Every year about this time we publish a report discussing the bank trust market and how it continues to lose both assets and accounts. Well, we have that same report available this year (2019 Comprehensive Trust Update) and yes, bank trust assets continue to decline.
But this year I want to focus on opportunities for the bank trust market. One of these opportunities is in the IRA rollover market. IRAs are often handled inconsistently at a bank. Often they are not serviced in the bank trust department unless they are linked to a larger trust relationship. Banks often have IRA accounts in their bank brokerage department and sometimes in the retail area funded by CDs.
First, banks need to step back and holistically review how they are managing and servicing IRA assets across the organization. How are these accounts coordinated across various areas? Are there opportunities to perhaps provide more services? What is known about the account holder? A small account could be an entry to more services. Aren't trust personnel often the most experienced in services such as financial planning and investments?
Overall, banks reported $857.24 billion in IRA/HSA assets at the end of 2018 (Federal reporting combines IRA/HSA assets, however, IRAs represent the largest portion of assets). Of the total assets reported only $225.08 billion represents managed assets.
Why do IRAs provide an opportunity for bank trust departments? Two rather obvious reasons come to mind. Obviously, a large number of Baby Boomers will be rolling over their assets. Most of them already have a relationship with a bank. Banks need to take advantage of these relationships.
One of the most memorable stories from our one-on-one interviews with wealthy investors was from an elderly man who decided to rollover his IRA. He had developed a friendly relationship with the tellers at a branch and often stopped by just to chat on his daily walk. He decided he would like to rollover an IRA account to the bank to reward the tellers. When he asked for their help they explained they couldn't do it but referred him to the bank broker who was just through the glass doors. When he walked through the doors, the broker explained he was just leaving but would call the gentleman and handed him a card. The broker never called despite the gentleman calling and leaving a voicemail for the broker. Ultimately, the gentleman left his $9 million IRA at the bank where he also had several million dollars in trust. The bank failed to convert a small relationship into a larger relationship because of a lack of coordination and a failure to know more about their client.
Those small relationships today could lead to much more. Another benefit banks have are their online tools. As investors get more comfortable seeing their savings and checking accounts online, the appeal of seeing their IRA and other assets in one place can be a motivation for moving their IRA assets to their bank. More than a third of investors want to see all of their assets in one place and banks have a real advantage in this area.
Bank trust departments need to become more fully integrated with other banking services. Regulatory requirements have changed significantly in the last two decades. Now is the time for banks and their trust departments to work together more effectively.