Whether driven out of banks by mergers or simply disillusioned, trust executives are striking out on their own, starting independent trust companies in wealthy locales.
The new trust companies are often set up as alternatives to a superregional bank.
The Association of Independent Trust Companies started eight years ago and now has 67 members, up from 55 last year. And it has 30 associate members who are in the process of or looking into chartering a trust company.
"The trust departments became profit centers and the client became a statistic," said J. Bradford Greer, president of Cypress Trust Co., Palm Beach. "So, we all quit and started our own companies."
Mr. Greer and colleagues from Chase Manhattan Corp.'s Palm Beach private banking office left in 1995 to start Cypress, which manages $75 million of trust assets.
"Frankly, I'm an old-timer in the business and like serving people. I don't like all these modern paradigms," he added.
Over the last 10 years, many Independent Trust members have increased the assets they manage to over $1 billion, according to president Jeffrey C. Kanaly. He says that boutique trust companies draw clients who cannot find tailored and personal service at larger, more diversified financial companies.
"What we've tried to do is set ourselves up to be free from conflicts of interest and provide the service" the customer wants, Mr. Kanaly said.
Mr. Kanaly is vice chairman of Kanaly Trust Co., Houston, which was founded in 1976 by his father, Deane, now chairman. It manages $800 million of trust assets and has 66 employees.
"If you're working within an entity that also sells products and services, are those products and services best for the clients?" he said.
For examples, he cited a list of potential conflicts such as recommending stocks of companies an affiliate brought public or investing trust assets in proprietary mutual funds.
Starting your own trust company can be tough, however. Most state regulators have steep capital requirements and insist on seeing well- documented and executable business plans before issuing a charter.
Also, trust executives who buy their way into the business could hit some snags. Multiples for purchasing portfolios of trust assets range from 1.25% to 3.25%, according to John S. Carusone, president of Bank Analysis Center, Hartford, Conn. Outside of that expense, trust companies need $50 million to $100 million under management just to break even, he said.
Trust Company of Illinois, which has $250 million under management, spent $2.5 million on systems, professionals, and other overhead before opening its doors four years ago.
Gregory W. Osko, chief executive officer of the Glen Ellyn, Ill.-based company, said clients in the tony community do not question if it will be around to take care of their long-term affairs, because employees and clients hold all the company's shares.
Although Mr. Osko's company is staffed by former executives of Gary Wheaton Bank of Wheaton, Ill. (it was acquired by First Chicago NBD Corp.)- Trust Company of Illinois does not work like a bank.
"We place a lot of emphasis on the front line and very little on the management," Mr. Osko said.
