A firm that manages assets for community bank trust departments is gearing up for what its executives call a big growth opportunity with smaller banks.
In June the trust investment services unit of Financial Counselors Inc. of Kansas City, Mo., opened an office in Shelton, Conn. The company staffed the office, its first in Connecticut, with a team of senior-level professionals it hired from a rival, Wright Investors' Services of Milford, Conn.
"We think there is a great opportunity in community bank trust departments for growth, and for them to gain market share," said Robert Hunter, the president and chief executive of FCI, a unit of MTC Holding Corp.
FCI Trust Investment Solutions manages discretionary and nondiscretionary assets for 25 bank trust clients. It aims to add "dozens of additional community bank clients in the near future," a spokesman said.
FCI executives said community bank trust departments have a chance to capitalize on the bad publicity that larger banking companies are receiving. They say more banks need outside help because the investment product landscape has become increasingly complex.
"It's very difficult to afford experts in all asset classes," said Eugene Helm, a managing director for FCI Trust Investment Solutions. "By partnering with a firm like FCI, they can access that."
Helm, formerly a senior executive with Wright Investors' Services, was hired in June to run the Shelton office, and brought six of his Wright colleagues with him.
Trust departments that work with FCI remain the relationship managers with their clients, which allows them to continue setting investment goals and parameters, while FCI handles back-office services.
FCI's services allow trust officers time to expand their business and serve clients. Elizabeth Spurry, a senior vice president of business development at Wye Financial and Trust in Easton, Md., a subsidiary of Centreville National Bank of Maryland, has trust assets of $300 million.
It uses FCI to manage money in three styles: equity income, core equity and total asset allocation, she said.
Wye's three-year-old trust business, which started working with FCI employees when they were at Wright, uses several outside money managers, Spurry said.
The approach helps eliminate emotional barriers to doing the best thing for clients, Spurry said. If an investment decision isn't working out, Wye's five trust officers can change course without fear of losing face, she said.
"It makes it possible for us to do our jobs properly," Spurry said. "If something is not a fit, it's easy to change it."
Unlike managers that provide model portfolios, FCI develops a customized investment program for each client, taking into account risk tolerance and other factors. FCI has $3 billion of assets under management, including $475 million for community banks.
The timing is good for a push into the community bank trust market, said Alois Pirker, a senior analyst with the research firm Aite Group. The trust space is largely up for grabs because it has not been a major target for service providers until recently, he said.
Part of the reason is that trust officers, who have a fiduciary responsibility to their clients, are reluctant to share the relationships, Pirker said. "
The typical bank trust department has been not good at delegating asset management," he said. "But the more flexibility and influence on investment decisions you gift a trust department, the more comfortable they are going to feel."
FCI executives said trust officers review their investment recommendations before they are implemented through an unaffiliated third party. FCI's trust-focused unit generally works with institutions that have $50 million to $1 billion of discretionary assets under management.
Financial Counselors was founded in 1966, and its bank trust business has gathered steam over the past nine years, Roberts said. It started in 2000 when the company began a strategic relationship with Midwest Trust Co. in Overland Park, Kan., with FCI subadvising Midwest Trust's trust and advisory accounts. Midwest Trust, for its part, provides back-office capabilities for Financial Counselors. The two companies combined in 2005 to form MTC Holding.
Financial Counselors plans to add trust business in part by emphasizing its ability to customize portfolios, FCI's executives said. Unlike many model portfolios, for instance, the investment managers would not expect a client to sell a stock position that has a low cost basis just to replace it with a stock they prefer, Helm said.