Blog - The Bank Trust Disaster
10/11/2017
As of year-end 2016, according to government data compiled by Spectrem Group, national bank trust departments had the lowest number of personal trust accounts since this information has been tracked (1998). Similarly, bank trust assets have continued to decline, despite the anticipated Baby Boomer wealth transfer and a booming stock market. What has happened to the trust industry?
While it’s easy to blame the increase in non-bank competition and the reluctance of investors to place assets in trust as the primary reasons for the crash (both of these are true)…the biggest reason is the failure of the trust industry to open its eyes and to change its culture, products, services and employees to meet the needs of a new environment.
I grew up in the trust industry and I love its people and its practices. I was in-house trust counsel for a large regional bank for many years. This was before the internet. After reviewing contracts and trust agreements, I would place them in the U.S. mail and know that I wouldn’t hear back from the other side for several weeks. Scheduling an internal meeting regarding any issues would take several days with the meeting occurring sometime in the future. But then things began to change. The fax machine made contract review happen within days. Email suddenly changed things to an immediate turn around. Meetings could be quickly scheduled and even could occur (gasp!) within the same day.
But I’m not sure that the culture changed dramatically everywhere. For example, Spectrem’s bank clients require us to schedule meetings several months out. In contrast, other firms can schedule meetings within days. Media companies can schedule meetings within minutes!!
Additionally, as trust providers we believed we had the best interests of our clients at heart and we made sure that we were able to prove all of those decisions would meet the required legal tests. This took time. Meetings with clients were relatively formal and often included an elaborate meal. Grabbing a coffee or chatting via Skype….none of that existed.
Providing online account information was really challenging in the 1990s. While these capabilities have increased….many companies have legacy systems that require extensive modification to be able to deliver the information that is easily accessible to clients from their brokerage firm. Keep in mind that in the minds of consumers the capabilities of Amazon and other online providers have become the expectation.
And those outside advisors? They were the scum of the earth when I was in-house counsel. How could they ever know what was right for our clients? How could we share responsibilities with any outsiders? Even a family member? What types of liability were associated with relying upon an outsider?
Those attitudes need to go and if you work for an organization that still feels that way…..head for the door because your company won’t be around much longer.
Trust companies need to refocus their efforts and realize that their opportunity exists in establishing relationships with families and helping these families to realize their long term goals. This can, and should, be done in the context of how well-prepared and thoughtful the trust industry can be. This transformation would include the following:
- Be willing to act as agent or co-trustee. Many investors do not believe a bank can understand the needs of their family. Therefore they appoint a spouse or family member as trustee. This family member, however, does not understand the administrative challenges ahead. There also is rarely a plan for a successor trustee. By working with the family member, it is likely that your organization will eventually become the trustee.
- Form relationships with local RIAs. Many of these individuals are reluctant to advise their clients to place assets into trust because they are afraid they will endanger their relationship with their clients. By providing agency services and allowing for outside investment management, you will be opening up a new pipeline. Be willing to educate advisors regarding trust services. In many cases, advisors may not be as knowledgeable as they believe regarding the benefits of trust.
- Focus on how trust can assist families with complex asset transfers. While a farmer may not believe he or she has sufficient assets for a trust, explain how the value of the farmland impacts the estate and why a trust may be beneficial. The same is true for family businesses. Many investors do not understand how trust might apply to them.
- Populate your staff with financial planners and salespeople, not just administrators. One of the reasons that the brokerage and advisory businesses have been able to attract wealthy clients is the type of individuals they employ. While trust administrators, often focused on details, may be appropriate for the trust business….wealth management is broader than just trust administration. Create teams to service clients with different needs and different personalities.
- Make sure your technology is competitive. Not only should beneficiaries and their advisors be able to view their accounts 24/7, you must be willing to text, Skype and use other forms of both mobile and non-mobile technologies.
- Focus on their financial goals. Trust is really just a legal constraint protecting their assets (or the beneficiaries’ assets). Forming a relationship focused on helping them to achieve their long-term financial goals is more important than focusing on “trust” and “fiduciary” issues. That is an expectation.
In order to turn the corner and once again become the highly respected industry that existed in the past, trust companies need to be honest with themselves. Are you still working in the same manner as twenty years ago? Why? Isn’t it time to realize that your competitors are financial planners, RIAs, brokers and anyone providing financial advice to investors. Other banks are not your competitors…..look at the numbers….they are losing business just as quickly. Wake up! It’s time to change the trust industry.
