Batterman says that although the application process can be cumbersome, and expensive, he doesn't feel operating as a trust company is more expensive than with an RIA. "It may actually be cheaper," he says.
One reason, he says, is the savings that can be achieved by eliminating the fees of a third-party custodian. For example, he says, a trust company doesn't have to deal with the "shelf space" deals that mutual funds pass on to investors. "The trust company can go directly to a fund and settle all transactions without any costs," he says. An RIA could, conceivably do the same thing, but would have to open an account directly with the mutual fund.
Another advantage, he says, is that trust companies can more easily provide clients with one statement containing all their assets, and custody non-registered investments, such as private equity vehicles. "Basically trust companies and RIAs are pretty much in the same business," he says. "It's just that one of the big differences other than the ability to be a trustee is the responsibility for asset administration. Regulators are looking for a trust company to actually secure the custody of the securities."
Trust companies such as National Independent Trust Company (NITCO), give advisors something of a shortcut into the trustee business. Advisors who transition under NITCO, for example, become operating divisions of the company, which provides back office services, administrative and regulatory oversight and internal auditing. NITCO charges a monthly $2,500 fee, plus an annual charge upwards of 20 basis points on assets for the service, according to D. Kyle McDonald, NITCO's president and CEO.
One advisor who has tried to make the transition to a trust company says regulators are not the only people who will have a big impact on what happens. Clients are also key, he says.
"I made the mistake of not asking my clients what they thought about my company becoming a trust company. I just did it," says Balliett of Balliett Financial Services. "Lo and behold, they were less than thrilled."
It turns out that has partly to do with the fact that 90% of Balliett's clientele is comprised of physicians. As a general characteristic, Balliett says, his clients like to hold their finances close to the vest and have a strong do-it-yourself streak.
"So they typically have two or three more people or companies managing their money for them," he says. Whatever the reasons, most of Balliett's clients didn't care for the change, which he made happen through NITCO's services, and as a result he lost some business.
As a result, he cautions any advisor considering a move into the trust business to make his or her intentions known to clients early in the process. He also recommends that advisors have a clear plan for how they're going to attract trust clients, including building relationships with estate planning attorneys, CPAs and even community banks. "Anyone who would start his own trust company needs deep pockets and loads of patience," he says.