The story is familiar: A client with $500,000 in net worth sets up a trust for his spouse and kids, hoping to pass on his legacy. He names a local community bank as trustee, probably because he plays golf with the trust officer. Next thing you know, the bank is swallowed up in a merger, maybe not once but two or three times.

The golf buddy is long gone, the corporate trustee bank is a ghost, and a giant bank takes over when mom dies. There the money sits, held captive. Irrevocable, maybe. But untouchable to an RIA? Don't be so sure.

Beneficiaries such as the kids in these situations often find their trust assets invested in long bonds or individual stocks, not growing, or worse yet, declining. There isn't much staff to service smaller accounts, just a call center with a 1-800 number (unless you've got a large account of $2 million or so). The bank's investment products are often proprietary, the fees high, the performance poor. The relationship management non-existent. Because the staff is on salary, there's no incentive for them to outperform or even make calls after 5 p.m. These are the common complaints of bank trust customers, according to a study by Tiburon Strategic Advisors.

But this prevailing model has been slowly changing, and since the early 1990s, banks' share of trust assets has dwindled to about 40% of the personal trust market, according to Tiburon. Coming in to fill the gap are broker-dealers, lawyers and independent trust companies. And in the new arrangements, RIAs can seize the day and take over not only assets but pride of place in the trust relationship.

These trends have only been amplified by the financial crisis, since many people are now more willing to cut their ties with the country's venerable financial institutions-especially if they've been watching their trust assets lose sap. They might have seen their RIA make money for them in their retirement accounts, and that might make them itchier to move the trusts to the RIA as well.

Dave Ness, president of Raymond James Trust, says his company has seen a dramatic increase in trust assets; about $300 million in assets under administration flew into the door in fiscal 2010, and the company has already beat that since fiscal 2011 started in October. He says 40% of new assets are usually takeaway accounts from other institutions, but that number has grown to more than half recently.

"What happened during the financial crisis is that mix changed a little bit-markets go up, people get sick and die anyway, so that part of the business didn't change," says Ness. "What changed was people's willingness to make gifts, and also the turmoil led to more people wanting to move their trust."

Trust management has also been affected by the flip-flops and reversals in tax law. The temporarily expunged estate tax was supposed to come back Lazarus-like in 2011, but President Obama and Congress in December agreed to beat it back for another two years. At the same time, they offered chance-of-a-lifetime, gargantuan $5 million lifetime gift tax exemptions ($10 million for couples) that have people tearing up their estate plans and salivating at the idea of passing massive wealth on to heirs tax-free. This should also create many opportunities for trust creation and movement, say advisors and consultants.

"This is only for these two years," says Vincent Barbera, a CFP licensee with TGS Financial Advisors in Radnor, Pa., of the lifetime gift-tax exemption, "so we take advantage of all this gifting, sort of eat that $5 million while it's available. If [clients] die in three years, there's no guarantee what that estate tax will be."

If those items weren't convincing enough to make an RIA consider taking on more trust business, he can simply look at the demographics: As baby boomers age, they will seek more ways to divide, shelter and pass along their assets, controlling their children's financial futures from the grave if they can, staggering payouts or throwing their money to a charity. And unlike the Greatest Generation, they aren't wedded to banks.

RIAs have to get ready, because if they aren't looking for trust assets already, trust assets are certainly going to come looking for them.

Barbera says his firm has started confronting trust-curious clients-about 20 of them in the last year have asked, about 10% of his clientele. TGS is trying to figure out how to proceed-cautiously-and find the right dance partner to take over the trust admin. They don't want to be the trustees themselves (a dangerous proposition, say observers, one that puts the advisor in legal crosshairs). But they need to find relationships with trust administrator companies that won't also try to poach their investment management. The worry is that the client is ultimately forming a relationship with a brokerage company, not the RIA, and RIAs are jealously guarding their relationships.

"We have an independent RIA," Barbera says. "We're not a trust company. Our custodian, Raymond James, they are, but should we offer more options? Should we maybe have somebody with a bigger name? We're reluctant to engage in a relationship with a trust company if they're all about sort of 'getting' the money, and I know that's a big problem with the RIA space."

Mike Flinn, a regional trust consultant at Phoenix-based Advisory Trust Company of Delaware, a part of Wilmington Trust Co., hears this story a lot. "There's a certain amount of risk you take with a trust company, if they are in the business of investment management, that they are going to threaten your core competency," he says.
And he thinks if you go onto one platform with your trust, it might be hard to leave. "What happens if you leave the Raymond James fold?" he asks.

The Topic You Hate?
Many advisors hate talking about the subject, says Flinn. And part of that is that it's confusing.

Flinn's company, registered in Delaware, offers directed trustee and trust administration services to high-net-worth families, working exclusively with advisors. He says his company's arrangement allows the advisor to manage assets, while companies like Pershing, TD Ameritrade, Schwab or Fidelity can handle the custody (they are all beefing up their custody services to help advisors navigate the trust waters). Flinn says his company was designed specifically not to compete on asset management or custody but to work with RIAs who want to be the center of the relationship with the client.

