Centier Bank's trust department has seen little growth over the past few years.
But Robert Scott, a senior vice president at the $766 million-asset bank in Whiting, Ind., said he plans to change that. He expects to increase the division's revenue and assets under management by 15% to 20% within a few years, he said.
The key is outsourcing.
Increasingly, trust institutions like Centier, which has $175 million under management and began its outsourcing arrangement with SEI Investments last week, see such outside help as a boon.
A recent survey of 61 bankers, commissioned by SEI Investments and conducted by Melior Group in Philadelphia, found 54% would outsource the operations of certain trust product lines, and 36% would outsource their entire trust operations.
Trust accounting systems run by banks in-house generally do not process enough transactions to make it cost effective, said Susan Levine, Melior vice president.
"The growth of trust outsourcing is a recognition that technology is becoming so complex, you have to decide whether that's the best place to put your resources," said Ms. Levine. "If you can figure out how to do the back end efficiently, you can concentrate more on what you like to do, which is the front end."
With SEI handling most of Centier's daily trust work-from executing and settling trades to cutting checks for customers-Centier can shift all but one of its trust operations and administrative staff to sales positions.
"We can get out of the paper-processing business and into the client- servicing business," said Mr. Scott. He said his former employer, Premier Bank of Elyria, Ohio, increased its trust assets from $180 million to $230 million over two years with SEI Investments.
Business is booming for the two main providers of trust outsourcing- Marshall & Ilsley Corp.'s M&I Data Services and SEI Investments. M&I's trust-outsourcing operations have grown 30% in the past two years, said Michael E. Touhey, general manager and senior vice president, investment technologies division.
Milwaukee-based M&I provides trust processing for 133 banks, 27 of which also rely on M&I to perform services like executing and settling trades. The processor has added 18 new clients so far this year. Its trust customers range from institutions with $10 billion of assets to small community banks.
SEI Investments of Oaks, Pa., has signed outsourcing deals over the last 18 months with eight major institutions, including Norwest Bank, BankBoston, State Street Bank, and Mellon Bank. There was a relative drought between 1991 and 1996 when "we were mostly re-contracting," said Richard Lieb, president of SEI Investments. "I can't remember any new contracts."
About 160 banks now use SEI for trust outsourcing. About 45 banks with less than $750 million of trust assets, as well as 13 larger institutions, have turned to SEI to input and process their trust data. Approximately 100 banks, mostly larger ones, use SEI just to process their trust accounting information.
Some observers said competition from mutual fund, insurance, and securities companies is prompting banks to consider outsourcing.
PSI Global, a research firm based in Tampa, said banks' share of managed personal-trust assets fell from 54% in 1993 to 42% in 1995. Meanwhile, brokerage and mutual fund firms saw their slices of the pie grow from 6% to 16%, according to John DeMarco of PSI Global. Those are the most recent available figures, but Mr. DeMarco said the trend is continuing.
Banco Popular in Illinois has seen its sales triple since it started outsourcing its trust department operations to M&I Data Services in 1995, said James Boyd, senior vice president. This year, it has added $250,000 in new revenue, double last year's figure.
For Mr. Boyd, the "value-added" in a trust department comes from agents' relationships with customers. Statements, processing, and other back-office functions may not have that kind of effect.
"If you do it flawlessly and it still gets an average grade from clients, then it's a prime candidate for outsourcing," he said.
