If you decide that a private label trust company is the right solution for your firm, it is important to choose a company that provides the services and pricing that fits your needs. Here are some factors to consider:
It is very important to understand the particular trust statutes and regulations of the state in which the trust company partner/provider is located because trust laws and regulations vary from state to state such as:
- Some types of trusts are permitted in one state but not another
- The level of fiduciary liability
- Duration restrictions of dynasty trusts
- Fiduciary income and capital gains tax treatment
- Litigation statutes and rules
- Asset protection statutes and rules
- Directed trust laws
- Trust decanting regulations
In some instances, trust documents can be drafted, designating any state as its preferred domicile, effectively adopting the trust laws of that particular state, regardless of the location of the trust private label or trust company partner. However, these rules also vary state to state.
Private label trust companies are relatively new (born of advances in operation and accounting technology), but it is still important your trust provider has been in the business for a number of years and has successfully served firms like yours. Ask for referrals from other private label trust clients to determine their experience and level of service.
What are the trust partner’s capital base and insurance coverages? Ask about the experience and skills of the key trust professionals. Determine what kind of software and IT support your provider uses to administer and oversee your clients’ trust assets.
A private label trust company should not require your clients to change custodians. The transition should be seamless for your clients.
While a third-party (private label offering) trust company has a fiduciary duty to make certain all investment and administrative decisions are made in the best interest of your clients, private label providers avoid conflicts that may interfere with your client relationships and the investment management of trust portfolios.
Private label trust providers are focused only on delivering trust capability and administration, not investment management. They should not interfere with your client relationships and (depending on state law) specify your firm’s name in trust documents as asset manager.
As a fiduciary, a private label trust company is responsible for reviewing your firm’s investment process, philosophy, resources and experience. Meeting the (advisor/investment side) of regulatory fiduciary standards is imperative.
A one-time setup fee to establish the private label trust company is charged. Individual trust accounts are typically charged an annual asset-based fee with a declining scale depending on asset size and the specific duties of each trust. Your advisory firm receives a dividend based on the private label trust revenues.
