After a year off, ATO held its annual meeting at the Ritz-Carlton in Amelia Island, Florida to discuss industry trends, practice management, transaction activity, and the current competitive landscape. As a sponsor and panelist, here are our main takeaways from the meeting.
1. Your competitors are sales machines.
This was a key talking point in a sales culture panel chaired by Sandra Ottinger of Ottinger Wealth Sales, Jennie Menzie of Cumberland Trust, and Lucas DeVicente of Sabal Trust. Trust officers often find themselves in competition with financial advisors, who are typically more seasoned at business development and identifying fee opportunities. To stay competitive, trust officers have to be more deliberate about following up on sales leads and staying in front of prospective clients. Trust companies’ emphasis on client service can also be a selling point when competing with advisors that are more transaction-oriented and compensated by trading commissions.
2. The trust industry’s revenue has only achieved a compound annual growth rate of 2.5% since 2015, implying negative organic growth absent market appreciation.
David Lincoln of Wise Insights presented on trust company performance trends in 2021, highlighting the industry’s tepid revenue growth over the last few years. The primary culprits include fee pressure, lower demand for corporate trustee and personal trust services, and loss of market share to wealth management firms and financial advisors. Lincoln recommends avoiding fee concessions and instilling a more systematic process for identifying attrition risks to minimize account terminations.
3. The best time to start thinking about succession planning is yesterday.
Bryant Jones of Sabal Trust Company, Matt Crow of Mercer Capital, and John Jansing of ICE Systems led a discussion panel on managing transitions in the TrustCo industry. The three panelists shared their own experiences on succession planning from insider and outsider perspectives. The general consensus was that 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. Acquisitions are currently highly competitive in the RIA and TrustCo space, creating opportunities for sellers and frustrations for buyers.
Bill Rankin of Kanaly Trust; Scott Ketner of Berkshire Global Advisors; Brooks Campany of Argent Financial; Tom Blank of Shumaker, Loop & Kendrick; and Tony Guthrie of TMI Trust Company discussed the current M&A environment for trust companies and wealth management firms and the role of outside capital in pursuing growth opportunities. Unprecedented deal activity in the sector has bid up transaction multiples, but many buyers still require part of the consideration to be paid in the form of an earn-out based on achieving future revenue or profitability goals. Increased interest from private equity funds and other outside capital providers have also contributed to higher valuations, making it harder for prospective buyers to achieve their hurdle rate of return.
5. Higher taxes create opportunities for independent trust companies to better serve their HNW clients in preserving and transferring their family wealth.
Tom Blank of Shumaker concluded the conference with a regulatory update and overview of prospective tax changes under the Biden administration. While there hasn’t been a whole lot of change on the regulatory front, pending tax hikes will likely impact most of the industry’s clients. Trust companies stand to benefit from this development as HNW individuals set up trusts to transfer assets at current tax exemption levels before they likely expire at the end of this year. Pending limits on the use of Grantor Trusts and asset transfers with discounted values should also spur activity in the coming months.
The conference was well attended, and there were plenty of other great topics and presentations not referenced here. 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 Las Vegas.