ASSOCIATION OF INDEPENDENT TRUST COMPANIES
OCTOBER 3, 1992
THE CHALLENGES AND OPPORTUNITIES OF THE INDEPENDENT TRUST COMPANY TO BE THE FINANCIAL INSTITUTION FOR THE PRESENT AND FUTURE, AND THE ROLE OF AITCO [Association of Independent Trust Companies now known as the Association of Trust Organizations, Inc.] IN FULFILLING THAT DESTINY
E. Deane Kanaly, Chairman and Chief Executive Officer, Kanaly Trust Company, Houston, Texas
Avoidance of Confusion by the Public as to What a Trust Company Is
Definition of Trust as I Like to Think of It –
“Trust – It protects the living and serves the dead, befriends the widow end orphan, guides the aged, strengthens the weak, curbs the improvident, represents the incompetent, advises the hesitant, plans for the inexperienced, encourages the timid, administers to charities, gratifies the whims of the eccentric, and otherwise justifies its claims to be an ‘Incorporated friend’.”
Judge William Rhodes Hervey
The Independent Trust Company Should Be the Financial Institution of the Present and the Future.
To Be the Financial Institution of the Future, the Independent Trust Company Should Be:
Owner-managed – The professional staff and management of the trust company should be the owners of the business to ensure continuity of the independence of the trust company.
Free of All Conflicts of Interest – to ensure objectivity of advice and decision-making.
Free from stockholder dominance
Separate from any and all other financial institutions.
Separate from dominance by a key customer.
Diversification of client revenue so that the trust company is not dependent on any given client and therefore beholden to that client for management decisions and objectivity in investments.
Free and Separate from Any Leading Referral Source, such as Law Firm, Accounting Firm, Brokerage Firm, Investment Firm, Major Company or other Financial Institution.
Free From Any Investor Control of Minority Dominance or Impact from Ownership of Minority Shares, i.e., Professional Trust Management Shall Seek to Purchase Outside Investor Stock as Early as Possible.
Free From Public Financial Surveillance by Undertaking to Remain a Privately-Owned Institution to enable Management to Reward Professional Staff Without Concern About Bottom-Line Earnings for Outside Investors.
Trust Company Should Have a Continuity Program for Recycling of the Stock of the Company to and among Professionals, with Rules for Entering and Leaving the Company in the Event of Death, Disability Retirement, or Termination.
Appropriate Buy/Sell Agreements Should be in Place to Accommodate and Ensure Compliance with These Rules.
Trust Company Should Have Key Man Insurance to Ensure its Financial Ability to Accommodate These Financial Requirements, from Time to Time.
Trust Company should have Programs in Place to Ensure Adequate Total Compensation for the Staff, to Include:
Replacement Compensation, and
Capital Accumulation Compensation.
These programs and adequate succession planning, should ensure the client of stability, of staff and employee maintenance and minimization of turnover.
Trust Company Should Have the Best and Complete Facilities for the Comfort and Enjoyment of the Client, as well as the Efficiency and Comfort of the Staff.
Trust Company Should Have Employed All Labor-Saving Devices to Reduce Mundane Chores and Tasks to Automatic Electronic Filing and Accounting, Word Processing and Communications, to Ensure the Highest Utilization of the Professional Staff with the Minimization of the Number of Personnel Required.
Trust Company Should Develop and Maintain Cost System and Determine Cost of Each Account, Each Year.
Trust Company Should Be Well Located for the Convenience of Its Clients, Avoiding Wherever Possible, the Use of Stairs, Elevators, Escalators, Considering the Needs of the Elderly Client.
Trust Company Should be Totally Free from Any Conflicts of Interest, to
Select the very best in the way of outside counsel for the client.
Seek the best investments for the client.
Seek the best insurance for the client.
Seek the best mortgage loans, or bank loans for the client.
Seek the best appraisers.
Seek the best outside resources in farm and ranch management, real estate management, oil and gas management and evaluation.
The Trust Company should charge adequate fees – Tiffany charge more than Zales but provides discernable quality difference.
Trust Company Should Maintain a Fee-Only Policy, Refusing to Accept Commissions, Brokerage Participation in Deals of Any Kind Among the Staff, Between the Staff and the Client Accounts, or Between Accounts.
Trust Company Should Maintain Excellent Relations with All Regulatory Bodies.
