On Monday, nearly a year after announcing an agreement to buy U.S. Trust Corp., Charles Schwab Corp. began offering the New York firms administrative trustee services to the 6,000 independent investment advisers who use Schwab for trading and custody.
The advisers will continue to be the hands-on managers of their clients assets. U.S. Trust, which Schwab bought in June, will take care of the administrative functions of the trusts, such as dividend and interest collection, fiduciary accounting and record keeping, and filing fiduciary tax returns.
Schwab will service the trust accounts through call centers in Phoenix and Orlando and will charge a fee of at least $5,000.
In offering trust services Schwab is adapting U.S. Trusts capabilities to a less-wealthy segment of the affluent market. U.S. Trusts usual trust account minimum is $400,000.
Independent investment advisers are an important business sector for Schwab. The advisers, who keep their clients assets at Schwab while trading through it and using its other services, manage $243 billion of the $944 billion of assets held by Schwab.
Adviser-managed accounts are also more profitable than Schwabs typical accounts, mainly because they are larger $250,000, on average, versus $120,000.
Gerald Graves, chief operating officer of Schwab Institutional, the firms financial adviser business, said there had been great demand among Schwabs advisers for trust services, and that was one of the key reasons for the U.S. Trust acquisition.
This is a product that will really allow investment advisers to maintain a relationship with their clients, he said.
Overall, the need for trust services is growing. According to VIP Forum, a Washington firm that advises financial services companies on serving the rich, the need for trust services in the United States is growing 5% to 10% every year. Though banks expertise and experience give them an edge in providing trust services, new asset management business is going to financial planners and registered investment advisers, said William D. Whitt, a project manager at VIP Forum.
Trust services could help independent planners keep their current clients, many of whom are entering the age at which they need trusts, and help keep advisers within the Schwab fold, he said.
Schwab has set no minimum size for adviser-managed accounts, whether trust or custody.
Richard G. Scheide, a principal of the Northbrook, Ill., consulting firm LoBue Associates, said he doubts Schwab can make a profit from relatively small trust accounts while still providing the level of service that customers need.
A real trust officer has got to be able to do a lot of hand-holding and planning, he said.
Mr. Graves disagreed. Schwab expects its technical expertise and efficiencies of scale to make adviser-managed trust accounts profitable as well as valuable for advisers clients, he said and U.S. Trust will be spared the cost of dealing with those clients in person.
Schwabs greatest difficulty in selling trust services may be overcoming the skepticism of advisers worried that Schwab will eventually become a competitor.
Peggy Eddy, a certified financial planner, is among the skeptics. As much as theyve told us they will not take over active management of the funds, Im not real confident, said Ms. Eddy, the president of Creative Capital Management in San Diego. I dont know what their design or purpose is later on.
But Dave Diesslin, a financial adviser in Texas who works with various trust companies, said Schwabs service might prove very powerful if done correctly.
Getting trust, custody, and trading services from one entity might be more convenient and efficient, said Mr. Diesslin, a principal of Diesslin & Associates Inc., an independent financial advisory firm in Fort Worth.
Given the growing need for trust services, its something I think in the future will be a requirement for entities like Schwab to provide, he said.
