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Are Today’s Trust Platforms Relevant to Individual Trustees? FIRMA 22 nd National Risk Management Training Conference Chris Heilmann, Chairman & CEO – Merrill Lynch Trust Company Orlando, FL - April 8, 2008. Agenda. The Trends The Opportunity The Decisions - Choosing A Trustee - PowerPoint PPT Presentation
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Are Today’s Trust Platforms Relevant to Individual Trustees?FIRMA 22nd National Risk Management Training Conference
Chris Heilmann, Chairman & CEO – Merrill Lynch Trust CompanyOrlando, FL - April 8, 2008
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Agenda
The Trends
The Opportunity
The Decisions
- Choosing A Trustee
- Choosing a Provider
An Example of a Fully Integrated Offering
Managing Risk in an Integrated Environment
3
The Trends….From a Transactional Focus…
Twenty five years ago, clients were focused on:
Protection in the event of incapacity
Bill Payment Services
Timely income and principal distributions
Principal preservation
Understanding their statements
4
The Trends…..To an Advice and Solutions Focus
Today, trust clients are interested in:
Establishing and achieving their goals
Aligning the right team to meet their needs
Designing wealth transfer strategies
Family educational programs
Philanthropy and passing on family values
Proactively managing assets to meet tax challenges; managing concentrated positions
5
The Trends
Two important industry trends –
Increase in non-bank providers
Increase in the use of individual trustees
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The Trends
Non-bank providers of trust services have exploded in the past ten years
Full Service Brokers
Independent Financial Advisors
Attorneys and CPAs
Independent and Private Trust Companies
Insurance Companies
There are nearly 600 non-bank trust companies in the U.S. (Tiburon Strategic Advisors, June 2005)
7
The Trends
Impact of Market Consolidation
Approximately two-thirds (64%) of all institutional personal trust assets are held in the top 10 banks / trust companies
Approximately 84% are held in the top 25 institutions
(SpectremGroup’s 2007 Update of Personal Trust Asset Trends Among U.S. Banks and Increasing Opportunities for Successor Trustees)
8
The Trends
Increase in the use of individual trustees
Wealth < $1 million – 28% have set up a trust
Wealth > $ 1 million – 42% have set up a trust
80% of these trusts have Individual Trustees!
Primary reason (53%) – WANT TO MAINTAIN CONTROL OF ASSETS
(SpectremGroup’s 2007 Update of Personal Trust Asset Trends Among U.S. Banks and Increasing Opportunities for Successor Trustees)
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The Opportunity
Declining trend in use of corporate trustees by America’s wealthiest households
A vast majority of UHNW households use a family member as a trustee
Baby boomers are getting into the estate planning process earlier than their parents and are better informed
There is nearly $3.3 trillion in personal trust assets (the number of personal trusts has doubled in the past 10 years)
Two-thirds of personal trust assets are held in revocable trusts and one-third in irrevocable trusts
(Tiburon Strategic Advisors, June 2005)
10
The Opportunity
Compelling Demographic Change
Over next 2 decades, 1 in 4 Americans will be age 60+
2000–2010, the number of individuals 85+ is expected to rise by over 43%
Average age of a private client (with $1 million+) is over 60
(Source -VIP Forum - US Census Bureau International Database 2006)
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Choosing a Trustee
The Best Trustee
Good common sense / competence
Scrupulously honest
Right age
Time
Familiarity with family and family values
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Choosing a Trustee
The Options
Individual
Family Member
Corporate Trustee
Co-Trustees
Administrative Trustee
Professional Trustee
Private Trustee
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Choosing a Trustee
Type of Trust Dynasty Trust Charitable Trust GRAT Private Foundation Estate Administration
The Factors
Other Fees Advisors Control Privacy
Family Dynamics Second marriages Complex families Geographically dispersed Wealth creators vs. younger generations
Asset Mix Investable assets Illiquid assets Closely-held assets Real estate
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Choosing a Provider
The Corporate Trustee
Asset management capabilities
Staff turnover
Number of relationships per trust officer
Proximity of trust office staff to clients
Investment performance
The “soft issues” – beneficiary education, family events, etc.
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Principal & IncomeAccounting
Tax Preparation
Charitable Valuations
InvestmentAdvice
Advice and Guidance on Distributions
Investment Management
Needs of the Individual Trustee
Targeting the Individual Trustee
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A Tiered Approach
Managed Agency Discretionary investment management Complete administrative services Special assets
Investment Plus ala carte services Self-directed investments Trust investment policy statement Administrative services: P&I accounting, Bill paying, tax preparation, distribution guidance
Investment Only Trustee directed investments
Create Successor
Trustee Opportunities
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An Example of a Fully Integrated Trust Offering
Tailored solutions to coincide with client need…
Self-Trustee Solutions Corporate-Trustee Solutions
Trust Co. as Corporate
Fiduciary
Full suite of trust administrative, investment management, and fiduciary services for personal trusts
Trust Co. acts as fiduciary investment manager and trustee / co-trustee
IRA Custodian or Trustee
Estate Settlement
Philanthropic Planning and Services
Delaware Trust Structures
Managed Agency Services
Brokerage with ala carte Trust
ServicesBrokerage Platform Open Architecture
Investment Management with Fiduciary Investment Offerings
Trust Co. serves as Agent for individual trustee(s) or personal representatives
Full Administrative Services as Agent for the fiduciary
Inclusive of Brokerage Platform with Control and Customization
P&I Accounting
Fiduciary Tax Preparation
Bill Payment Services
Directed Distributions
Valuation services
Full brokerage platform and suite of investment options and capabilities
Elder Care Services via alliance
Valuation services
Marketing materials
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Managing Risk
Taking a “holistic” approach – LARC Process
Risk Management Operating Committee / Board
Training - Embedding Risk Management in your Culture and Fabric
Involving the client as a “member” of the Risk Management Team
Delicate Balance – To deliver sophisticated products and services for our clients…and to manage risk and jealously protect our integrity as fiduciaries.