OTS Approves Members Trust To Offer Trusts Nationally

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MEMBERS Trust Co., a joint venture of CUNA Mutual Insurance Society and Suncoast Schools FCU, has become the nation's first independent national trust owned by credit unions and CU entities, now that the Office of Thrift Supervision has approved the firm's charter.

Having grown out of Suncoast's 15-year-old state-chartered trust company, MTC will offer a variety of estate financial planning services to members through their credit unions and will operate independently of Suncoast and CUNA Mutual. The company hopes to sell shares of ownership to other credit unions and CU entities.

"(Former Suncoast CEO) Tom Walker started Suncoast's state-chartered trust company and is now the CEO of MEMBERS Trust Company," noted current Suncoast CEO Tom Dorety, who also serves as chairman of the board of the new trust company. "About two years ago, we went to the board and suggested that we could help other credit unions offer trust services to their members, too."

Idea Was Incubating

At about the same time, MEMBERS Development Corp., a partnership between CUNA Mutual and its client credit unions that has acted as incubator for new CU products and services, expressed an interest in a similar effort. "Offering trust services was at the top of the list at MEMBERS Development," said John Henry, SVP at CUNA Mutual Group and CEO of MEMBERS Development Co. "We invited Tom Walker to come talk about his operation."

The two companies said the potential synergies were obvious, but that doesn't mean there weren't obstacles. In the early planning stages, some two years ago, the only national chartering option was through the Office of the Comptroller of Currency. With the cooperation of the NCUA, however, MTC was able to seek a charter under OTS, instead.

"The OCC didn't look like a good option for us, but it was the only option available to us," Dorety explained. "In late 2001, NCUA made a change to its rules that allowed us to go for the OTS charter instead."

Now that OTS has approved the charter, MTC is in a position to finalize approvals with the Federal Deposit Insurance Corporation and the Securities Exchange Commission and begin offering services in all 50 states.

MTC plans to begin by targeting the 50-some credit unions that are shareholders in the Members Development Corporation. While those CUs had already expressed an interest in trust services, a number of credit unions outside of MDC have also shown interest in it, as well.

Indeed, a number of credit unions have pledged to purchase shares in the business, with some committing to opening trust offices. Francis Quinn, SVP-business development and investments at MEMBERS Trust, said MTC hopes to have 10 to 12 credit unions with trust officers or representatives by the end of the year.

"There is going to be a massive transfer of wealth, and credit unions get concerned about that transfer for a number of reasons," Dorety suggested. "Once a member goes to another entity to establish a trust, we lose control. To some extent getting into trust services is a defensive move on the part of many credit unions. Plus, with all the changes in the types of investment products that people can get into, we believe that existing members will start demanding and expecting the services trusts have to offer."

Henry agreed, adding, "We probably have the largest inter-generational transfer of wealth about to happen with more than $12 trillion dollars moving from one generation to another between now and 2017. We have to find ways to keep those funds from leaving credit unions while also finding ways to meet members' needs."

So, why haven't more credit unions gotten into this business? While a number of credit unions have gotten involved at the state level, none have gone after a federal charter.

"The trust business requires a certain amount of skill," Quinn commented. "By bringing together a number of credit unions, we will be able to build assets under management more quickly and provide a broader array of services right out of the box."

Moreover, obtaining the national charter was a major feat, Henry added, noting, "There aren't many credit unions with the capital and scale required to get this done. It would be very tough for a single credit union to do this."

Two Different Options

The idea is that MTC can become a credit union's trust department, Quinn advised, with two different options: an agency office, establishing a trust presence in a particular state and requires a trust officer to be physically located in a credit union; or a representative office, which serves as an extension of the credit union's financial services program but does not require hiring a trust officer, instead using the services of specially trained representative to consult and make recommendations for trust services.

Suncoast's trust operation will become a field office of MEMBERS Trust, with Walker at the helm of the operation overall.

The national trust company's headquarters will remain in Tampa.

"What we'll have is a non-competitive structure, unique to a credit union-owned trust company," Quinn noted. "Credit union ownership will be a strength of this operation, and the ability to operate in all 50 states is a very significant asset."

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