Life is a teacher, and school is always in session.
We lost my father-in-law just over a year ago. He was an amazing person, a captain of industry, a perfect gentleman. His passing was a loss to our family, and to our community. He was 86 years old and had lived a good, long life.
You think you are prepared for this, especially having spent decades in the business of helping people plan and administer their estates. You are not. Another life lesson to be learned.
A former CEO, my father-in-law was a planner. He had a wonderful trusts and estates lawyer and had updated his estate plan less than a year before he died. He had purchased a grave lot in the 1960s, at the time of a previous health scare. He left clear and detailed instructions with respect to his funeral service. He was survived by his loving wife of almost 57 years, five children, their spouses, and 17 grandchildren. It would be hard to imagine better preparation, a loving final gift to all of us.
No one tells you how difficult, how confusing those first few days are. Newly grieving, you are forced to focus on details and questions you’d rather avoid. Fortunately, there are professionals whose sole business is to help you with the funeral arrangements. This all can happen very quickly – in our case, just four days. Amidst the sadness, there can be great joy in celebrating a life well lived.
Then comes the rest of life. That’s when you really need a good trust officer.
I mentioned that my father-in-law was a former CEO. During his career, he had a wonderful assistant who organized and maintained his files. In retirement, he had no such help, so he simply kept everything and filed according to his own, individualized system. We knew we had everything we would need to complete the estate administration, just not always where to find it.
There is a lot to do in administering an estate, many actions to take, details to consider, changes to make. Sometimes the hardest part is understanding and accepting the necessity of change. Love, respect and loyalty to the memory of the deceased often lead family members to resist change – “That’s the way Dad/Mom always did it” – even when the need for change is compelling. Accounts need to be retitled, closed and/or opened; insurance policies need to be collected and processed; tax returns prepared and filed; assets inventoried; pensions confirmed – the list goes on and on. Family members not familiar with the technical aspects of this process can feel overwhelmed, even paralyzed into inaction. Lawyers and accountants provide great assistance in guiding families through the process, but it can be expensive and a poor use of time for these professionals to handle the administrative functions. That’s when you need a good trust officer.
What is a trust officer? Permit me a bit of history.
Years ago, wealthy people would look to their local bank to provide assistance in all aspects of their financial lives. Often, they would establish trust accounts with the bank serving as institutional trustee. Trust supervision requires specialized skills, so most banks set up separate trust departments staffed with fiduciary experts – as officers of the bank, they were styled “trust officers.” Soon, these trust departments and trust officers became the face of the bank and provider of all financial services to the bank’s wealthiest clients. This may be the earliest example of “client segmentation” in banking history.
While remaining subject matter experts, the early trust officers of necessity became generalists in all things important to their wealthy clientele; the “Renaissance” men and women of banking. They developed deep, long-lasting relationships with their clients, often serving multiple generations and participating in client family events and celebrations. Their value extended far beyond their technical expertise: problem solver; wise counselor; next-generation mentor; conflict mediator; patient listener; friend. Their role was service and advice, not sales. They made “order out of chaos.” They were “experts in their clients,” and oversaw the entirety of the client relationship. They were the first true “trusted advisors” and the inspiration for the “relationship manager” or “wealth advisor” role found in many institutions serving the wealthy today.
Unfortunately, the job of trust officer has changed over the years. As banks expanded their product offerings and grew more focused on the wealth market, they created “private banking” business units to provide “holistic” advice and cross-sell bank products. The private banker took on the relationship manager role, and the trust officer was relegated to product specialist and member of the client relationship team. In many cases trust officers were given sales goals, which in the minds of some conflicted with their fiduciary duty to act always in the client’s best interest. This trend continued as banks set up specialized units to serve families of even greater wealth; these Ultra High Net Worth departments became, in effect, “parts suppliers” to the family office market, marketing their products on an unbundled basis and often at heavily negotiated pricing. More often, than not, the fiduciary service was offered gratis to secure valued investment management business. The trust officer’s function became considered overhead, a loss leader needed in order to compete for other business. Not surprisingly, trust units struggled to obtain internal funding and other resources necessary to complete their assigned mission, their value-add underappreciated beyond their client base.
Yet, the need for assistance from a “specialist as generalist” is as great now as it ever was. I realized that most directly and personally when assisting in the administration of my father-in-law’s estate. Seemingly simple tasks, such as knowing what papers to keep and what to throw out, can require an understanding of business, taxes, accounting, insurance, investments, credit, pensions, government programs, healthcare, etc. Documenting transactions can require painstaking research into files both physical and electronic. Password management alone can be daunting. All of this takes patience, and time. Fortunately, I had the time, and the experience, to be helpful in this case. Throughout it all, I was constantly reminded of a cardinal estate planning truth: the very best plan on earth will fail if it is not implemented properly.
So, what does the future hold for these fiduciary professionals? Fortunately, some family office groups have embraced the original trust officer concept and incorporated it into their business models. Generally owned by the client families themselves, they value service more than profit or sales. Put simply, their definition of success is different; time spent advising clients and assisting them in addressing their needs is the business. Client and trust officer objectives are closely aligned, allowing trust officers great flexibility in fulfilling their fiduciary role. In many ways, these entities are the true successors to the trust departments of old, but they are available only to the very wealthy – individuals and families with many tens or hundreds of millions, or billions, of dollars to invest.
Banks and other wealth management firms wishing to reclaim this market and restore relevance to this role will need to make some changes to their operating models. First, they need to stop giving away the trust business. There is real value in maintaining and operating trust structures, and exercising fiduciary discretion; that value deserves to be compensated by a separate fee over and above that charged for investment management. Investment management fees are under considerable pressure these days, as investment products become commoditized and sophisticated algorisms allow scalable delivery of prepackaged advice. The fiduciary service component is by nature non-commoditizable; it is advice and assistance specifically tailored to the situation at hand and subject to “the highest standard under law.” It should be viewed as a real value-add, and paid for. This would go a long way toward reversing the long, slow transformation of the trust officer role from trusted advisor to cost center.
This raises a much larger issue for the entire wealth industry: how to make the case for, and get paid for, all the non-investment products and services that are part of “holistic” wealth management. This is not a new issue, but there is now greater urgency to address it in light of the developments mentioned above. The topic merits a separate article on its own.
The world needs good trust officers. Life is complex, and getting ever more complicated. Families can be so as well, particularly given longer life expectancies and multi-generational issues. Many people need professional help addressing these challenges. They want someone who will listen to them, understand their needs and goals, and patiently guide them through it all. That, historically, is what trust officers do.
As mentioned earlier, I re-learned this all recently, up-close and personal. It had been a while since I had been so hands-on involved in an estate administration, but it came back “like riding a bicycle.” From a new vantage point – as a member of the subject family – I gained a deeper appreciation of the value trust professionals bring to the table. Theirs truly is a “helper” occupation.
God bless trust officers!