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RIAs Are Stealing Trust Service Business from Banks

By Thomas Coyle October 25, 2017

Bank-based trust units are bleeding assets, giving independent financial advisors an opportunity to increase assets under management while performing services to high net worth families that build lasting bonds to the next generation, say industry watchers and practitioners alike.

“Financial planning RIAs like us have a role in facilitating a range of trust discussions,” says Gregory Makowski of CFS Investment Advisory Services in Totowa, N.J.

Most often, trusts come into play for financial advice clients in one of two broad categories. High net worth clients use them to minimize taxes and preserve assets for the next generation. Lower-tier millionaires and mass affluent savers employ trust strategies to keep long-term healthcare costs from devouring whole nest eggs and leaving extended families on the hook to pay for — or personally provide — further care.

But bank-based trust departments – the traditional bastion of trust administration and trust-held asset management – are losing ground to independent trust firms. In turn, many of these firms look to RIAs for business development as well as money management services.

As the country enjoys a long and ongoing bull run for stocks, there have never been so many wealthy U.S. households as there are now. Still, fewer individuals are using banks for their trusts, Spectrem Group says in a new report.

And it’s a trend of long standing. “Since 2009, during the height of the great recession, the amount of personal trust assets within U.S. institutions has decreased significantly,” according to the Chicago-based research firm. This goes as well for the number of accounts held at bank trust departments.

Spectrem’s CEO George Walper Jr. says this decline was in view before the economic crisis, only to accelerate in the recovery period since — even though banks very much want this business.

“Families feel banks don’t know them well enough,” Walper explains. On the other hand, families tend to think their advisors have better insight to their quirks and intricacies, he says.

As a result, RIAs and some advice firms in other channels, backed by independent trust companies, are replacing banks when it comes to trusts – precisely because clients feel FAs have a firmer grasp of their finances and the nuances of their aspirations, says Walper.

Makowski says a “significant” portion of the $884 million managed by his firm, CFS Investment Advisory Services, is in trusts. This includes testamentary trusts designed to protect large estates and so-called Medicaid trusts designed to keep millionaire-next-door types from spending their last days in poverty.

He says this work strengthens ties between his firm and next-generation clients.

Gregory Makowski

“Most children fire their parents’ advisors,” says Makowski, referring to research by InvestmentNews that pegs the rate of RIA dismissal by heirs at 66%.

But working with families on trusts – which usually involves the next generation – helps them get to know and appreciate their parents’ advisors.

Some younger family members even take to heart their roles as stewards of a shared financial legacy they’re honor-bound to pass to their heirs, says Makowski, a point of view that makes ties to their FAs more mission-oriented.

In contrast, banks are “cold, faceless institutions” and “trust officers don’t understand the philosophy and psychology of the family,” says Makowski. “We’re 30 years with some families. We’ve watched their kids grow up. And for us trusts are an extension of the planning we do.”

But some employee-track advice providers are just as eager to strip banks of trust assets.

Michael Cooper, a New York-based Ameriprise Financial advisor with $165 million under management, calls himself “a proponent of trust services for certain clients if their situation warrants it.”

More to the point, Cooper adds, Ameriprise “has a trust department” to facilitate personal trusts and services “that would appease just about any situation.”