Some agree banks' loss of investors' trust assets is advisors' gain. Now, for that marketing plan.

    After 30 years of trying to find trust providers that weren't going to compete neck-and-neck with him, Carl Brooks thinks he's finally got things all figured out on the trust front. And it's a good thing, too, because clients' trust assets are literally falling into Brooks' lap.
    "Just a couple of months ago a client walked into my office upset that a bank trust department had cut him off," says Brooks, executive vice president of Carroll Financial Associates in Charlotte, N.C. "He'd been my client for years and I never even knew he was the beneficiary of a $600,000 trust. This is happening more and more."
    Brooks, whose investment advisory firm manages $1.2 billion in client assets, is on the receiving end of an enviable trend: As investors and trust beneficiaries grow increasingly disenchanted with banks' trust services, they are asking their investment advisors to take over, often unsolicited.  While broker-dealer executives report asset growth in trusts of 15% to 20% annually, bank trust departments are seeing a decline, from a peak of $1.1 trillion in 1999 to $986 billion today, says Ann C. Mahrdt, director at Chicago-based Spectrem Group, which tracks the bank trust market. The number of actual trust accounts is dropping even faster at banks, Mahrdt says, declining from 941,000 in 2002 to 720,000 today.
    "We expect to see a lot more transfers," says Susan Anderson, president of ING Trust, which Brooks uses. It's a fit, since Brooks' firm is registered with ING's affiliated broker-dealer Financial Network Investment Corp.
    With an onslaught of new broker-dealer trust offerings (either created or acquired) and explicit trust language that cements the asset management relationship advisors have with their clients, Anderson and many broker-dealer executives say they are already seeing rich new assets come in the door, almost all of them from existing advisor clients.
    "I think the real change will come about because advisors will let their clients know that they have trust services available," says Anderson, whose company manages $26 billion in institutional trusts and $125 million in retail trusts, the latter of which has been brought in by ING's 9,000 affiliated advisors in the past three years. "Right now the bulk of trust assets are sitting in sleepy banks, but as baby boomers inherit $30 trillion to $40 trillion in wealth, those assets will move to where the service is best and we think that's with independent advisors."
    Other broker-dealer executives agree. "Here's the trust sales tip of the day," says Tom Berry, LPL's senior vice president of private client services. "Almost every one of our trusts is coming from existing clients, but you have to ask."
    Berry, who oversees the trust company that LPL acquired three years ago, has seen assets grow to $250 million on the retail side in two years, with advisors bringing in more new assets through June of this year than in all of 2005. (The company manages a total of $30 billion in trust assets, including IRAs).
    "All of our advisors have in-depth financial knowledge, but it's very common for them to be surprised that clients even have trusts assets," says Berry, who predicts the influx of boomer inheritances and growing trust education will shorten advisors' learning curve quickly. "We had 300 advisors show up for a three-day symposium on trusts earlier this year in Scottsdale. Three days, and all that was discussed was trusts. I think that shows the level of interest advisors have," Berry says.
    LPL is also hosting 12 two-hour trust seminars in major cities throughout the U.S. this year. The seminars are designed to help advisors identify trust opportunities. The first step, Berry reiterates, is that advisors need to ask if clients have trusts. Looking for IRS form 1099 in client income tax statements is a clear-cut way to determine if a client has trust income. Some investors may not recognize that the $300 or $3,000 they get in monthly income from a bank comes from a trust. Often, since they are a beneficiary and not an owner, they don't report the trust to their advisor, even if they recognize it as such.
    "The next logical question for advisors to ask is 'Hey, did you know I can manage that trust for you?'" Berry says. " There is a good chance that you may find the bank is using private label or proprietary banks fund with high fees and unpublished returns."
While wrestling trust assets away from banks can seem like a daunting task, ING, LPL and some of the other broker-dealer trust companies we spoke with will essentially do much of the legal wrangling for advisors and their clients. Brooks says the $600,000 trust his client recently told him about took about three months to move from one of the country's largest banks to ING Trust.
    In addition to the joy of being able to find additional and significant client assets just by asking, Berry says that trust assets are "stickier" than other assets, with an average life of 17 years, and as a result will improve the business valuation and sales price an advisor can get for his or her firm.
Another fact for advisors to consider while they work on their trust sales pitch: They may well be able to improve a trust client's investment performance, reporting and control, but it is most often poor service from banks that drive clients to deliver trust assets to advisors and broker-dealers.
    "I think one of the biggest problem is that trust clients don't know who their contact is at banks. With all the bank buyouts, we are now seeing clients, the beneficiaries of $5 million trusts, who have to use 800-numbers for service," Berry says.
    Currently, with $127 billion in trust assets (23% of which are institutional assets kept in trust), Schwab is the 500-pound trust gorilla among independent advisors. Yet remarkably only $3 billion is kept with U.S. Trust, the trust bank Schwab acquired six years ago for $3.2 billion in stock. This reveals the assets that advisors have delivered to Schwab, and the fact that advisors do not like to lock assets away in a trust bank for fear that the bank will steal asset management.
    Cathy Clauson, Schwab's vice president of product development, says that the company is expanding its broker-dealer system for doing tax and income reporting, cashiering and beneficiary services so none of the advisors who uses its services will need to move trust assets to a bank. "We think the majority of assets in the U.S. will transfer in a trust, so we're very serious about getting a pulse on the trust market and what advisors want," says Clauson, who has been overseeing a series of advisor focus groups across the country over the past two years. The clients of Schwab advisors currently keep 20% to 30% of their assets in trust, and Clauson says that will grow dramatically in the years ahead.
    Another interesting Schwab finding: While East Coast clients tend to represent old wealth and be the beneficiary or trustee of a trust managed by a bank trust company, West Coast investors are vastly different, Clauson reports. "We see much fewer corporate trustees on the West Coast," she adds.     "Even in irrevocable trusts, clients tend to be trustees."   
    Dave Ness, president of Raymond James Trust Companies, which has $1.25 billion in assets, says the firm is seeing a trend toward naming corporate trustees. "I think when Dad dies and leaves the money in trust to Mom, the question becomes 'Who will be the trustee, the kids or us?' And I think more and more, as account sizes and complexity grow, the answer is us," says Ness.
    Even if advisors find a local bank that will accommodate their trust needs, "you're one merger away from being fired," says Ness, who says he recommends to advisors that they build an "A" team of estate planning lawyers and CPAs to enable them to compete.
    Allowing clients to name a family member or friend as a trustee can be a dangerous proposition for an advisor, says Bob Oehlschlager, founder and executive vice president of independent trust company Santa Fe Trust. Why? "Because when that family member or friend dies, control will revert to a trust bank, who will fire the advisor immediately and take over investment management." Santa Fe trust does no investment management.
    Oehlschlager says that advisors owe it to clients and themselves to be proactive about doing estate planning early, before there is a potential cancer or Alzheimer's diagnosis. "Don't wait," says the trust executive, who says his company is taking in $80 million to $100 million in new trust assets each month after nine years of operation. "Most are in irrevocable trusts and the beneficiary wants to move the trust so they can work with their trusted financial advisor," he adds.