Brokerage firms and other nonbanks have been eating banks' lunch in a variety of profitable businesses. But those entering the trust market say banks have little to fear.
"We're neophytes," said David Henle, a vice president at Goldman Sachs & Co., which is considering applying for trust powers. "We're here to learn."
Mr. Henle was one of approximately 40 executives from brokerage, insurance, and mutual fund companies who attended a conference on trust subsidiaries this week in New York, sponsored by the Institute for International Research.
To be sure, nonbank trust companies pose some threat to trust bankers, as they target the same segment of the population: the uppercrust. But the newcomers say their priority is to use trust services to retain their current customers rather than attract new ones.
"How do we leverage our existing relationships through trust and how do we ensure client retention intergenerationally?," asked R. Daniel Banis, president of Fidelity Management Trust Co. of California.
Experience in trust management differs among the nonbank executives. Some of them, including Mr. Banis, worked for many years in the business in senior posts at banks, including BankAmerica Corp., BayBanks Inc., and U.S. Trust Corp.
But many of the managers of the new trust subsidiaries are new to the business. For the first time, they are grappling with a whole new set of regulations, which vary from state to state. And, while they navigate a new world of probate laws and surrogate courts, they also have to make major decisions, including which trust accounting system to use.
Essentially, their jobs are akin to crash courses in a complex business.
"The first job I had in trust was running a trust company," said David Ness, president of Raymond James Trust Co. Mr. Ness previously ran the St. Petersburg, Fla.-based brokerage's financial planning group for eight years.
Now, he is trying to compile an internal clearing house of information on trust and estate laws in 50 states. Bankers with vast trust experience say their new competitors have a long road ahead of them.
"I'm beginning my 30th year in this business and I'm still coming across transactions I've had limited exposure to," said Vernon C. Kozlen, executive vice president of City National Bank, Beverly Hills, and manager of its investment management and personal trust business.
Most of the new entrants limit themselves to trusts that only contain marketable securities because they do not yet have the expertise to deal with estates that contain real estate and other special assets.
"I didn't know much about the trust industry two years ago," said Richard W. Stevens, a principal at the Vanguard Group. Since setting up a trust shop for Vanguard one year ago, Mr. Stevens said he learned that clients are willing to appoint the Valley Forge, Pa.-based company as trustee, but it takes a while to book the business.
So far, Vanguard has $50 million in discretionary trust assets under management. The trust company targets its mutual funds' largest investors: clients with more than $750,000 in their accounts.
As they enter the trust business, these companies are grappling with nuances exclusive to the nonbank version of the trust business. For instance, they rely mostly on referrals from inside their own brokerage firms. Indeed, two trust subsidiary managers said that when they sought clients on their own, they angered brokers who accused them of stealing prospects.
Another brokerage-affiliated executive added that he picked up some new social skills after fielding calls from trust beneficiaries who wanted to get their money before its specified distribution date.
"It's up front and personal. There are things you don't deal with as a broker," he said.
