The Trust Industry and You
Spectrem’s 2017 Comprehensive Bank Trust Update shows the continued deterioration of the personal trust industry. According to the in-depth analysis of trust accounts in the U.S., the number of personal bank trust accounts held in trust institutions fell to 571,044 in 2016, marking the seventh consecutive annual decrease and the largest decrease by number since 2011.
At the same time, the total personal trust assets fell for the second year in a row to $892 billion, the lowest level since 2012.
There was a severe drop in the number of personal trusts in America as a result of the 2008 Great Recession, but while wealth in America has recovered, the personal trust industry has not.
There is money out there in need of the protections trusts offer. But investors are not taking advantage of those protections, and advisors and providers need to find a way to increase the participation of investors in the industry that is designed solely as a protection against taxation.
According to the 2017 Comprehensive Bank Trust Update, 88 percent of investors with a net worth above $25 million have at last some assets in the legal structure of a trust. That means 12 percent do not. Among Ultra High Net Worth investors with a net worth between $5 million and $25 million, 44 percent do have assets in a trust and 56 percent do not.
Among those investors who do set up trusts, very few of them use corporate trustees. Only 16 percent of the $25 million plus segment who have trusts use a financial institution to hold their assets and only 9 percent of the UHNW investors do so.
Of the 88 percent of $25 million-plus investors with some assets in a trust, a majority have more than one trust, and 47 percent have at least three trusts set up.
Among those $25 million-plus investors with some assets in a trust, 48 percent use their spouse as trustee, 31 percent use a child, and 30 percent manage the trust themselves.
Those are very significant percentages of wealthy investors who do not use a trust of any kind for any portion of their assets. That is a market that advisors and providers should find a way to address and attract.
For advisors and providers, there are reasons to be encouraged about the possibility of gaining trust customers. Chief among them is the fact that corporate trustees are by law required to be fiduciaries, with the assigned task of acting always in the best interests of the client. This status has almost always been the case, but comes into greater focus today as the Department of Labor continues to try to push a fiduciary status on advisors working with investors on their retirement accounts.
The fiduciary rule was activated earlier this year, but in late summer the Department of Labor pushed back implementation until July 1, 2019, to serve as a transition period for the rule. That transition period is still being discussed.
Advisors can also suggest the establishment of a trust to investors who are not among their most wealthy clients. There is a perception among some investors that trusts are only for the most wealthy investors, but the protections trusts provide can apply to any investor. While there is probably a minimum limit to a portfolio that would make a trust unnecessary, most affluent investors could benefit in some way from putting at least a portion of their assets into a trust.
Spectrem’s report Choosing A Trustee pointed to the issue of trust when discussing a personal trust, noting that unlike family members who understand the dynamics of the family unit, corporate trustees are often strangers to the advisor, especially if the firm the investor is working with has separate trust officers who do not talk to investors until a t rust is established. That is way advisors are advised to get to know not only the investor but the investor’s family as well, in an attempt to serve as a reliable and trustworthy bridge between the investor and the advisor’s firms trust department.
©2017 Spectrem Group