Advisers band together for control

Fiercecompetition has not stopped advisers in the US from sometimes pooling their talents, and even resources, in search of new and potentially profitable synergies.

Planner networks are sprouting up around successful practice-management models, for instance, while some firms have launched joint ventures targeting niche markets, such as people earning low to middle incomes.

An experiment that is just weeks away from launch is set to take collaboration to new heights. Believed to be the first of its kind in the US, National Advisors Trust Co. (Natco) is a co-operatively owned trust company that should save its shareholders money and feed their addiction to independence.

Natco will provide asset custody, administration and all the tax, legal, compliance and related fiduciary services associated with trusts and individual retirement accounts.

Only Natco’s 82 shareholders, or firms they refer, will be welcome to use the company’s cut-price services (25 basis points for the full repertoire). But with a total of US$22 billion between them, owners might find that the US$40,000 they invested for a piece of the action turns out to be a profitable outlay.

National Advisers Hold-ing chief executive David Roberts says Natco is expected to attract US$1 billion of its owners’ assets in just one year and over US$6 billion after three years. Estimates suggest a trust company with US$1 billion should produce revenues of US$10 million.

The key to Natco’s conception, however, has almost nothing to do with potential profits. Rather, it is the independence it guarantees its shareholders.

While Roberts says he “hopes Natco is recommended to a firm’s clients when it makes sense to do that” (the formal trustee relationship is directly with the client, rather than the firm, although the firm will continue to manage the client’s investments), he expects the company will eventually account for just one-third of its owners’ assets.

The bulk of the money with independent financial planners in the US is currently administered by either Fidelity or Charles Schwab — behemoths which Roberts acknowledges Natco cannot hope to compete with, what with all the additional research, trading tools, analysis, products and other support they provide.

“But if advisers are receiving everything from a proprietary platform, they are totally dependent on that regardless of the price or the provider’s business strategy into the future if they turned predatory, for instance,” Roberts says.

Once dependent, any decision to leave a service provider is costly and time-consuming, he argues. On the other hand, with some assets in Natco, advisers will have kept their options open.

“We don’t do all these activities,” Roberts confirms, referring to Fidelity and Schwab’s added extras, “but we do core competencies well”.

“What advisers don’t want to do is hand over their client to competing institutions. And as owners, firms also have some control over our board and senior officers and can ensure Natco’s continued independence,” Roberts says.

According to Montana-based CFP, Stephen Hample, Natco has emerged out of an environment characterised by burgeoning competition.

“It seems like everybody is trying to get into financial planning now — CPAs, stockbrokers, lawyers and bankers — and here is a way we can prevent [the loss of some business],” he says.

“As a protection, I can offer this service as well. It keeps clients from having to go very far.”

Hample says he would have given “very serious consideration” to joining Natco had he not already progressed so far down the route of launching his own trust company.

“We always expected something larger to come into play,” confirms senior consultant with Boston-based Cerulli Associates, Dennis Gallant. “Advisers still want the control.”

Natco’s two-year incubation, which is expected to culminate this month with final regulator approval, has hardly been smooth.

Roberts says regulators scrutinised the business model for 18 months, seeking to ensure the company would be independent — there are no firms with a “controlling” stake greater than 10 per cent — secure and profitable.

And then there was finding successful advisers with a need for the service and enough funds to invest a combined US$6 million (US$4.5 million to satisfy legal requirements and US$1.5 million for set-up costs and salaries) with no track record.