The State of the State
In the trust business, location matters. And a handful of states—namely Alaska, Delaware, Nevada and South Dakota—are considered progressive trust havens.
Advisors need to find a trust company partner that can work with their clients wherever they live. However, anyone can set up a trust in any jurisdiction, so no advisor should feel limited to what’s available at home. Wealthy families and individuals often seek out the most favorable environments for their assets, and many large family offices opt for maximum flexibility when it comes time to decide where to set up a new trust.
Some of the benefits of a progressive trust state may include favorable decanting rules, which make it easier to modify a trust that, after 40, 50, 100 years, no longer makes sense. Some states also allow for dynasty trusts, which remain intact for many generations longer than the standard and in some cases forever. Progressive states might also offer asset protections that shield property from legal claims—Nevada and South Dakota are the most favorable in this regard.
“Then you start looking at things like states that have no state income tax; that’s a big deal for the affluent,” Abbuhl says. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming do not impose an income tax on trusts. While headquartered in Kansas City, National Advisors Trust has a sister company in South Dakota that allows it to do business there. “There are an awful lot of assets flowing into South Dakota. And we think it will continue to be a favorable state,” Abbuhl says.
More Than Just A Trust
Selecting a trust company partner isn’t only about trust administration; some advisors who require trust services are also opting for the all-in-one approach and using advisor-friendly trust companies as custodians for all of their clients’ assets.
“There’s a lot of debate right now about where the best place is to custody your assets: on a brokerage back end or on a trust back end,” says Scott Parry, executive vice president of the Wealth & Retirement group at Reliance Trust Company. According to Parry, trust company services have morphed to the point that often only about 20% of trust company accounts are actual trusts, while the other 80% are made up of retail and retirement accounts. “It depends on how they’ve grown their book of business, but the misnomer is that all accounts on trust accounting systems are actually trustee accounts. A trust accounting system, in many cases, is used for managing a retail account.”
One advantage to using a trust back-end system to custody assets is that it keeps track of everything day to day. The advisor can go back to any date and time and the system can provide a rundown of the holdings at that point. A brokerage system runs on real time, so if you want to look at historical holdings, you have to pull up monthly statements.
Reliance Trust, which was acquired by FIS Wealth Management Services in 2014, uses the FIS TrustDesk accounting system and has more than 1,000 advisor relationships. Despite being under the umbrella of an asset management firm, Reliance maintains its standing as one of the country’s top advisor-friendly trusts.
“If you look at the way financial advisors are growing their practices, they’re looking to outsource more and more,” Parry says. “The whole outsourcing concept is growing really rapidly. So we’re not here to compete with our clients, we’re here to help our clients become more efficient.”
Beyond High-Net-Worth
Then you have your specialists. AdvisorTrust Inc., based in Sioux Falls, S.D., is a boutique trust company that provides directed trust services for retirement plans, including a new online service for IRAs, set to launch in the first quarter of 2017.
“The program is designed to reduce the fiduciary exposure of advisors with regard to IRA accounts,” says Reno Regalbuto, president of AdvisorTrust, which has more than 200 advisor relationships. “It provides a compliant path to transition an IRA from a commission to fee-based product and is an ideal solution for advisors to capture small account balances without applying many resources.”
The AdvisorTrust platform supports monthly custody statements and certified annual reports; federal and state reporting and distribution services; employer, payroll and institution-level contribution tracking and processing; mutual fund revenue collection and tracking; a full range of non-proprietary investment products; and turnkey integration for third-party administrators, including trading and custodial reporting of mutual funds, ETFs, managed accounts, unitized and collective funds and self-directed accounts.
“There’s a lot of fee compression and now competition with the robos, and in order to keep your cost low you’re going to need to use technology,” Regalbuto says. With the new online service, “an advisor can do things like upload contacts or a new prospect, download data, or send a text to a client or prospect.
“Our entire business supports financial advisors,” he says.