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Trust Business Offers Unique Challenge for Outsiders

These days, it seems like everyone wants to be in the trust business.

Dan Danford, 02/28/2007

These days, it seems like everyone wants to be in the trust business. While the opportunities are many, few realize the standards they'll have to maintain while trustees. Here's why I'm qualified to even broach this subject and why I'm writing this article today.

I spent nearly 15 years as a trust officer. I was with four different trust departments, two in regional banks and two in independent trust companies. I was a senior manager for most of that time and held board seats with both trust companies. I also served on boards for state and national industry groups.

Today, in addition to our RIA firm, I own a small piece of another corporation trying to bring national trust services to advisors. I got involved several years ago, and my involvement is purely financial (investment only).

I made a very deliberate move out of the trust business back in 1997. Part of my reason was local, but I also decided to seek greener pastures in a different financial arena. Thus, I watch with keen interest as both advisory and brokerage firms flirt with trust activities. It's clear to me that some very big brains see some genuine opportunity there.

The Real Promise
Structurally, these alliances offer real promise. Historically, trust firms were slow to adopt innovation, and technology lagged pretty badly. Several years ago, it was still rare to find access to electronic banking (cash transfers, Internet look-up, real-time quotes). Monthly bills were paid by paper check, and most internal data--interim statements, portfolio reviews, computer look-ups--featured weekly market prices. There's a lot of room for improvement, and outside partners could push trust into the twenty-first century.

There's also more room than ever for local trust providers. One way to increase trust profitability is to centralize regional operations and standardize offerings. Bank trust clients around the country are frustrated by toll-free telephone numbers and remote personnel. Clients hate this (with justification), and that's an opportunity for anyone else offering a reasonable alternative.

None of this is the real issue for advisors or brokers, though. The real issue is fiduciary responsibility, and that's a huge rub.

Trust people have always been easy targets. The easiest sales route in the investment business is to sell against an existing portfolio, any portfolio. With perfect hindsight, virtually any properly diversified account will crumble to unfair scrutiny. It's the nature of a competitive business with virtually unlimited investment options. You can almost always find something that would have/could have done better.

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