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Financial Planning > Trusts and Estates > Trust Planning

By James J. Green

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The revelation came to Joe Kopczynski some years ago. “I had the unexpected trauma of having a very large client die and having the account taken away immediately” by a trust company, he recalls. So when Kopczynski, of Universal Advisory Services Inc. in Albuquerque, was approached several years later about joining what would become National Advisory Trust Co., or NATCO, he jumped at the chance. Kopczynski became one of NATCO’s 82 founding members, and now serves as chairman. Chartered by the Office of Thrift Supervision and with booked assets of $860 million and assets in transfer of $946 million, Overland Park, Kansas-based NATCO now has 108 advisor shareholders; Kopczynski expects NATCO to be profitable by early next year. NATCO’s growth and influential backers constitute one of the most telling signs of a growing trend: Advisors are using independent trust companies to handle clients’ trust needs and more general custodial needs.

“What we saw six years ago, many other people in the industry are seeing now,” says Kopczynski. “They’re seeing Schwab, for example, going to mutual funds and demanding more money, and we all know who pays for that. We were thinking: Were we building a business for the custodians who chose to compete with us? But now we have a weapon to counteract that.”

The NATCO model is not the only one. Herb McPherson started his career in a community bank trust company, then spent 18 years with SEI Corp. He started Investors Independent Trust Co. in 1996 in Boulder, Colorado, with a focus at first on personal trust administration, then began offering fiduciary services as a trustee in partnership with RIAs. McPherson suggests that the emergence of the independent trust company was prompted by the disappearance of the local bank trust officer following the bank M&A frenzy of the 1980s and ’90s, and by adoption of the Uniform Prudent Investor Act, which allowed the professional trustee to engage the services of professional advisors like RIAs, for investment management. McPherson argues that since advisors already have a trusted relationship with their clients, they’d prefer to refer clients to independent trust companies run by people in their communities who are more interested in serving the client than selling “proprietary product.” McPherson’s approach to advisors is to “sign noncompete agreements so that they don’t feel we’re going to steal their business; we don’t sell any product; and we discount our fee, so that the total pricing solution for the client doesn’t become cost-prohibitive relative to giving in and going to the bank.” McPherson is also president of AITCO, the Association of Independent Trust Companies, a 150-member group that was founded to support independent trust companies, particularly startups. “That step to go independent is not quite as overwhelming if you’ve got a network of like-minded professionals with many of the same experiences and philosophical approaches to business,” says McPherson.

If NATCO and Investors Independent Trust are relative newcomers to the field, Denver-based First Trust/DATAlynx is an old hand, having been in business since 1962 and carrying $24 billion in assets. In addition to its custody business for independent advisors, it provides administrative trust services to advisors. VP Skip Schweiss divides independent trust companies into two camps. One can be characterized as mostly a custodian/back office, like First Trust/DATAlynx and Trust Company of America, providing asset custody, transaction processing, and “all the backroom work that goes with investment processing.” The other category comprises those that provide administrative services to trust accounts, “acting as a corporate trustee on the trust, filing trust tax returns, and making decisions on disbursement requests to trust beneficiaries.” Schweiss notes that if an advisor “is looking to play in the trust market” he needs both kinds of services.

The indie trust company phenomenon is not simply for the fee-only RIA, however. Most of the major custodians (and wirehouses) have affiliated trust companies, and broker/dealer reps can also avail themselves of trust services through their broker/dealers. In the first week of June alone, for instance, Capital Trust Co. of Delaware signed separate agreements with the AIG Advisor Group and Commonwealth Financial Network to offer trust services through their platforms. And there’s at least one other approach, that of NITCO, the National Independent Trust Company, a cooperative trust-only national bank which provides back-office trust services through 18 affiliated offices in eight states.

While our directory and sense of the market suggests that there’s notable growth in the independent trust company arena, Schweiss argues that “there’s a very small minority of advisors that provide trust services to their clients.” That fact surprises him, Schweiss notes, “especially in this era when advisors are starved for asset growth. It seems to be something that’s just a little bit outside the box, and advisors seem to be a little intimidated by that.”

Should you get into the trust company business yourself? Should you join with peers in a joint trust company, or should you partner with an existing independent trust company that caters to independent advisors? The options are there, and our directory that follows provides a place to start your search. As Schweiss says, “The opportunity for advisors is very much there and the solutions are available, but advisors have to take the time to put it together.”