A Wealth of Possibilities

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Today’s opportunities and options offering trust services are growing

By Jim Anthony

Most banks today are struggling with the reality of shrinking net interest margins due to increased competition for fewer quality loan opportunities. This environment has prompted a renewed effort to identify noninterest income growth opportunities. For many community banks a solution has been to offer traditional retail brokerage services (stocks, bonds, mutual funds, annuities, insurance) through strategic alliances with broker-dealers that specialize in placing financial advisors in bank branches. Getting started in offering those financial products can be fairly turnkey.

But what about trust services? Most community banks do not offer trust services due to the significant barriers to entry into this particular financial service line. At the same time, many of their high net worth customers need what a trust department has to offer. A good trust department will help clients with more complex financial situations navigate through the difficult process of financial planning. It can help your community bank’s most valued customers create, grow and preserve wealth; plan for the distribution of wealth during life in the most tax-advantaged way; and plan for the distribution of wealth at death in the most tax-advantaged way.

By not offering trust services, a community bank can risk losing some of its most profitable customers to full-service institutions that can serve all of their personal investment needs.

But how can a community bank offer trust services profitably?

To start a trust department, your community bank would first need to be approved for special “trust powers” by your state or federal regulator. To do so, your bank would need to demonstrate that it has the credentialed human resources, proper oversight structure, and adequate operating systems and procedures. The personnel needs are very specialized due to the laws and regulations that govern trusts from state to state.

Oversight would be key to ensuring that your community bank would only accept new trust business that has an acceptable risk profile. A community bank’s trust department would need to be careful about accepting wealth assets that could present complex challenges to manage, such as those of closely held businesses, collectibles and others.

As for operating processes and procedures, many small trust departments have chosen to outsource certain back office functions and investment management administration. However, outsourcing may not always be cost-effective, particularly in markets where trust service fees are driven lower by greater competition. Overall, as a rule of thumb, a new trust department may not break even until it reaches $100 million in assets under management or more. For some, that profitability point could be achieved with just a few key clients, but for most banks it could take a number of years.

So, starting a trust department from scratch may not be a realistic solution if your community bank wants an immediate boost in noninterest income without adding to its overhead costs. At the same time, failing to offer a trust solution might put some affluent customers in jeopardy of leaving for a truly full-service institution where their complex estate and financial planning needs can be met.

Another alternative is to seek out a bank or third-party company that offers correspondent trust services. As an example, Community Bank & Trust of Florida has been in the trust business for nearly 13 years and has approximately $150 million of assets under management (close to $200 million including our traditional brokerage services). Our community bank handles its trust operations functions and portfolio management internally.

Recently, we started offering correspondent trust services to other banks that want to provide their customers with a complete line of wealth management services without all of the startup costs. Through a contractual agreement to provide trust services for another community bank, Community Bank & Trust of Florida enters into a revenue-sharing arrangement and will meet with the trust prospects and clients in the originating bank’s offices.

So, at a time when new sources of noninterest income are needed more than ever before, the trust business might be worth a look. While not necessarily an easy path, there are various options and arrangements for offering these valuable services to your community bank’s high net worth customers without a big upfront investment.


Jim Anthony (janthony@cbtfl.com) is executive vice president of wealth management and retail banking for Community Bank & Trust of Florida in Ocala, Fla.