Planning for Tomorrow
Robert, Katie, Independent Banker
Burgeoning opportunities may await community banks in trust services
If your bank doesn't already have a trust department, now may be the time to consider offering trust services. As baby boomers prepare for retirement, asset-management services could become one of the hottest profit opportunities for community banks.
David Seim, Lubbock National Bank's president and CEO, acknowledges that banks that set up trust departments aren't going to see a profit right away, but he saw asset-management is still a worthwhile service to provide to customers. His bank set up its own trust department five years ago after it realized the potential revenue it was losing by referring" customers elsewhere.
"This was definitely something we needed to do", Seim says. "It has tremendous upside potential and will be a profit center going forward." Lubbock National's trust department has primarily dealt with money management and some retirement accounts, but it also offers a wide variety of services including estate management, employee benefits and personal trusts.
Going forward, Lubbock National's trust department will continute to handle personal money management, but will try to gain more ground in the estate planning arena.
Part of the reason for Lubbock National's slow, but steady success building its trust service portfolio has been the fact that it outsources all back office duties associated with the department to a Houston company. Kyle Fulton, the bank's senior trust officer, says if a bank decides to out-- source the back office duties, it could potentially break even quicker than if the department handled everything.
"We anticipate that within the next 10 years we will break the $1 billion mark" of assets under management, Fulton says. "We couldn't do that if we didn't outsource."
Devon Bank in Chicago, Ill., has been in the trust business for more than 30 years. The bank offers a basic trust, living trusts, trust by will, escrow and guardianship of estates.
Chairman Richard Loundy says Devon Bank didn't realize immediate profits, but notes that its long-term success depends on the qualified people who work within the department. The quality of the staff will impact the department's expenses as well as affect the success of the trust department. Because of the overhead involved, managing too few assets that draws too little income won't do it for your bank. That's why building up a base of assets under management is so important, and why trust services is harder for smaller banks to do profitably, bankers and consultants say.
"You are going to feed more money into it than you will get back initially and will have to establish a payroll for the department before you even have your first account," Loundy explains. He suggests that banks take advantage of escrow accounts since fee income can be generated quicker that way.
Loundy stresses that the most important thing a bank must do is separate the trust business from the bank business. A person who acts as a customer service representative shouldn't be doing asset-management as well, he says. "A trust department has a fiduciary relationship with its customers," he reiterates. "You can't make decisions that may benefit the bank without it benefiting the beneficiary of the trust."
Maintaining your trust service business can be another challenge for some community banks, particularly for those in rural areas with declining populations. Community State Bank in West Branch, Iowa, opened its trust department about eight years ago. While the bank has limited trust capabilities, estates and guardianships, President and CEO Dale Torpey says that customers have been taking advantage of estate planning services his bank does offer. The problem, he says, is retaining accounts after the granter passes away.
"Our biggest problem is that when the parents do die, their children who don't live here will most likely take that money out of the community," he says. …