State of the Corporate Trustee 2023

OVERVIEW 

The trust industry in the United States has seen substantial growth over the past several years. With approximately $70 trillion set to transfer to younger generations via the great wealth transfer, this will only add fuel to the competition for assets under management and associated revenues. There has been an increased awareness and education among mainstream consumers who now better understand trusts as a valuable wealth vehicle. Although the market was down in 2022, there should be a bounce back in the long term. All of this points to good news for trust leadership – so why are they so worried about the future? Using the principles of Occam’s Razor, oftentimes the simplest answer is the correct one – margins. With standard fee schedules a percentage of AUM, it makes sense that fees would increase as markets rise, new business efforts are realized, and more money is poured into trusts as planning vehicles for the middle rich and wealthy. Nonetheless, the major concern that expenses are outpacing revenues still heavily impacts business goals and outcomes. 

TODAY'S LANDSCAPE 

What has been challenging for bank trust departments and independent trust companies across the country, is managing expenses and productivity. The landscape is changing due to a handful of key factors. Companies must analyze evolving customer, beneficiary and employee profiles, new participants in the trustee space, and modern technology adoption. The most successful firms will look beyond the status quo and “self-disrupt” (Dave Coffaro, “The Value of Self-Initiated Disruption”).[1] Taking advantage of the opportunity to leverage technology and digital transformation to solve these issues and ensure a bright future for your trust & wealth firm is paramount in 2023 and beyond. 

The current ecosystem in the trust and wealth management industry has several characteristics that have remained stagnant over time. Some trust companies still use accounting systems developed in the 1970s and 1980s. 

[1] THE VALUE OF SELF-INITIATED DISRUPTION (DAVECOFFARO.COM)

Consider that Michael Kitces’ latest advisor technology graphic has almost 400 applications covering several different categories, while none are specific to trust administration.[2] Many legacy vendors have had a hold on market share and have defended their turf accordingly. Closed systems and onerous contract terms are two ways that they attempt to achieve this. Trust departments have had to piece together legacy technology components over time, often using multiple systems to manage basic tasks for a trust or investment account. 

The fact that innovations seen in other parts of the financial world; robo-advising, payments, lending, planning – have not yet reached the trust space is no accident. There is no reason that trust companies should lag behind in perpetuity. Not only have traditional advisors and RIAs typically had better technology than their trust 

company counterparts, now they have discovered the trust business as a profitable business line to take for themselves. Lately we are seeing more RIAs and some CPA offices open their own subsidiary trust companies, and venture into the trust & estate planning and administration waters. For example, already this year we’ve seen Cetera Financial Group acquire Securian Financial’s wealth business which includes Securian Trust Company. There is also a big push among individuals known as professional trustees, who market themselves as more cost-effective and personable alternatives to corporate trustees. Without an even playing field technologically, corporate trustees focus on customer service and expertise to differentiate themselves. However, technology is closely linked to customer service, and if done properly, can hardwire fiduciary best practices. If RIAs, CPAs, and individual trustees are going to compete directly with bank trust departments and independent trust companies going forward, the latter two have to stay ahead of the technological curve and let their expertise shine through. 

CHALLENGES FOR FIRMS 

The issues that legacy technology has created for the current trust environment are becoming more glaring. According to WISE’s “Thriving in Uncertain Times”, from mid-2021 to mid-2022 personal trust assets and revenue both decreased. Additionally, from 2018 to 2021 compensation and benefits expenses for IM&T grew 6.5% annually, with overall expenses growing 5.8%. The biggest median base salary increases from 2021-2022 among specific roles were operational (13%) and relationship management (11%).[3] 

[2] FINANCIAL ADVISOR FINTECH SOLUTIONS MAP (KITCES.COM)

[3] WISE THRIVING IN UNCERTAINTY, WEBINAR, 12-13-22 VX 

Regardless of market conditions, trust organizations have struggled at times to find a way to maximize return on assets, which by proxy, is a return on people and systems. In order to improve margins, manage expenses, and increase revenues, trust companies must understand and adapt. 

Firms allocate significant resources to generate new business, keep their clients happy, and hire the best talent in a fierce market. Empowering your FTEs with the tools to best serve their clients will create loyalty from both parties. Increasingly, these same groups are becoming more digitally native. Employees that leave because of outdated systems and technology are a big cost for trust organizations. Clients that leave because of archaic interactions with the trust personnel are a big cost for trust organizations. Not investing in technology and being forward-thinking is a risk on its own. As stated by a bank CEO in Cornerstone Advisors’ What’s New in Banking 2023, “I think we’re spending too much energy trying to protect the status quo instead of embracing innovation. The slow tide of customer preference will soon turn into a tidal wave and it will be too late to catch up.”[4] Leaders who understand what is happening at the account administration level and truly listen to their employees will have a leg up. In some cases, the disconnect between management and those performing the daily work can lead to rifts within firms, one that can be solved with the right technology. Trust organizations that are forward thinking with aggressive growth goals will be the most likely to embrace modern technology and ultimately outmaneuver their competitors, staying relevant amongst the employees and clients searching for the best trust services group. 

