RIAs weigh pros and cons of offering trust services

With demand limited, most advisers outsource it to lawyers and accountants, but some see value in adding it to their menu of services

Aug 30, 2017 @ 4:00 pm

By Jeff Benjamin

When it comes to trust services, most financial advisers prefer an arm's-length connection that serves client needs but outsources custody and fiduciary responsibilities elsewhere.

"There is tremendous responsibility that comes with being a trustee," said Erika Safran, owner of Safran Wealth Advisors.

"If you're going to be a trustee, you have to be very well versed in trust services," she added.

Like most financial advisers, Ms. Safran maintains relationships with lawyers and other providers that specialize in trust services.

Even though she recognizes that potential upside of managing trust assets and potentially developing more client relationships with trust beneficiaries, Ms. Safran would rather outsource the business for the roughly 5% of her clients who require trust services.

According to Fidelity Investments' 2016 RIA Benchmarking study, only 27% of RIA firms offer trust services to clients. And of those firms, 74% include trust services in their overall fees. Yet, only 9% of RIA clients receive trust services from their advisers.

Fidelity's report further breaks down trust service fees to show that 12% of RIA firms have a separate fee specific to trust services, 7% include the fee in the overall retainer, and 9% offer an hourly fee for specific trust services.

In some respects, offering trust services can be part of an attractive business model.

Foresight Wealth Management, a $325 million advisory firm, recently announced plans to start offering trust services this fall.

"It's an initiative right now, and the intent to have it live by Oct. 1," said Foresight chief executive Adam Nugent, who added that there won't initially be any extra fees for the trust services.

Mr. Nugent acknowledges the trust services will apply to a "small sliver" of clients, but he feels the trust services will move Foresight closer to a family office model of comprehensive services.

"It takes the investment management and planning that we do, and puts it on steroids," he said. "In order to stay relevant, and ahead of the curve, you need to be able to add more services, provide more value and do more for the client."

But for every firm like Foresight that sees trust services as a step toward deeper client relationships there appear to be multiple firms like Signature Estate & Investment Advisors, which are keeping trust services outside the business.

"We don't do trust services in-house, because depending on what the client is looking for there is a large talent pool out there to provide services," said Paul Taghibagi, senior partner at SEIA, a $6.8 billion advisory firm.

"We will try and figure out what type of trust company makes sense for the clients, but for us it's better to have the outside relationships and to put them together with clients."

Mr. Taghibagi added that even for a firm with nearly $7 billion under management, it is more prudent to outsource the trust services.

"We're investment advisers, we're not attorneys," he said. "Taking on more becomes a bigger headache, and it is more expensive to have it in house because we would need CPAs, attorneys, liability coverage and insurance."

Potentially, the ideal scenario is one enjoyed by Tim Holsworth, president of AHP Financial Services.

Mr. Holsworth's firm's affiliation with Raymond James Financial Services provides his clients with access to the Raymond James trust department.

"If you don't have internal trust services, you need some sort of mutual alignment with a trust company or the management of the assets goes out the door," he said.

Of the $200 million in client assets Mr. Holsworth manages, roughly $10 million are assets in trust accounts.

"From my perspective, I can offer Raymond James trust services, and they can provide due diligence and any services the client needs, but I can still be the rep on the account," he said. "You have to offer trust services for self-preservation."

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