Trust Company Should Use Outside, Competent Auditors to Audit Both the Company and the Trust and Estate Accounts.
Trust Company Should Maintain Above Average Bonding, Fidelity Insurance, Errors and Omissions Insurance, Workmen’s Comp.
Trust Company Should Employ and Retain the Highest Level of Employees, with the Best of Education, Training, integrity and Stability – Should be an Equal Opportunity Employer.
Trust Company Should Require Constant Upgrading of Professional Competence on the Part of Entire Staff.
Trust. Company Should Seek a Goal of 50% of the Training and Professional Upgrading to be in Human Relations Training Programs, such as Communications, Sociological and Psychological Upgrading and Skill Development, Human Sensitivity Training, Development of Multi-Generational Communication Skills, i.e., Ensuring that the Staff is Able to Communicate with the 90-Year Old as Well as the 17-Year Old.
Trust Company Should Ensure that the-Staff is Acquainted With Both Husband and Wife, as Well as All Adult Children in a Client Relationship.
Trust Company Should be Active and Enthusiastic Supporters of the Communities Served by the Trust Company and All of the Eleemosynary and Charitable Activities Involved.
Trust Company Should Actively Participate in Appropriate Professional and Trade Organization, to Ensure Appropriate Updating, Legislative Representation and Watchdogging.
Trust Company Should Ensure Excellence in Consumerized Communications with Clients in All Client Contacts, Including Statements, Letters, Memoranda, Formal and Informal Dialogue. Avoid Use of Confusing Terminology.
Trust Company Should Ensure Teamwork Among the Staff and a Holistic Approach to Client Service.
Trust Company Should Have Complete and Adequate Checklists of All Instruments Under Which the Trust Company is to Serve, such as Wills, Trusts, Agency Agreements, Escrow Agreements and Any Contracts or Rentals, Oil & Gas Leases, Operating Agreements, Etc.
In Short, the Trust Company Should be the Financial Home in Which the Client Feels Comfortable in Every Sense of the Word by Ensuring the Highest of Integrity Maintained by the Company and Each Individual on the Staff.
That is, all income earned by the Trust Company should be fees paid by clients only.
The Role of the Association of Independent Trust Companies to Enable the Independent Trust Company to Fulfill its Destiny as the Financial Institution of the Future. AITCO Should:
Develop Standards of Membership in Compliance with the Requirements of Owner Management and Avoidance of Conflicts of Interest.
Provide Adequate Representation at the Federal Government Level to Watchdog, Police and Recommend Legislation Pertaining to the Trust Industry in General and Independent Trust Companies, In Particular.
Seek to Develop Adequate and Uniform Regulatory Procedures Among the 50 States, Working with the 50-States’ Banking Commissions, Associations and Individual Banking Commissioners.
Coordinating the Regulation of National Legislation, as Well as State Legislation, by Working Towards the Adaptation of Regulation 9 to the Various State Regulatory Agencies and Vice Versa.
Development of a National Public Relations Advertising Program, To Communicate the Features of the Independent Trust Company Adequately to Client and Prospective Clients.
Develop Programs With Universities and Secondary Schools to Educate the Student on Trust and Estate Administration, Formation and Management.
Develop Educational Course in the Universities, Leading to a Major in and/or Graduate Courses in Trust.
Provide Adequate and Complete Educational Programs for Employees and Staff of the Members of the Association in the Various Professional Areas of Investment, Tax, Trust, Estate Planning, Financial Planning, and Human Relations and Psychology.
Develop and Continue to Update Administration, Operations, Sales, end Procedure Manuals, to Include Checklists for Accepting Accounts, Terminating Accounts, Ticklers for Reminders for All Action Required in All Types of Trusts and Estate and Asset Management.
Develop and Update Forms that are Universally Suitable for All Independent Trust Companies’ Use in Dealing with Clients, Outside Professionals, Independent Contractors, and Would-be Property Purchasers or Sellers, such as Oil & Gas Leases, Real Estate, Rental Contracts, Maintenance Agreements, Operating Agreements, etc.
Set Rules for Behavioral Patterns on the Part of the Independent Trust Company, Which Would Enable the Association, From Time to Time, To Refuse To Continue Membership for Independent Trust Companies Which are Not Maintaining the Standards Set by the Association and its Members.
