Last week, ATO held its annual meeting at the JW Marriott in Las Vegas to discuss industry trends, practice management, and recruitment during the Great Resignation. As a sponsor and panelist, here are our main takeaways from the meeting:

1. Your Capital Requirements Might Be Going Down

Tom Blank of Shumaker, Loop & Kendrick, noted in his regulatory update presentation that Peak Trust Company received conditional approval earlier this year from The Office of the Comptroller of the Currency (OCC) for its national charter, which required a lower-than-anticipated capital base of $7 million. This reduction could mean lower capital requirements for other OCC regulated TrustCos and possibly state-regulated firms moving forward. If industry capital requirements are ultimately reduced, more cash reserves would be available for distributions and acquisitions, but it would also lower the barrier to entry for prospective competitors.

2. Service is the New Sales

David Lincoln of Wise Insights presented on trust company performance trends and reported that a substantial portion of the industry’s new business in 2021 came from net additions from existing clients rather than acquisitions. He recommended maintaining elevated levels of client engagement with existing customers and noted that many firms were developing a more structured approach to client service and outreach strategies. Gaining new business from existing clients is generally much less expensive than revenue gained by acquisition, so retention efforts are typically more accretive to earnings.

3. The Best Time to Start Thinking About Succession Planning is Yesterday

Paul Lesser of Cannon Financial Institute and I participated in a discussion panel on recruitment, retention, and disruption in the TrustCo space during the Great Resignation. We both acknowledged an increased utilization of equity compensation and more deliberate succession planning to recruit and retain key staff members. It’s never too early for TrustCo owners to start planning for their eventual retirement and identifying future successors for their ownership and managerial responsibilities. Best practices typically involve a mechanism for transitioning equity and client relationships over time, which is more of an ongoing process than an eventual outcome.

4. Special Assets Require Special Resources and Special Fees

Melody Martinez of Farmers National, Chris Procise of CIBC National Trust Company, Brooks Campany of Argent Financial, and Mike Tropeano of Broadridge Financial Solutions discussed best practices in administering and feeing special assets held in trusts. These closely held assets require increased due diligence with less available information and a specialized skill set to manage, which poses unique challenges to trust administrators with fiduciary responsibilities. These presenters recommended a careful cost-benefit analysis to ensure the fees are commensurate with the risks associated with administering real estate and private equity assets.

5. 2022 is Poised to be a Rough Year for TrustCo Earnings

Almost every attendee I spoke to about their business lamented that year-to-date earnings have declined from peak 2021 levels. AUA and revenue are down with the capital markets and costs are rising with elevated inflation levels, so industry margins are feeling the pressure. Many TrustCo principals have responded by reining in new hires and encouraging the next generation of management to buy equity that has suddenly become affordable.

The conference was well attended, and there were other great topics and presentations were not referenced in this blog (see meeting slides). We would certainly recommend it for trust company officers seeking intel on the state of the industry and hope to see you at next year’s meeting in New Orleans.