Trust Updates Archive
(Nov. 21, 2013 --Chicago, IL) -- For the second consecutive year, revenues have been growing faster than assets. Revenue leaders tend to be those institutions focusing on three or fewer product lines. The trend is driving more trust institutions, including bank trust departments, to review the potential of limiting the number of product lines they offer, according to Fiduciary Earnings & Expenses 2013, a sister publication of TRN.
The FEE report compares the profitability of some 200 independent trust companies to that of bank trust departments and to nationally chartered trust companies many of which are owned by banks or bank holding companies. This includes an analysis of revenues, net income, and expenses.
Regardless of size or institution type, FEE found the commonality of institutions that generate high profit margins is specializing. While the majority focus on P.I.E. (personal trusts, investment management agencies, and employee benefit trusts), there are a handful of entities that specialize in corporate trusts or custody that report above-average profits and returns on assets.
When it comes to specializing, independent trust companies remain industry leaders. An impressive 93 percent of independent trust companies focus on 3 or fewer product lines. National trust companies trail with 66 percent but are far ahead of bank trust departments, only 40 percent of whom focusing on 3 or fewer product lines. Bank trust divisions, however, appear to be rethinking their strategy. In 2011, just under 30 percent focused on 3 or more product lines.
Productivity is also up. The new metric for performance, according to management consultants, is profit per employee. For comparison across industry type or sector (independent trust companies, national trust companies, and bank trust departments), the FEE report uses gross revenue per account officer and per full-time equivalent employee.
Those generating higher than average revenues and profit margins are increasingly finding themselves being courted by larger financial institutions seeking noninterest income. Commercial banks are ever more interested in generating noninterest income and high-revenue-generating trust institutions meet the bill, says FEE.
Policing Policies and Expense
More than increased fees are fueling revenue growth. In 2013, some 20 percent of institutions reported some fee increase. However, 85 percent of institutions say they are policing existing fee schedules better. Policing translates to enforcing existing fee schedules through auditing accounts for outdated discounts or other undercharging.
Increasing revenues do not always lead to increased profit margins. While revenues are up, so are expenses. Trust companies report higher increases than bank trust departments. Either bank trust departments have lower costs, or banks are absorbing a larger portion of trust overhead. The data suggest the latter is more likely.
For more information on FEE click here.
Trust Performance Report -- annual data book, published in May, provides both industry and peer group performance data by assets, gross revenue, net income, and account category. Subscribers receive quarterly updates. TPR findings are based on its annual survey of the top 1500 fiduciary institutions. For more best practices and benchmark data see TPR. For information on ordering Click Here or the link below.
Fiduciary Earnings & Expenses -- annual data book is published in October. For information on ordering click here or the link below.
No statement in this issue is offered as or should be construed as legal opinion or advice or as an indicator of future performance.
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