How often do we hear these days: “Well, you have to understand, we're not really in the trust business for the trustee fees”; or “We are a bank. Trusteeship is just an adjunct to our core business”; or “What new assets will we bring under management if we take on this trusteeship?”
Perhaps it was inevitable. Precipitous falls in the financial markets (equals falling revenues) and the incessant stream of new regulation (equals rising costs) have led all in the private-wealth management business to focus more closely on the costs and benefits of both new and existing business. But rather than give up the trust business, many institutions seem determined to retain it primarily as a means of getting more financial assets under management. It's an alternative “wrapper” to offer clients, one that is seemingly perceived as low-risk to the institution.
That is strange, considering trust litigation has been on the increase and is likely to boom with the enormous generational shift of wealth that will occur in the next five to 10 years. To opt to stay in so high-risk a business while pricing as if those risks did not exist is a perilous course to follow.
And where does this approach leave clients, those who need trustees to hold family businesses with no aspiration to public offering (still the most common model globally) or hold their real estate, yachts, aircraft, art collections and all of the other nonfinancial asset classes that so typify multigenerational wealth?
And where does this approach leave those who need trustees to provide continuity and support in managing their families through the generations, to mediate between the differing expectations of the current generation and the next, as well as between the competing claims of siblings and, in time, cousins, to the family fortune?
Where for that matter does this approach leave those who still look to a trustee to bring objectivity and independence to their family's affairs, to keep investment managers on their toes and, if necessary, to fire them?
One-stop shopping may appeal to some, but there is undoubtedly an enormous market for more traditional trustees.
In my experience, the best-rewarded trustees always have been those prepared to do the hard job: spend time getting to know the family's needs, help achieve their objectives and do so with independence and an ability to stand their ground when necessary. The trustee is not necessarily popular with all family members. But as a client once said of his trustee, he is “the string on our balloon.”
Perhaps the family-office model offers a solution. Perhaps, as the financial sector continues to consolidate, trust operations — increasingly outcasts in otherwise purely financial businesses — will spin off and return to the business for which they were originally founded. Perhaps other institutions will see the possibilities in high-end trust business (well managed and priced to reflect the risks) and allow their trustee subsidiaries greater independence. Perhaps insurance coverage for trustees' breach of duties may offer an alternative solution.
Clearly, there is still an enormous market for the old-fashioned trustee. I look forward to meeting those willing to embrace this challenge.
By Ian A. Marsh, solicitor, Withers Bergman LLP, New York, N.Y.