taken lightly, of course. Advisors who have done it say it requires money, patience and intense due diligence, with a lot of time shuffling paper, talking to regulators and raising money, usually several million dollars or more. If the trust charter is approved, extra staff is typically required to keep the heavily structured, and regulated, trust operations running smoothly.
There's also the burden of increased responsibility that comes with asset custody and administration. In the end, the advisor also has to deal with another crucial detail: He's not just running an advisory firm anymore. He's also running a bank.
"It doesn't bother people in the trust business who are used to the bureaucracy and the meetings that must take place," says Gene Balliett, of Balliett Financial Services in Winter Park, Fla., who made the transition himself several years ago. "To the average investment advisor, it's a shock."
Yet there may be a tradeoff to the spent time and money that could make a transition worthwhile. Among the possible benefits, they say, is increased client trust and retention, tighter operations and the ability to self-custody client accounts.
That's aside from the benefits that the trust services themselves bring to the table, such as the firm being able to act as a trustee on the behalf of clients, as well as an advisor, and the ability to retain client business through multiple generations.
"I do think there are tangible marketing benefits to being able to call yourself a trust company," says Tom Batterman, president of Vigil Trust & Financial Advocacy in Wausau, Wis., which offers a service that helps streamline the transition from RIA to trust company. "People feel like they're dealing more with an institution than a normal investment advisory firm."
Among the advantages to converting part or all of a firm to a trust company structure are its ability to create client account anonymity and the ability to pool assets across customer accounts. As a result, some advisors think they can lower their long-term cost structure by creating omnibus accounts, pooling assets while separating principal and income, explains Jay Lanigan, president of Fidelity's RIA unit.