Develop Master Plans for Economies of Scale in Pension, Thrift, Profit Sharing, 401(k), Health, Life, Disability and Liability Insurance Programs by Negotiating the Best of These Contracts with Vendors on the Lowest Cost Possible Through Economies of Scale.
Become and Remain Sensitive to the Social, Economic and Political Environment of the Global Economy, the Nation and Local Economic Factors, to Ensure Adequate Alerts, to the Trust Company Member With Appropriate Suggestions for Action.
Prepare Constant Alerts Relating to Legislative Action Throughout the Nation, Including the Congress for Appropriate Action and Response by the Trust Company Member.
Develop and Maintain a Cross Reference Library of the Best Professionals, With Various Areas of Expertise Needed From Time to Time, By the Trust Company Member in Outsourcing.
Determine Standards of Eligibility and Maintenance of Proficiency by the Recommended Outsourcing Representation.
Maintain the Finest of Association Staffing, to Ensure Top Professional Capability to Ensure Completion and Maintenance of These Requirements of the Association.
The Future, Indeed, Looks Bright, but Different.
Less inflation, possibly deflation
Longer life on the part of client
The ability to accumulate or consume more financially
Lower interest rates
Historical reversal of the past 50 years in all areas of investment and economic activity, due to heavy global competition.
The annual “more” is gone and salaries and bonuses, business income, etc., are not on an automatic basis.
Financial dependency on government and employer and parent will be at a minimum due to the inability of the government and the employer to provide additional benefits, welfare payments, entitlements, social security, medical, etc., because of heavy global competition , and government deficits.
Parents are living longer, because they don’t know how much they may need due to advanced old age and health costs involved. Therefore, the individual must learn how to take care of themselves and handle their incomes and assets more efficiently.
Competing with the Southeast Asian and Western European, who for centuries have known how to get the most of a ton of coal, a barrel of oil, or hectare of land.
Millions will inherit trillions in the next 15 – 20 years. It is estimated that $8 trillion of accumulated wealth from parents 55 year of age and older will be inherited by the baby boomers. There were 4.1 million new Americans born in each of the 19 years, from 1946 to 1964.
the upper 1% will inherit 1/3 of the $8 trillion, or $2.8 trillion.
The next 9% will receive another 1/3 of the $8 trillion, or $2.8 trillion.
The remainder of the population will receive the remainder – $2.87 trillion.
The Americans born from 1946 to 1964 are 77 million total
1/3 of the U.S. population.
Most educated in U.S. history.
Relatively unsophisticated financially.
Smaller net worth than prior generation.
They look for in-person advice on financial matters.
1/3 are unwilling to take any financial risk.
Lower savings rates than the previous two generations.
52% of baby boomers have median incomes of $34,000 savings and investments of $29,000
14% of baby boomers have median incomes of $41,000; savings and investments of $33,000
20% have median incomes of $48,000; savings and investments averaging $75,000
Likely recipients of $8 trillion in inheritance, the average inheritance will be $104,000. The range of inheritance is from $87,800 to $405,000.
This information is from a study by the Investment Company Institute.
More Importantly, We Should Seek to Be Certain That We Are the Financial Institution for the $8 Trillion of Assets Which Have Been Accumulated in Insurance Programs, Through Inflation in Homes, Farms, Real Estate, Closely-Held Businesses, by Individual Americans Since the Second World War.
We have a marvelous opportunity due to the
de-personalization of other financial institutions, through emphasis by major holding company banks in retail banking
by other financial institutions and automated products
higher-commissioned or brokerage fed investments
In all we do, we measure up to the Edgar Allen Guest poem entitled “The Executor.”
For those of you who have not read Marc Anthony’s speech to the Romans at the funeral of Julius Caesar, you should do so, or review it once again. In it, Marc Anthony, in a very few minutes, converted the crowd from anointing Brutus as the new Caesar to arresting him as the murderer of Caesar, by appealing to the crowd’s sense of fear of loss, hope for gain and love and affection.
“Trust” is the second most important word in the human vocabulary, second only to “Love”. Without trust there really can be no love. Be certain that we understand that we can satisfy the financial needs of the human being: fear of loss hope for gain, love and affection.
Let’s all be certain that we are ever mindful of these basic human needs, as we approach our day-to-day work, our client communications, our advertising, indeed, our human relations. And, let’s all be proud to be a trust officer and make it the most honored profession in the land.