SOLUTIONS THROUGH MODERNIZATION 

In order to achieve the goals of increasing revenues and margins, hiring and retaining the top talent, and appealing to the next generation of trust & wealth customers, increasing productivity through technology is the key. Having a scalable, growing, efficient trust company is optimal. However, compliance should never be neglected, whether you have aggressive growth goals or not. Prioritizing compliance can save time during internal and external audits, minimize charge offs and net outflows, and help increase the overall share price of the organization. To achieve optimization of operations, simultaneously increasing efficiency and maximizing compliance at lower costs is the golden ticket. Rather than simply performing task management with antiquated processes, firms should embrace cloud technology with embedded workflows that get more done faster. Fiduciary processes like discretionary requests, GST reviews, and account terminations can be completed between multi-personnel functions seamlessly with audit trails.

[4] WHAT'S GOING ON IN BANKING 2023 | CORNERSTONE ADVISORS (CRNRSTONE.COM) 

Many trust departments consider their trust accounting system as the only or main component of their trust tech stack. While a reliable accounting system is important, it has become a less substantial piece of the puzzle. Small, medium, and large institutions all have common problems when it comes to trust technology. Managing fiduciary business processes and documents, working with auditors, and complying with applicable laws, policies and procedures are all things that your traditional principal and income accounting system does not do. Some large companies have the resources to build their own proprietary systems, but this is more of an exception than the rule. Most firms do not have the resources to build their own systems, and the risk of poor execution can deter some that do. Due to these factors, companies choose from a few existing vendors and work with industry consultants to try and put their platform in place. By investing in technology, firms are investing in efficient service, growth, better margins, and more recurring revenue. 

OPTIMIZING THE TECH STACK

The components of a fully functioning tech stack include the aforementioned accounting system, a portfolio management & trading system, custodian, document management, workflows, compliance, and CRM. Some vendors try and offer as many ingredients as they can under one roof. This can still mean different systems working together, just all coming from the same supplier. In 2023 and going forward, a vendor’s abilities for integration, flexibility, and openness are going to help trust organizations put together a better overall tech stack. Specializing in certain areas will be useful. For example, a CRM is just that – a customer relationship management tool. The core functionality - the reason it exists, is to manage customer and prospective relationships with data. CRMs do a good job of managing data, showing sales pipelines, servicing inquiries, etc. CRMs were not originally designed to manage complex fiduciary business processes. This is where integrations, and the specialty niches of different components of the tech stack will be mutually beneficial. The same goes for accounting systems, and trading systems, and on down the line. An advisor application that is great for financial planning, has shiny customer portals and a secure communication tool, might not also be great for managing everyday fiduciary business processes across multiple stakeholders. 

The middle office of a trust company is where technology meets productivity. It is also where compliance can be addressed or where it can lead to issues. Compliance can be a burden on productivity, and vice versa. Ideally, compliance is reinforced as part of the workflows of the trustee. With the right productivity tools, trust officers can manage more accounts with less friction and have more time to spend on revenue-generating activities instead of managing the current book of business. 

A trust administrator could go from 150 to 300 accounts and still provide better overall service. By having a digital, automated, cloud-based, streamlined fiduciary workflow application it is possible to achieve the best of both worlds. 

ECOSYTSEM BENEFITS

The results of optimizing productivity and compliance together with technology are evident throughout the firm. First, a trust organization is not dependent on a few experts to hold and provide all the knowledge related to business processes and fiduciary liability concerns. By having the pre-determined processes and steps within those processes, it becomes easier for people to know what to do and harder to make a mistake. Everyone is aligned with the same workflows and the day-to-day can continue seamlessly regardless if people are out of the office, traveling, working from home, or no longer at the company. Secondly, complicated fiduciary decisions and tasks are simplified efficiently by aligning each type of workflow from start to completion. This helps the employees fulfill their fiduciary duty, helps them complete their work faster and smarter, and allows them to better serve their clients and beneficiaries. Third, by tracking every step and document throughout every workflow, saving the data for any future need, and having built-in controls around processes based on the firm’s policies, compliance is embedded in the everyday tasks of the firm. An extra benefit to these checks and balances is cohesion amongst the categories of FTEs. For example, a high-performing relationship manager must follow the same rules as the trust admin assistant who is processing say, a discretionary request. Trusts are managed within a very litigious and regulated vacuum. Lastly, included in the benefits of a middle office workflow and compliance tool is that it ties the ecosystem together, minimizing liability that results from disjointed systems. 

By marrying modern software design methods and deep trust & wealth domain expertise, the trust system no longer limits the firm from achieving its goals. The back-office accounting, securities processing, and statement production connect to the middle office workflow, compliance and reporting system which transitions to the front office, CRM and client facing tools used by relationship managers. By having all three phases working at a high level, whether you use one unified vendor solution or multiple vendors who specialize in one phase and work cohesively together, your trust company is now functioning much more efficiently. According to What’s New in Banking 2023, the future is not monolithic. The shift towards the cloud and open APIs is inevitable.[5] 

[5] WHAT'S GOING ON IN BANKING 2023 | CORNERSTONE ADVISORS (CRNRSTONE.COM) 

CONCLUSION

We are in the midst of digital transformation, massive wealth transfers, changing employee and customer demographics, new innovative financial technologies, non traditional trust market entrants, evolving regulation, and a rapidly changing trust industry landscape. Corporate trustees no longer have the luxury of sitting back if they want to remain a sticky, high margin, growing business. The good news is that positive results are certainly within reach for bank trust departments and independent trust companies who successfully adapt and adjust to the trends facing the corporate trustee industry. By embracing modern technology, implementing best practice workflow and compliance methods, and staying ahead of the current trends, trust organizations have more resources at their disposal to ensure lasting success.