To be more attractive to clients and provide a more holistic service, many financial advisors are expanding their service offerings. And adding trust services should be part that plan, experts recommend. But not all trust providers are apparently created equal. So how do you avoid choosing the wrong provider?
Advisors should be wary of trust providers who have short track records, provide poor account services, or double as investment management shops, industry experts warn. Among these issues, however, offering proprietary products is apparently the biggest red flag.
Selling investment products and providing trust services can be perceived as a conflict of interest by clients, Mike Pelzar, head of national trust services for Bank of America US Trust, says. Trust providers are responsible for acting as fiduciaries for the purpose of administration, management, or the eventual transfer of assets to a beneficiary. But trusts also manage client assets while they hold them. So, trust providers pushing in-house investment products may cause some clients concern, Pelzar suggests.
“From a trust and fiduciary perspective, the foremost imperative of a trust provider is to act in the best interest of clients,” Pelzar says. And the extent to which “companies are also in the asset management business can create the notion of conflict.”
At US Trust they avoid perceived conflicts of interest by solely offering third-party products for users of their trust services, Pelzar says. By not offering any proprietary products, the firm avoids the scenario of violating fiduciary standards by recommending trust portfolio compositions that push their own products, Pelzar explains.
When asked whether offering both asset management and trust services poses a conflict of interest Jeffrey Wolken, national director of fiduciary strategies, at Wilmington Trust says the firm "always has been a fiduciary in trust and investment capacities. Every facet of Wilmington Trust’s approach — including the advice it gives, the delivery of services, and the execution of strategies — is conducted through a fiduciary lens.”
Wells Fargo declined to comment when asked whether providing both asset management and trust services could pose a conflict of interest. Northern Trust did not respond to requests for comment. Wells Fargo, Northern Trust and Wilmington Trust all offer both asset management and trust services.
Sources say advisors seeking a trust service provider should also consider provider responsiveness.
“Advisors should look at how willing trust providers are to support the advisor’s business,” Paul Lofties, senior vice president of wealth management at Ladenburg Thalmann, says. Part of this comes down to how effectively they can service accounts, he suggests.
Advisors need to look for firms that offer both technology and strong staffing to fully service accounts. But the trust industry hasn’t always been at the forefront of technological development, Pelzar says. “Communication has historically been paper-based” between trust providers and FAs, he says. “With the way communication has evolved [and become digital], technology is important to provide transparency and interact the way clients want,” he says. And trust service providers unwilling to adapt to the technology needs of FAs should cause an advisor to pause.
Proper account servicing also requires highly-trained trust staff as well as technology.
“Top trust service providers’ reputations give them the ability to recruit and retain top industry professionals. Trust professionals want to be surrounded by like-minded expertise and knowledge,” Pelzar says. And they tend to congregate at larger firms. “Large firms can provide expertise on a day-to-day basis better than the smaller firms can,” he adds.
Advisors should also understand the composition of the trust company’s staff, a Premier Trust spokesperson recommends. For instance, advisors looking at a trust company with an abundance of Certified Financial Planners should wonder if the firm is simply out to solicit investment management, they say.
Firms providing trust services instead need professionals with Certified Trust and Financial Advisor (CTFA), National Certified Guardian (NCG), and Certified Securities Operations Professional (CSOP) designations, Gino Pascucci, vice president of business development at Premier Trust, says. Those are all desirable designations for an advisor-friendly trust services provider to have, he says, since they evidence skills and specialist knowledge in relevant areas.
Trust services should be part of every advisor’s service offerings — particularly if the advisory services high net worth or ultra-high net worth clients.
“The more affluent an advice firm’s client base, the more likely they need trust services,” Pelzar says.
But even beyond the high net worth community, in a society where people are living much longer than previously, there will generally be an increased need for advisors to provide a wide range of wealth management guidance and solutions — including trust services, Lofties says.