Several brokerage firms and insurance companies entering the personal trust business are getting help behind the scenes from Mellon Bank Corp.
Pittsburgh-based Mellon, which has $71 billion of assets under management and trust administration for its own private clients, has been hired by an undisclosed number of brokerage firms, insurance companies, and mutual fund companies to provide customer service to their clients.
These companies, new to the trust business, have quietly farmed out to Mellon about $500 million of trust assets to administer since early 1997.
While many of these brokerage firms and other investment managers have recently obtained their own trust charters, they retained Mellon for the administrative work on a private-label basis, according to Lawrence Hughes, first vice president of the bank and manager of wholesale trust services.
"It's one of the most important new distribution channels for Mellon Private Asset Management," Mr. Hughes said.
He added that the banking company is working with "the top names in the brokerage and insurance industry" but declined to name them, explaining that most of the beneficiaries do not know that Mellon is their trust administrator.
Employees from Mellon's wholesale trust services group are assigned in teams to cover the clients of a brokerage firm or insurance company. That way they answer the phone with the correct company name.
Previously, Mellon's wholesale trust services division, which has $25 billion of assets under administration, had only done accounting and other back-office functions for investment managers and small trust companies.
But the recent rush among brokerages, insurance companies, and other investment managers to become trustees in order to keep assets under management created the new business line for Mellon.
Many brokerages, including Merrill Lynch & Co. and PaineWebber Inc., are intent on using federal thrift charters to expand their trust marketing. The Office of Thrift Supervision has let federal savings banks with trust powers market their services nationally since 1996.
PaineWebber, which is awaiting approval from the OTS for a thrift, has an alliance with Comerica Inc. under which the Detroit-based banking company acts as trustee for the brokerage's affluent clients.
Unlike Mellon's arrangements, the Comerica trust services are not private-labeled. In fact, PaineWebber boasts of aligning itself with the experienced trustee.
PaineWebber plans to continue using outside trust administrators even if it gets a thrift charter, according to president Joseph J. Grano. He said its thrift would let the brokerage retain assets of PaineWebber clients in markets where Comerica does not have trust powers.
"We would more than likely continue to outsource," Mr. Grano said after a panel discussion on asset management at a financial analysts conference in New York last week. "What you need is critical mass."
Mr. Hughes said his clients hired Mellon because they cannot quickly staff trust departments to handle affluent investors' wealth.
"If you look at firms that have chosen to do this themselves," he said, "they're typically going to have a very limited offering-often limited to only financial assets."
"But the largest opportunity is with very wealthy people with complicated assets. Perhaps they own a business or real estate," Mr. Hughes added.
The wholesaling of personal trust administration is rare, but it will happen more as new entrants in the business find it difficult to start up by themselves, said David A. Hall, chairman of Financial Services Associates Inc., a Niles, Mich., consulting firm.
"It's easier to outsource it than to build it," he said.
