Donna Cournoyer, vice president of trust services for Fidelity's Registered Investment Advisor Group, says bank consolidations have fueled interest in individual trustees versus corporate trustees, and many of those individuals are turning to advisors to manage their trust investments. However, she adds, the growth of independent trust companies targeting these RIAs may result in renewed interest in using corporate trustees, particularly those who are able to meet the unique needs of RIAs.
It is The Uniform Prudent Investor Act, adopted by about 40 states, that allows fiduciaries to delegate investment management although they must continue to monitor performance. As a result, an advisor doesn't necessarily face losing the investment management of a client's assets that have been placed in a trust administered by a corporate trustee. Now many smaller firms-mainly start-up trust companies or established state-chartered ones-focus on serving advisors who manage trust investments, and that number is continuing to grow, Cournoyer says.
The trend toward outside investment management has meant bigger firms want to establish more relationships with advisors, too. "We've always been a full-service trustee, but ten years ago certain clients wanted outside investment advisors, so we had to adapt to the demographic change. That's going to continue to happen. More high-net-worth individuals want to go with their preferred investment advisors," Dowd says.
Both Bank of New York and Fidelity offer advisors integrated systems and a variety of trust services. Pershing's Fiske notes the firm built a link between its custody platform and the bank's trust record keeping capability. "Advisors can maintain the assets on Pershing's platform and get Bank of New York's oversight and trust record keeping. That allows advisors to handle accounts in an integrated fashion," he says.
When Pershing's broker-dealer and RIA clients provide investment management to trust portfolios, the Bank of New York will act as trustee. The bank also will provide trust administration services in cases where there's an outside trustee.
Fidelity has added trustee services as part of its strategy to provide an array of products to serve wealth managers who work with high-net-worth clients, says Gary Gallagher, senior vice president of Fidelity's Registered Investment Advisor Group.
Fidelity offers four levels of service to RIAs, Cournoyer notes. Its Administrative Trustee Services allows an advisor's client to appoint Fidelity Personal Trust Company as trustee, while the advisor manages the trust investments. The trust company handles custody, accounting, tax filing and reporting. With its agent for trustee services, Fidelity supports an outside trustee, such as a family member, by providing administration services including tax returns, accounting and reporting. Through its specialized accounting and reporting services, advisors can provide their clients with brokerage reporting, including principal and income separation, tax-lot accounting and other record keeping services. Its trust custody services are for independent RIAs who have converted to trust companies or are using trust company services. "Under this service we are taking our core competencies of brokerage clearing and execution and adding two capabilities. We do clearing through an omnibus account and we are applying interfaces to the trust accounting system," Cournoyer says.
Just how far the shift will go toward independent investment advisors managing trust portfolios is difficult to say. The FDIC's Barr notes that while the prudent investor act allows fiduciaries to delegate investment management, the fiduciaries must consider the cost to accounts of hiring an outside investment manager. "It will depend on each institution's assessment as to whether such an arrangement is both cost effective and in the best interest of beneficiaries," he says.
Cournoyer agrees. "When you start to unbundle services, when you have the trustee providing administration and the advisor providing investment management, you have to look at the total fee. When you look at that, it has to be competitive with what trust providers would offer," she says. "I do think advisors provide very specialized services. There shouldn't be any duplication, and the price has to be competitive."