3 Ways Financial Advisors Can Offer Trust Services
1. Referral to an Advisor-Friendly Trust Company
The easiest way to provide trust services is to partner with an independent advisor-friendly corporate trustee in a tax-favorable jurisdiction that focuses exclusively on the administration of trusts. IconTrust, LLC (ICON) can fill that role. ICON is a Nevada Chartered advisor-friendly trust company. Advisor-Friendly means the trust company does not manage investments, draft trusts, or prepare tax returns. ICON’s role is to administer trusts in coordination with a client’s existing professional team. If ICON has investment discretion within a trust document, ICON will typically delegate that role to the client’s existing financial advisor.
The advisor must feel secure with the advisor-friendly trust company, its business model, and its procedures. The advisor must feel confident with the trust company’s brand and the customer service provided by its trust officers. At the end of the day, the advisor’s client is a client of the trust company, and the advisor is hired by the trust company to provide investment management. The trust company must do nothing to jeopardize the relationship between the advisor and the advisor’s client, only enhance it.
2. Private Label Trust Services
Financial advisors who want to broaden their client relationships to offer trust services under an extension of their existing brand may be interested in a private label trust services relationship (PLT). A PLT relationship is established with a comprehensive PLT Services Agreement between the financial advisor and an existing trust company. The financial advisor will receive a brand name for their private label trust services, e.g., PWM Trust Services, and branded client statements. The financial advisor will typically pay a one-time setup fee to establish the PLT relationship and a revenue share can be created with the trust company. The trust company, for example, ICON, retains all fiduciary liability and must sign off on all marketing materials for the financial advisor’s private label. A separate phone number is issued by ICON in the name of your private label brand. A representative of the PLT partner and a representative of the trust company will work together to provide ongoing training and marketing support.
The private label is a middle ground between referring to an advisor-friendly trust company and starting your own trust company.
3. Start a Trust Company “Family Office”
Some financial advisors are not comfortable with giving up a level of control in a partnership with an independent advisor-friendly trust company and would rather go through the rigorous process of starting their own trust company. These firms must be comfortable with setting aside capital, hiring trust officers, creating the corporate and compliance framework, and assuming 100% of the fiduciary liability.
A trust company can be chartered by a particular State or by the Office of the Comptroller of the Currency (OCC). Whether chartered by a particular state or by the OCC, a trust company would typically be subject to certain capital requirements, require a fidelity bond and/or E&O insurance, along with complying with BSA/AML standards like most other financial institutions. For example, in Nevada, the capital requirement is $1M, and a physical office in Nevada staffed with a trust officer is required. Further, a chartered trust company in Nevada will typically need another $500k - $1M in operating capital.
Most “family office” trust companies are state-chartered and are established under one of the top four trust jurisdictions (NV, SD, DE, AK). These states are typically business-friendly, have no state personal or corporate income tax, possess the top assets protection statutes, and permit the use of Dynasty Trusts to last several generations.
The barrier to entry in the four top jurisdictions is very similar and an advisor must make sure they want to assume the financial risk and liability associated with starting a trust company. Profitability can be elusive, possibly taking several years.
Financial advisors have been successfully implementing each of these options in providing trust services to their clients. One choice is not better than the others. The advisor must decide how important their brand is when working with their trust clients and how much control they want over the trustee relationship. Partnering with an advisor-friendly trust company, starting a trust company, or creating a private label arrangement all solidify client relationships across multiple generations.
If you have any questions about a referral or private label trust relationship with ICON, please email firstname.lastname@example.org or call 702-998-3700.