Are You Selling Trust Short?

Article excerpt

"I see a stampede of banks out of the trust business, and a stampede of nonbanks into the trust business," says attorney, Roy Adams, who is concerned by what he sees.

This stampede is part of the charge of banks onto what was once the turf of others -- brokers, mutual funds, and money managers -- as the nonbanks encroach on what was formerly bank turf. Deregulation facilitated this activity, but what's causing the traffic is the question, Is Trust part of asset management or is asset management part of Trust?

Traditional trust advocates, like Jayne Lipe, executive vice-president of Fort Worth-based Overton Bank & Trust, say that asset management has always been part of Trust, though subsumed by its fiduciary aspect.

Experience of Trust, better relationship management and, often, "ownership" of the customers others covet are among the banks' advantages in the marketing battle for the wealthy, sources say.

Lipe, who is also chairman of ABA's Trust and Investment Management Committee, emphasized banks, expertise in the labyrinthine business of trust as their major advantage. For instance, trust assets can be beyond the ken of most brokers, she says.

"In my part of the country -- in Texas -- a lot of trust assets are in oil and gas," Lipe explained.

Fiduciaries also can offer clients financial agreements that will survive the incapacitating disability or the death of the investor, whereas "agency arrangements [simple asset managementl do not."

The new school, on the other hand, says the market for asset management -- which has no estate planning implications and which requires far fewer investable assets -- is far bigger than the trust market and relatively more lucrative.

Although there is some disagreement with the new school, most see it taking hold, starting in the late eighties, and lately assuming critical mass.

Unprecedented alliances have been struck by banks and their former competitors, such as Comerica Bank's and Bank of Boston Corp.'s separate client-sharing arrangements with PaineWebber Inc. Other banks are keeping things in-house, combining, at least on the marketing level, the formerly discreet areas of Trust, investment management, and private banking. The emergent "wealth man agement units," typically offer clients a single contact for all bank services, the "relationship manager."

The "Chinese Wall" which used to separate the trust department from the rest of the bank, has not come down, but it is lower, sources say. As this provides for functional integration of wealth management, the breakdown of the Glass Steagall Act, which separated commercial banking from investment banking, allows banks to flesh out their product offerings to the wealthy.

Everyone identifies a shifting in the relative balance of trust business inside banks and between them and their competitors. Internally, the shift is hard to gauge since trust departments don't have to report income by type. Adams estimates more than half of banks now emphasize asset management over Trust, while James Philips, a Portland, Conn.-based consultant asserts that, "a majority of trust assets are now in lifetime asset management." However, David Hall, chairman of Financial Services Associates, Niles, Mich., says its last survey found "40% of trust departments' revenues came from personal trust, and only 12% from investment advisory." (FSA's 1996 survey reflects 1995 data on 200 trust operations, mostly within banks.)

Why all this worries Roy Adams, and others, is because he sees a neglect of Trust, which, he argues, is ultimately the more important business. Trust allows banks to grow wealth and to keep it over generations; simple asset management is fated to lose most of the investment gains to taxation when the investor passes on, his side says. Besides the shrinkage of assets, there's the specter of future lawsuits, he adds. …

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