The scene is a meeting of the bank's management and board of directors. When the meeting comes to introducing trust and asset management services, there is a chorus of groans, eye-rollings, coughs, and impatiently drummed fingers. The item is quickly killed.

Why do you suppose both managers and directors are so unenthusiastic about bringing trust and asset management services into the bank? Perhaps they have come to rely on a series of outdated ideas long held by others equally resistant to bringing in these services.

These ideas underlie years of reluctance by bank managers and directors to investigate the potential of trust and asset management services.

But to borrow the famous Bob Dylan line, "the times, they are a- changin'." Current market trends show the strong need at least to consider these services. Increasingly, customers will expect local banks to have these services in-house.

How can bankers overcome the objections that have kept out trust and asset management? Let's address them one at a time and see how they stand up to the very obvious changes that will mark the banking industry for the next 10 years.

"Trust services are only for the large banks."

Once upon a time, monolithic money-center banks and superregionals had trust and asset management to themselves.

Today, bigger banks are going through megamergers while the depth and scope of bank investment services are expanding, and both trends are likely to continue. Investment management will increasingly be provided by third parties, making the size of the institution marketing the services less important.

"Trust departments do not make much money."

Today, the cost of administering older trust relationships is greater than the cost of administering lifetime asset management services. By 2006, however, it will be easier to make a profit and contribute significantly to off-balance-sheet income than it is today.

One reason: Banks can snare clients at an earlier age by offering these services to those of lesser wealth than are typically associated with older, established trust departments.

"Our bank is well versed in gathering deposits and making loans, but not in asset management."

To compete effectively, the financial institution of 2006 will need to be a full-service financial provider, or find a niche. Making profits based upon the interest rate spread will be increasingly difficult as clients consider alternatives for their deposit and loan needs.

While most institutions considering asset management services today may not have in-house expertise, the right people for the jobs are increasingly available as bank mergers and automation spur downsizing. Many trust executives from larger banks are finding jobs establishing or running trust departments at smaller banks.

"We cannot compete with mutual funds."

Instead of considering lifetime asset management services as competing with mutual funds, banks with an eye on success are considering mutual funds as allies. The onslaught of funds with unique objectives has created a good deal of confusion among investors. The investor of 2006 will increasingly turn to professional investment managers.

"We have too many other issues with which to contend."

While today's financial services industry is in a state of unprecedented evolution, more changes are in store. Institutions that accept that challenge and evolve into full-service financial providers will prosper in 2006. Those that do not accept the challenge will lose customers and market share, and they may be swallowed by more aggressive competitors that offer a full array of financial products.

Mr. Phillips is president of Trust Resource Co., a financial services consultancy in Portland, Conn.

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