Kestra Financial acquired Reliance Trust Company of Delaware in December 2018 and then rebranded it as Arden Trust Company shortly afterward. And now the firm is working more closely with Arden to package trust services for its 2,400 advisors across its wealth management businesses, which includes Kestra’s independent broker/dealer, H. Beck, Kestra Private Wealth Services and Bluespring Wealth Partners.
“People with any degree of substantive wealth are increasingly wanting to control that wealth from the grave,” said James Poer, CEO of Kestra Financial. “The way you control wealth from the grave is through a trust.”
Historically, the trust market has been dominated by the big national banks, Arden President Michael Roberts said. “It’s been only recently that you’ve seen the rise of independent trust companies, broker/dealers with their own trust companies—that sort of thing, to challenge that.”
And these days, more advisory firms across the industry are looking for ways to engage with clients on trusts and estates, to avoid a situation where the trust company takes over and those assets go out the door.
“People nowadays want you to help them with the whole kit and caboodle. Trust services help fill in that gap: ‘How do I do my legacy planning? How do I do my estate planning? And how do I keep you—independent financial advisor—in the mix?’” said Michelle Barry, president of H. Beck, a Kestra subsidiary.
A lot of baby boomers distrust the big banks, where their parents’ and grandparents’ trusts were created, and many of them are also dissatisfied with the service level and proprietary investment products these banks offer. That’s causing many of them to seek out independent trust companies.
Arden, for instance, serves as an independent trustee, delegating the investment management portion to the financial advisory firms they work with. Arden handles all the trust administration.
“The vast majority—90% of our business—is coming to us from financial advisors who have clients that are beneficiaries of a trust that was created by their grandparents in the 40s and 50s, or their parents in the 60s and 70s, and they are the beneficiary of a trust with a corporate trustee that is typically a big bank and they’re not happy with Wells Fargo or Bank of America, or fill in the blank big bank,” Roberts said. “We partner with the advisory firms, where if a Kestra advisor has a prospective trust client, they can refer them to Arden to handle the administrative duties required of the trust, and the Kestra financial advisor can continue to manage the money just as they have for the family members, outside of a trust context.”
Often what happens is, if an advisor hasn’t been working with a client on their estate plan and working with their estate planning attorney, the attorney is likely going to refer the client to a corporate trustee—most likely where the client banks already.
“Bank of America is not going to work with the advisor on that investment portfolio,” Roberts said. “They’ve got their own proprietary investments. They’re going to take those assets away.”
Arden Trust works with the advisor to get Arden named in the trust document.
Advisors can also try to gather trust assets through clients who might be beneficiaries of a trust account held at a big bank; this is trickier, Roberts said, because the client may be one of many beneficiaries, so they’re not the decision-maker in moving the trust over to Arden.
“Chances are if they’re not happy with the service they’ve been getting from their current corporate trustee, their siblings, cousins or whoever else are beneficiaries of the trust are also not happy, and then we can have a conversation, ‘Wouldn’t you like for Sally Smith, your financial advisor, to manage the assets of the trust, just like she’s managing your personal assets?’ Generally speaking if they’ve got a good relationship, the answer is ‘yes.’”
Arden is currently working to educate advisors across the Kestra network about trusts and how to have those types of conversations with clients. Arden is launching awareness campaigns to help advisors become smarter about trusts and identify the opportunities to bring the trust company into the equation.
“These trust situations can get really complex,” Roberts said. “It’s multi-generational. It could be assets that include real estate, oil and gas, in addition to the marketable securities the advisors are comfortable with.”
Overall, the penetration of the trust business among advisors is low; Roberts estimates that just 5% to 10% of advisors globally are utilizing trusts. Yet, the opportunity is huge.
“There’s a tremendous amount of wealth transfer taking place in this country, and if you’re not able to offer a trust, you’re going to miss out on one of the most powerful wealth transfer vehicles available under U.S. law today,” Roberts said. “It’s a question of being where the money is when that money changes hands, and you want to be able to provide that service to your clients.”