How one firm is doing it, and what resources are available to help you, too.
If you're still doubtful about what trust opportunities will do to your bottom line, here's a vital question to ask: Would taking in $60 million in new client assets in a year convince you that trusts might be an integral key to your growth? How about if you couple that with the fact that 75 million baby boomers have begun the march into retirement and will want to control the transfer of as much as $40 trillion in their assets?
Richard A. Bennett and his firm Savant Capital Inc. in Rockford, Ill., think $60 million in new assets from trust business is a fair reward for the deal they inked in January to do all the asset management for Freeport, Ill.-based State Bank's $1 million-plus trust clients.
The upshot of the new deal? "We brought in $15 million in the first four weeks alone," says Bennett, a principal of Savant, which already manages some $1.3 billion in client assets. He adds the "synergistic beauty" of the partnership is already working. The bank is able to offer high-end asset management to wealthier clients-not exactly the hallmark of bank trust departments in recent decades-while Savant gets ongoing referrals of trust clients with $1 million or more in assets without having to open up its own trust company.
Both parties spent months doing due diligence on the contract to ensure that no one was going to "steal" the other's clients-a fear advisors find is well-founded after years of having banks take control of trust assets at every opportunity. To avoid such conflicts with State Bank "we took all the gray out," Bennett says. "We made it very expensive for the bank to start competing with us. It essentially would cost them two-and-a-half times our one-year fee on any assets they stole."
Now that the dust has settled on the partnership, the advisor is beginning to reap the benefits of a steady stream of new wealth management clients. That fits in nicely with Savant's already astonishing 35% growth rate. "We grew from $113 million to $1.3 billion in eight years," Bennett says. "We have a big commitment to marketing, a $500,000 budget, so this fits well with our strategic growth plan."
What prompted Savant's interest in trusts? The motivation came from clients and the real specter of losing assets. "If one of our clients passed away and the trustee was a bank or the trustee or the beneficiary a child who lived someplace else, we were always fighting to retain the assets," Bennett says.
Sometimes the assets were pulled from Savant. At the same time, the firm's clients kept asking the firm to be trustees of their trusts, which for legal reasons the firm couldn't do. To become a corporate trustee, the firm would have had to create its own trust company and take actual custody of assets, a possibility Bennett says they investigated several times but rejected because of the steep regulation and the multimillion-dollar cash reserve a trust charter would have required them to let sit idle. "Now we get access to a trust relationship our clients need, numerous referrals and we don't have to tie up $2.5 million," says Bennett. Currently Savant has offices in four Chicago-area locations and is opening an office in Madison, Wis.
To ensure that there is a "cultural fit" for the advisor and the bank staff who have to make the shared-client arrangement work, Savant holds monthly investment and marketing meetings attended by both companies. "Culturally, we've developed all the marketing materials. They're piggybacking on our systems, and their compensation and sales incentives, which are pegged to sales goals, are designed to encourage making this arrangement work."
The bank benefits "because we share part of our investment management fee and they have a new source of fee income. That's huge, because banks are fighting in a difficult market for fee income right now," Bennett says.
The fact is trust assets are up for grabs and often are there for the asking, provided advisors know the right questions to ask, say broker-dealer executives who are seeing a tremendous uptick in advisor-delivered trust assets. In fact trusts assets are growing at 20% to 30% rates at the trust companies run by broker-dealers and custodians such as Schwab Institutional, LPL Financial Services and Raymond James. It's noteworthy that 80% of the trust money coming in the door is from transfers from bank trust departments (as opposed to newly created trust business).
Fidelity Registered Investment Advisor Group says in its white paper, Keys To Building A Trust Practice, that $3.3 trillion is now held in personal trusts and that number is expected to grow to $7 trillion by 2010. It adds that 39% of households with $250,000 to $500,000 in investable assets utilize trusts, 60% of households with $500,000 to $1 million and 72% of households with $1 million plus.
Seeing the trends, in 2001 Fidelity launched Fidelity Trustee Services, which works with many RIAs. The unit offers personal trust accounting, corporate trustee services and other brokerage and trust capabilities. Fidelity Personal Trust Company, FSB, can serve as trustee with advisors in a collaborative arrangement. In August, Fidelity and SunGard announced an agreement to offer enhanced trading, technology and other services through one platform for their financial intermediary customers, such as banks, trust providers and recordkeepers.
Fidelity is not the only firm putting effort into working with advisors involved with trusts. To get their piece of the trust pie believed to be up for grabs as boomers age, broker-dealers are making major investments now to ensure that they cater to the advisors responsible for delivering those assets. Schwab Institutional, which has 13% of the trust marketplace, with $138 billion in trust assets (up a whopping 27% from 2005), has made some serious and costly changes to ensure that advisors are comfortable delivering assets to its door.
The first change the big custodian made was to put U.S. Trust up for sale. Originally cast as the Schwab trust alternative for wealthy investors who needed a corporate trustee, advisors saw the bank as a competing asset manager and delivered relatively few trust assets. Schwab recently sold the trust company for just slightly more than it paid seven years ago at the height of the bubble. "We did have some success in attracting some advisors, but we also understood that U.S. Trust did compete for business in some advisor markets," says Cathy Clauson, Schwab's vice president of product development. "We know the number of assets flocking to advisors versus wirehouse brokers." Currently, trusts account for 27% of Schwab's assets.
Instead of being viewed as a competitor, says Clauson, the company is investing heavily in wooing advisors by integrating a trust accounting system onto the advisor platform so advisors will be able to work with trust assets seamlessly. Schwab is also building out the capability to offer corporate trustee services, when advisors are managing trust assets in cases where a family member may not be the best trustee choice. "We want to have that up and ready by November," Clauson says. "We have to get regulator approval, but we're aggressive around here and I think we'll make it happen."
Raymond James Trust Companies currently holds about $1.4 billion in trust assets. Dave Ness, president of the trust companies, believes those assets will grow significantly as boomers retire. "We really do believe that we're in the right spot from a demographic point of view," says Ness. The company experienced a whopping 10% growth spurt in the fourth quarter of 2006, growing by a stunning $150 million.
The fact that banks are losing assets is also having an advantageous impact at Raymond James and other broker-dealers. "I'd say that most of our new trust assets-80%-are coming from bank consolidation or the fact that more banks are tiering their trust services (offering accounts with less than $5 million in assets fewer services and investment choices). If a client has less than $5 million with a bank, they may get a customer service rep in some remote city and a portfolio of proprietary bank mutual funds," Ness says. "I call it the '1-800-Trust-Us' movement."
Thanks to a combination of continuing bank slip-ups and the growing esteem with which wealthier investors view investment advisors, the latter have helped broker-dealers and other nonbank trust companies siphon off a whopping 30% of managed trust assets from banks since 1999, according to a new report from the Chicago-based Spectrem Group, which tracks trends at financial institutions.
The upshot is that investors and their heirs and beneficiaries are looking for more investment prowess and greater assurances that their fiduciaries really can be trusted to make smart and, when needed, custom investment decisions. That's where advisors and their broker-dealers come in, says Tom Berry, senior vice president of private client services at LPL. Berry, who heads up the trust company the firm acquired four years ago, says trust assets have been growing at 20% a year in each of those years to approximately $300 million.
To get the word out, LPL is investing heavily in
advisor education, holding trusted-related seminars in 16 cities in
2007. The firm's two-and-a-half day trust symposium, which will take
place in Dallas in September, can accommodate 250 advisors and is
usually oversubscribed. "Advisors pay their own way, so they're very
serious and dedicated to learning about trusts. They see the potential
and know that these assets stick around a long time," Berry adds.