Trust companies that work with financial advisors tend to be smaller firms that cater to advisors' needs and concerns. Such companies generally provide a host of services, and a particular selling point is that even when one is named as trustee, the advisor still can manage the trust's investments.

But now some powerhouses in the financial services industry see potential in this marketplace and are wooing advisors as well. Pershing LLC, a subsidiary of The Bank of New York, and Fidelity Investments this year introduced trust programs for advisors, each of which hopes to capitalize on their existing relationships with thousands of clients.

Jersey City, N.J.-based Pershing made the move on July 1 by offering to its 1,100 broker-dealer customers-representing 80,000 investment professionals-the directed trust services of The Bank of New York, which has been providing trust services to the wealthy for 170 years. Later this year, Pershing plans to roll out the same offering to 150 registered investment advisors (RIAs) who participate in its Investment Manager Services program, says Ron Fiske, managing director of product management and development at Pershing.

In January, Boston-based Fidelity expanded its WealthAccess platform to include a trustee services program for RIAs. In April, Fidelity added other services that allow RIAs who do business with trust companies or have acquired one to interface custodial data to trust accounting and asset management systems. Fidelity is the second-largest provider of custody and brokerage services to the RIA marketplace, with $109 billion in assets on behalf of more than 2,270 advisors as of June 30. Fidelity Trustee Services are available to all of its RIA clients who custody assets at Fidelity.

Both The Bank of New York and Fidelity already offer comprehensive trust services-including investment management-directly to retail investors. But both still believe the advisory market is worth going after. Growth in the number of trusts and more interest from grantors and trustees in having trust investments managed independently will be a boon for financial advisors, observers believe.

"Just in terms of trust business, we think it's an attractive business," says John Dowd, The Bank of New York's chief trust officer and senior vice president of private client services. "Trusts are in greater demand today and will be in the future because of the aging demographic of the boomers. Trusts remain the most basic tool for transferring wealth, and the percentage of assets held in trusts by households aged 65 years or older will increase now until 2019." By then, 70% of personal trust assets will be held by households headed by individuals aged 65 years or older, he adds. Dowd notes he got his figures from the VIP Forum's study "Through The Looking Glass: Ten Observations on the Future of Wealth Management."

Although the number of trusts and interest in them is mushrooming, it's very difficult to accurately determine their total assets. That's because trust assets are held in accounts at a variety of firms-including banks, brokerages, mutual funds and trust companies-which are monitored by a host of different state and federal agencies.

Big banks, however, traditionally have held the lion's share of trust assets. The Federal Deposit Insurance Corp. (FDIC) estimates that the largest financial institutions hold close to 98% of all trust assets. About 2,000 banks and thrifts now report trust asset information to the FDIC, and at December 31, 2003, they had $37.34 trillion in trust assets, says FDIC spokesman David Barr. That number represents an 83% increase from the $20.35 trillion in trust assets reported to the FDIC five years ago, and a 250% increase from $10.61 trillion ten years ago.

However, the number of U.S. banks had fallen 48% by the end of last year-to 7,842 from 15,084 in 1984, according to the FDIC's Future of Banking Study "The Declining Number of U.S. Banking Organizations: Will the Trend Continue?" Although the result has been fewer banks offering trust services, Barr says the FDIC hasn't seen a big change in the degree of concentration of trust assets at banks overall.

That may be true, but the trust business has not been left unscathed by bank mergers. The Wall Street Journal reported in July that bank consolidation has led to discontented trust customers and a wave of lawsuits that have accused trustees of misdeeds including financial mismanagement and putting their own interests first. Customers have complained of frequent changes in their trust officer, relentless marketing and poor communication.

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