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Trust Companies: Firms, Products, Clients, and Technologies

Technology providers are leading an evolution in North American trust companies, as businesses strive to hang on to their declining market share in the fast-growing wealth management industry, according to a new report, “Trust Companies: Firms, Products, Clients, and Technologies” from Celent, a Boston-based financial research and consulting firm.

Key findings of the report include:

• The top 25 institutions hold 92% of the trust assets and earn 75% of the industry’s US$27.6 billion in revenue. It is generally acknowledged that a stand-alone trust department cannot be profitable on less than about $250 million in client assets under management. Smaller accounts traditionally are charged higher fee rates, while stand-by and insurance trusts have to be charged at a per-unit rate, due to their inactivity (usually $100 to $1,000 per account).

• Currently, there are less than 2,000 community banks, regional and super-regional banks, private trust organizations, and top tier global providers offering trust services in the US. The typical firm stays with a vendor between 10 and 15 years.

• The North American trust industry will have to work exceptionally hard to overcome increasing irrelevance in today’s wealth management industry. For the foreseeable future, there is no doubt that trusts will be needed, but trust companies may not. Trusts will always remain an important product to be used in estate planning, but as a complete wealth management philosophy, trust organizations are skating on the edge.

• Technologies are guiding trust organizations to the correct solutions for long-term viability. Trust systems’ innovations that include open architecture, financial planning, and customer relationship management are now meeting the requirements of modern wealth management. The end point is the convergence of wealth management with the financial advisor assuming both an advisory and fiduciary role.

• To be successful, trust companies must blow up the investment management model and redeploy investment officers into a part of the sales and service advisory team. The sales cycle should also be shortened by making sure the business is selling unique investment management—not just trusts.