Schwab, New York Private Bank & Trust among latest firms to ply offerings. Independent investment advisors are in danger of losing trillions of dollars in assets under management or advisory as clients move assets into trust accounts in preparation for transferring wealth to their successors. In response, specialized trust-service providers have stepped in to give advisors ways retain relationships with clients in need of personal-trust structures.

One of the latest -- joining stalwarts like Bank of New York Mellon, Fidelity, AST Capital and Reliance Trust -- is New York Private Bank and Trust (NYPBT), which launched an outsourced version of its trust and platform earlier this year.

Good-bye

"The response has been overwhelming," says NYPBT's president and CEO William Fuhs. "We're already working on getting our first one or two clients going, and we've got about 60 other very strong prospects."

Schwab, whose bank received regulatory approval to provide trust services about six months ago, is also seeing strong demand from independent advisors.

"We've got about 200 trusts in process right now" with new ones coming in for review at the rate of five to 10 a week, says Tom Forrest. "There's so much demand, we're on conference calls six hours -- that's when we're not on the road."

By one estimate there were $3.3 trillion in U.S. trust accounts in 2005 -- a figure that stands to double by 2010. As this rush to trust gains momentum, independent RIAs see as much as 80% of the dollar value they managed in 2006 ending up in trusts over the next decade or so, according to a 2007 study by Franklin Templeton.

For many RIAs, assets bound for trust are assets they kiss good-bye -- with banks, the traditional bastion of trust business, as the prime beneficiaries of the RIA's inability to handle the business.

Channels

In such cases, the shut-out of the independent advisor likely to be complete. "Most banks don't like to let the advisor manage trust assets," says Forrest.

This is where trust-service outsourcers like San Francisco-based Schwab and New York-based NYPBT come in, even if differences in their approaches point to different levels of demand among wealth managers.

Schwab's offering -- brought in to replace capabilities lost to it when it sold U.S. Trust to Bank of America last year -- is twofold. It can step in as corporate trustee with the RIA as designated manager of the underlying assets or, where the end client wants a non-corporate trust, it can provide personal-trust reporting services -- with the RIA again managing the trust's assets. It's seeing most of its business from RIAs with between $100 million and $300 million in client assets.

NYPBT's offering looks more like a series of trust-company partnerships. When it goes in with a client, it puts up capital, secures regulatory approval, handles administration and assumes fiduciary risk -- and can oversee the management of assets in trust. The result is a shared-revenue, white-label corporate and personal trust capability that is branded to suit the institutional client.

But, says Fuhs, NYPBT is so far seeing more demand from "small law firms with entrepreneurial management and de novo community banks" than from RIAs. NYPBT is also in discussion with several ultra-high-net-worth families that are weighing NYPBT's trust services as alternatives to traditional family offices.

Ignorance

Tony Greene, director of corporate communication at Atlanta-based Reliance Trust, has no opinion of the suitability of NYPBT's trust-service offering to RIAs, but he sees RIAs -- specifically and uniquely -- as a hard sell for trust services that go beyond bare-bone capabilities.

"In the sense that we're competing in that space at all, we compete primarily with the ignorance of the RIA," says Greene. "Many simply view the matter as a fait accompli: when assets go to trust, they lose those assets. Many others haven't thought about it at all."

Reliance Trust finds far better reception for its outsourced trust services with large-firm brokerage teams, including several of the wirehouses.

In that category, there's either good head-office support for retaining trust-bound assets or the teams produce enough to obviate second guessing from upstairs, says Greene.

And, adds Greene, among wirehouses, Merrill Lynch is doing a particularly good job of educating brokers about their need for trust-service capabilities.

Unfortunately for outsourcers, Merrill also has robust in-house trust-service offerings through its Private Banking and Investment Group. -FWR

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