As explored in part one of this two-part series, trusts can be multi-faceted in their various uses and a key tool in advisors’ arsenal for assisting clients, especially during times of transition. Beyond trusts’ planning applications, offering trust services can also assist with various aspects of practice management, including helping to attract new clients, gaining wallet share with existing clients, and offering a “stickiness” to client retention in a competitive landscape and through generational wealth transfers.
A Market Ripe For Growth
The trust market offers growth opportunities, and forward-looking advisors would be wise to consider incorporating trust services into their business models. Recent regulatory developments have implications for retirement savings; The House passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, and the Senate is working on its own version, the Retirement Enhancement and Savings Act (RESA). More specifically, the proposed changes to the stretch period for IRAs create new considerations for advisors, standing to position trusts as an increasingly important option to help manage and potentially mitigate taxes as a result.
Additionally, only 23% of advisors offer trust services, highlighting an untapped market opportunity. As competition for clients continues to heat up, M&A activity gets hotter, fees drop lower and client expectations climb higher, trust services can offer a differentiator and a true value-add to clients as they navigate life transitions.
Trust services can offer clients control over their assets, potential tax savings, a long-term plan based on individual needs and privacy all in one place. Creating an opportunity to enhance existing client relationships, these services can help solve complex planning issues, as well as potentially attract assets from new clients who may value or require these types of benefits for their unique needs. Advisors can also benefit from gaining access to the next generation of clients if they inherit wealth through these trusts.
Finding The Right Expertise
As touched upon in part one, trusts can be complex with many different types, purposes, rules and legal requirements (which can also vary by state). It’s no wonder that so few advisors are offering trust services today, but they don’t have to be trust experts to offer the services.
For advisors interested in taking a second look but don’t have the resources to execute in-house, outsourcing can be a good option. It’s important for advisors to consider these six areas when evaluating outsourcing potential strategic partners for trust services.
Independence. As part of your due diligence in securing a trust services strategic partner, ensuring you’re able to maintain independence after selecting a partner is a key point. You could look to a local bank or trust company, but it’s important to consider that your local bank may offer the same investment services as you and look to expand their relationship with your client beyond trust services. Selecting a trust company that works with independent advisors can help avoid competition.
Services provided. Trust services and the service level can vary by company. Some trust companies only offer administrative trust services, while other companies may offer more comprehensive options, such as providing investment options and/or investment management within the trust. Service level variations can have a big impact on both the client and advisor experience.
For example, some companies only offer an 800-number for you or your client to call if you have questions—meaning you and/or your client may get a different person each time. On the flip side, other providers have a more customized and tailored experience, even offering things like a full-time professional trust officer and/or trust investment officer who oversee investments, reporting and administrative services. Having a trust investment officer work with the client to choose investments in the trust can be vital to helping maximize wealth and assets and ensure effective distribution over generations. A-la-carte services offered outside of the “basic” package, such as trust tax return preparation and K-1 issuance, also present a value-add for clients.
This level of tailored service can free up an advisor’s time, so they can focus on other key areas of their business, like working with current clients and seeking out new ones, as well as improving rapport and offering more value and personalization.
Marketing support. This may seem like a minor detail in the grand scheme of things, but if an advisor is seeking the benefits of differentiation through offering trust services, marketing will likely play a key role in helping to get the word out and making your clients aware. Some companies offer marketing support as part of their trust services, which may be worthwhile to consider, especially if you don’t have the internal resources or bandwidth to market the services. Will the trust company go the extra mile to cohost events for centers of influence, clients and prospects? Meeting trust company representatives who aren’t local to you may appeal to your strategic business partners and clients. Evaluating the quality of marketing support and different types of marketing materials (videos, brochures, emails, etc.) offered can also be useful in assuring they align with your own brand, marketing strategy and client preferences.
Cost transparency. Just as cost transparency is an important consideration for many clients, it’s also important for advisors to ask their potential trust services provider about how they’re charged, and if there are any hidden fees for additional services. Some trust companies charge based on assets under management—the bigger the trust, the bigger the administration costs. Trust companies may also require a minimum for trust services, regardless of the trust size. It’s recommended to compare a few different providers to get a better sense of a reasonable benchmark for these services.
Competition. Advisors may want to be mindful of who is offering the trust services (for example, a bank, trust company, other provider, etc.), as banks may have a wealth management unit that can compete with the advisor for the client’s business. From an advisor standpoint, if you share a trust with a bank, the bank may drip marketing materials to your client or solicit your client’s business. When selecting a trust services provider, it’s worthwhile to consider whether or not that company will be competing with you for your client, or whether they’re an independent organization that’s not targeting end-client business.
Expertise. It’s important to evaluate a trust officer’s experience. Do they possess the experience and wisdom to make inferences about your trust case? Can the trust company provide guidance for a trust’s design and options? Can the trust company run illustrations, such as the potential tax savings and payout options for a charitable trust?
Although it can be an initial time investment to research and vet a potential strategic partner for trust services, it can be a worthwhile task, as the upside to offering trust services to clients can far outweigh the initial time commitment of finding the right strategic partner. With the right trust services strategic partner, you can free up time to focus on what matters most—your clients.
Dean Mioli is director of investment planning, Independent Advisor Solutions by SEI.