He says that one of his missions is to educate advisors who might not know they can move the trust assets out of the banks in the first place. "The independent advisor marketplace often doesn't understand that they can go after these assets," he says. "I get four phone calls a year from an advisor who's sitting in a meeting with a husband and wife and the wife says to the advisor, 'Jeez, we love what you're doing with our $850,000 portfolio-our IRAs or whatever. I sure wish you could manage my mom and dad's trust, of which my brothers and sisters are beneficiaries.'"

They can, says Flinn, who says his job is to help RIAs ask their clients about their trusts and hunt down portability language that would allow the advisors to move the money.

"My estimate," Flinn says, "is that if you look at your book of business as an RIA, 5% to 10% of your clients are associated with a trust. If they are dealing with 100 families, five to ten are associated with a trust. Some may be revocable, some may be irrevocable." Sometimes the clients don't think it's relevant and don't mention it because they think the trust is stuck, he says. "I would say rarely is it stuck. Every trust has an opportunity to be moved. It's like a fly with six feet; how many of them are on the fly paper? Sometimes, it's four feet; sometimes it's one foot."

The factors to consider, he says, are, No. 1, portability language. "Because that can give people clear language that they can get rid of the corporate trustee and appoint a new one." Next, he says, it's the size of the trust. "Smaller ones are easier to move. Larger trusts create more revenue for the corporate trustee." (He draws an arbitrary line between small and large at $1.5 million.) The third factor is motivation. "How much do they want to do it? The end client has to be more motivated. But I would say rarely can a trust under any circumstances not be moved."

Seeing the writing on the wall, even the banks are increasingly reaching out to RIAs and outsourcing money management to offer more of the open architecture that advisors prefer. "You're seeing more open architecture on bank platforms," says Michael Roberts, an executive vice president of personal trust business at Reliance Financial Corp. "But keep in mind that it's a very, very small percentage. Ultimately, it will be very, very difficult to compete against an RIA because of their structure."

The brokerages are still rolling out aggressive campaigns to aid RIAs with trust assets, with either the custody or the trust administration. Schwab in late 2007 and early 2008 rolled out two offerings to aid advisors with trusts. One is a principal and income reporting offer that allows a family trustee to deal with accounting and payouts. The other offering is the one in which Schwab acts as the trustee. This offering has brought in $1.3 billion in assets in three years, says Cathy Clauson, Schwab's vice president of business integration and trust services.

"This is where the Charles Schwab bank takes on the responsibility" rather than a family member, says Clauson. "So maybe your trust is fairly complicated. Maybe it's a situation with a very wealthy family, potentially with multiple wives and multiple children by those wives, and you want someone who's going to treat them fairly per the letter of the trust. And you don't want to burden the family member with that."

For those who are unsure about where to turn, novel methods to the problem of choosing a trust arrangement are cropping up. Some RIAs have even pondered the idea of setting up their own in-house trust companies. Brent Beene, an advisor at Regent Atlantic in Morristown, N.J., says that his firm considered that very thing after its favorite trust-only company shuttered its doors.

"I sit on the management committee here at Regent Atlantic," says Beene, "and we've often considered, should we start a trust company? Should we acquire a trust company? And our conclusion is that it's just not a business we want to be in. You definitely have to have a certain number of staff dedicated and it really is a different skill set than most certified financial planners have. It's purely administrative, and to run it successfully you'd have to staff it up pretty well. It's just hard to find that being profitable as a stand-alone company."

It's a regulatory burden as well. Roberts, the executive vice president of Reliance Trust, which, like Flinn's firm, has a model focused mainly on trust administration (though it does some custody as well), says that a couple of RIAs have approached his company asking how to start their own trust firms. They bristle when they see how much compliance work there is and the deep capital resources required, he says.

"It's very sobering if you start looking into it and you're really going to do it correctly," he says. "The compliance and regulatory environment of the trust industry is, as it should be, much more stringent than being an investment advisor.  Most regulators at the state level are increasing their capital requirements to ensure that firms are able to absorb risk and protect those client assets. That's a big number. If you have to pony up $2 million and park it in your firm as capital, you know that's $2 million you could have put to work hiring ten more advisors."

Another option for advisors is joining a more communal model like the one offered by National Advisors Trust, a nationally chartered trust company that started a few years ago with 80 member firms and has since grown to 130. The firm has gone from $3.7 billion under management in March 2009 to $7.2 billion in March of 2011, says CEO Ronald G. Ferguson. The firm says that 70% of its assets have come from transfers. Most of these are from large bank trust departments where he says the minimums have gone up or the service levels have gone down for accounts under $5 million.

"I think RIA firms were looking for a noncompetitive trust partner that would allow them to service their clients in a multigenerational fashion," says Ferguson.

National Advisors Trust offers services to both shareholders and non-shareholders, though the shareholders get a break on fees. The minimum investment to become a shareholder is a purchase of 50 shares at $1,000 a share. But with that you get not only lower fees but access to services like custody as well as other new programs:

National Advisors Trust has been honing its attack with new private label services that allow advisors to market a trust company under their own names (as a division of the nationally chartered mother ship). The firm has also recently launched a program to place its trust officers in its member firms' offices. It recently put a 17-year estate planning attorney inside Moneta Group in St. Louis. Part of her job is to examine clients' wills and trust documents to see how they currently fit into their estate plans, says Ferguson.

And it's important to review, because it could be that the trust names a successor trustee who will walk the money out the door or it might even name another bank, who will take the assets away from the advisor.