Trust Companies – Change is Now a Requirement

September 7, 2017

The trust and custody world as we know it is changing. For many years, trust companies have operated as quiet, steady, and trusted advisors to wealthy clients in all segments. That existence is beginning to be threatened. Let’s examine some of the factors that are driving this change.

  • Cost Basis Legislation (CBL) – who remembers this legislation? CBL was enacted to force brokers and custodians to report gains/losses on 1099’s. The industry whined and complained a bit and then got busy with something that  was very necessary. I for one, was tired of having to track cost basis on my own so providers bought, built, and integrated lot accounting into their  platforms. None of what we see today is possible without this event.
  • Fiduciary Standard – a blow to the brokerage industry, this serves to drive more and more advisors and firms to the wealth management fee based model.
  • The Rise of the Digital Advisor (Robo-advisors) – this phenom has  been all over the news for the  last two to three years.  It started out in the direct  to consumer space and has evolved into a viable approach called hybrid or advisor  assisted. We call it the digital wealth  platform. Here are some other trends related to Robo-advisor’s that  you may recognize:
    • ETF’s: these two have grown together and they feed off each other
    • Commoditization of MPT: everyone has bought into MPT and rebalancing models as the easiest way to implement this theory
    • Automated account onboarding: why should it take one to two weeks  to open an account? It shouldn’t and some new players have shown account opening in minutes. This is still very much evolving but  clients will soon expect e-signature and an efficient, seamless client experience.
    • Capital into the space and new technology filters down
    • B2C vs. B2B – B2C will be owned by the  biggest and baddest (most capital) and B2B is where the  real action  is for advisors.
  • Baby Boomer Wealth Transfer – this is also out there looming and is well publicized. This is not an opportunity to be missed and technology is an important part  of the solution for clients.


Trust Companies 4 Factors


These four factors are putting everything in motion and firms are being forced to react. Technology and firm providers are on the front line for helping accomplish these needed changes.

But what are these trends leading  us to? It seems that all types of firms feel like they must become wealth management firms. The model that fits this strategy most is the  “RIA” model. So, brokers are becoming fee based advisors, trust companies realize they have more IM and  IA accounts than they have trust accounts, and RIA’s are looking to service trust accounts to fill that gap for clients. Here are some common problems that wealth management firms must figure out:

  • Fee based model (unbundled)
  • Small account efficiency
  • Overall efficiency and  workflow
  • Client segmentation

The RIA service model is owned by the  Big 4: Fidelity, Schwab, Pershing, and  TD Ameritrade. These firms have now set their sights on accumulating assets from trust companies. They already accommodate trust for their RIA clients but now they are upping the ante and pursuing trust companies.

What is a wealth management firm to do?

  • Do not assume a traditional platform with same vendors is the new universe.
  • Get efficient but not only with small accounts. Fee compression is coming: consider workflow solutions, we recommend application agnostic versions.
  • Choose the right technology partner or partners. There is not a need to build technology – those days are  over for firms of all sizes.
  • Get educated, create a plan or a roadmap, and begin to execute it.


Craig Cook, President, Oakbrook Solutions










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