From the July 2005 issue of Investment Advisor • Subscribe!

July 1, 2005

At Your Service

There are more options than ever for advisors who want to retain some control over clients' assets when they move into trust

If Jonathan Blattmachr had his way, there would be plenty more trusts in this country. That's not just because Blattmachr, an attorney with Millbank Tweed Hadley and McCoy and a recognized force in estate planning within and without his home base of New York, has a personal stake in writing as many trust documents as he can, but also because he believes in his own version of the Golden Rule: "He who has the gold, rules." He also believes that the "only way to protect assets in a divorce" is to put them in trust, and that the "only way to protect assets from creditors" is to place them in, you guessed it, trusts. It's also one of the best ways, he said, quoting Albert Einstein, to take advantage of "the most important thing in the universe: compounding," and what he called the corollary for advisors as "the most important thing in financial planning: tax-free compounding."

These pronouncements were made at a well-attended general session at the annual conference of the National Association of Personal Financial Advisors in Tampa in May. Blattmachr wasn't being glib in his comments about the appropriateness of asset protection trusts when you consider the divorce rate in this country, pointing out that not only do 50% of first marriages end in divorce, but 60% of second marriages end the same way (the percentage of third marriages that ends in divorce drops to 30%, by the way, but that's due more to the rising mortality of third-timers than to the fragility of their marriages).

So you say you're a financial planner or function mostly as an investment advisor, and what do you know from trusts? Investment Advisor's fourth annual directory of independent trust companies shows that there are more potential partners than ever for advisors to consider when it comes to setting up trusts in the first place and retaining some control over clients' assets when they move into trust--specifically the investment of those assets. That would be the case even if it's true that there may be fewer trusts being drawn up these days because of the big changes in the estate tax equation that have been enacted in the past few years, as Tom Batterman, president of Vigil Trust & Financial Advocacy in Wausau, Wisconsin, suggests may be the case. But Batterman, himself a fee-only financial planner and a former president of the Association of Independent Trust Companies, the trade group for indie trust companies, sees trusts as continuing to be the proper tool to minimize many clients' and their estates' tax burdens, and to meet clients' multigenerational wishes. He suggests as well that the long wave of banking M&A activity has radically changed the local bank trust company, to the point that these days it's far from uncommon for an advisor to have to "call an 800 number just to get to speak to the trustee" of a trust.

Most independent trust companies are fairly small and many are of recent vintage, though they all must meet either state or federal Comptroller of the Currency charter requirements to open their doors and to stay in business. The relatively small size and geographic grounding of the average independent trust company does allow it to provide the kind of personal service and attention to independent advisors (not to mention the needs of their clients) that Batterman describes as being so rare these days at bank trust departments. Moreover, paging through the directory shows that some independent trust companies are far from small, and even big trust companies like Northern Trust say they will work with independent advisors in some areas. In addition to the AITCO-affiliated trust companies and other independent trust companies, there's the National Advisors Trust Company, the holding company based in Overland Park, Kansas, that is owned by more than 120 advisors and which passed the $2 billion mark in trust and custodial assets last year.

One of the clearest signals that the independent trust company business has come of age, however, may be the bald statement by the acting chief of the second largest custodian of independent advisors' assets--Scott Dell'Orfano of Fidelity's Registered Investment Advisory Group--that Fidelity over the past 18 months has had "a pretty extensive focus on building out our consolidated trust and brokerage platform." A good part of that time has been spent, Dell'Orfano says, in educating advisors about the trust service business. The other focus, he says, has been to work with Metavante and SunGard--both providers of trust accounting systems--to "bridge the gap" between Fidelity's brokerage and trust offerings, "and bring those two worlds together onto one platform." So Fidelity now offers a range of trust services to advisors--trust administration services, such as trust accounting and reporting; agent for trustee services, including reviews of trust documents and distributing income from those trusts; and trust custody. If the assets are custodied on the Fidelity system, Dell'Orfano notes, advisors can get "a consolidated view of the assets and consolidated reporting," allowing advisors to "trade both positions"--trust and brokerage--through the same Fidelity Web portal.

By leasing the SunGard Advantage trust accounting system, RIAs who want to build their own trust departments could do so easily and efficiently, he says. But there's a dark cloud in that silver lining: Dell'Orfano says that not only are advisors getting into the trust business, but many trust firms "that want to look and feel more like RIAs," are able to do so by using the SunGard platform to gain entree into the "brokerage world."

For a complete directory of Independent Trust companies and their offerings, please click here

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