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Fiduciary Earnings Expenses Pandemic breakeven outsourcing litigation Assets Trust Performance Report trust companies 2020 2019 banks revenue expenses break even trust divisions A.M. Publishing peer comparison financial institutions trust companies BlackRock Wells Fargo State Street US Bank Northern Trust Chase Citibank Bernard Garbo Pandemic Stress Making Many Reassess Strategy; 60% of Banks Trust Division Report Insufficient Assets to Breakeven

(Dec. 2, 2020 --Chicago, IL) -- As a result of the pandemic of 2020, many trust institutions are assessing their operations and strategy, according to A.M. Publishing's Fiduciary Earnings & Expenses 2020 (FEE 2020). For sample pages, see link below.

FEE 2020's Annual Survey of Trust Assets found that trust executives ranked the pandemic impact on their customers and business was their number-one concern. Account and revenue growth ranked as their second- and third-highest concerns, followed by controlling costs. Litigation concern has spiked.

The survey, conducted in March and April 2020, includes bank trust divisions (BTDs), national trust companies (NTCs), and independent trust companies (ITCs).

In reassessing operations, many banks appear to be taking a harder look at whether they should be in the business at all. This is of course not new, but the pandemic has heightened the concern. The growth in outsourcing and selling small trust operations can be seen in the meteoric asset growth of Reliance Trust, Atlanta, which specializes in these services.

The survey found that 3 out of 5 bank trust divisions reported having less than the minimum assets to break even.

This contrasts significantly with both independent trust companies were only 1 out of 5 reported having less than the minimum breakeven and national trust companies were 1 out of 10 reported being below breakeven.

Hesitancy to Raise Fees

Trust executives in 2020 remain more hesitant to raise fees. Just under 15 percent of trust executives taking part in the survey reported plans to raise fees in 2020, about the same as in 2019.

Over the past eight years, the proportion of institutions reporting plans to raise fees has ranged from more than 20% to 30%, with anywhere from half to three-quarters of them following through.

Controlling expenses is as important to trust institu- tions as meeting revenue targets is. Here again, trust executives reported a much higher level of concern in 2020 than in 2019: 79 percent compared with 65 percent, but closer to where it was in 2017, 76 percent.

Though expense allocations and average outlays for salaries and benefits are up, especially for large bank trust divisions, expenses are growing at historically low rates, but not until 2019 did revenues start to lag.

In 2013, weighted-average expenses increased by 8 percent; the following year, they grew by 6 percent. In 2015, expenses increased by 4 percent, followed by 3 percent in 2016. For the next two years, expenses trended up slightly, but so did revenues.

In both 2017 and 2018, gross revenues grew by a weighted average of 8 percent, while expenses in those years grew by 5 percent.

Independent Generate Higher Revenues

The driver of profit, the data suggest, continues to be less the type of product (account category) an institution focuses on than the number of products on which it opts to concentrate. The findings are consistent across institution types as well as peer groups.

What has been historically consistent for all institution types is that high-profit-margin performers (those that consistently outperform their peers) have consistently reported limiting their focus to three or fewer account categories.

Large ITCs continue to generate the highest average profit per account officer and employee in the trust industry

Independents and national trust companies tend to be boutique fiduciaries, which limit the types of products or account categories on which they focus. This business strategy is a stark contrast with that of most bank trust divisions, which prefer to be full-service institutions.

Large ITCs continue to generate the highest average profit per account officer and employee in the trust industry.

Large ITCs are similar to their BTD and NTC peers in that most focus on custody and employee benefit trust (EBT) accounts. However, ITCs focus substantially more on EBTs.

EBT accounts represent 35 percent of large ITCs' business, compared with 22 percent of business for large BTDs and 19 percent for NTCs.

This focus makes a substantial difference, as EBTs generate significantly higher returns on assets than custody accounts. Custody accounts represent 36 percent of the business at large BTDs, compared with 32 percent for large ITCs and only 14 percent for NTCs.


Productivity is an important contributor to improved profits but apparently not a determinant of them.

Revenue productivity was higher in 2019 than in the prior year. However, profit productivity was fairly unchanged from the prior year.

Productivity metrics remained fairly stable in 2019, across both institution types and peer groups, with the exception of bank trust divisions.

Assets needed to generate $1 of gross revenue, when weighted, have remained fairly consistent since 2010. Year-to-year changes tend to be small, with the nota-ble exception of national trust companies.

Litigation Concerns

Nearly 7 out of 10 trust executives expressed growing concern about litigation, significantly up from 4 out of 10 in the prior year.

While fewer executives at bank trust divisions ranked litigation as a high concern (65 percent), this is a a significant spike over the prior year when only 38 percent ranked it as a high concern.

In the past, midtier and small institutions have been considered more insulated from litigation risk than larger institutions. Industry sources have asserted that this is no longer the case; the data, with limited exceptions, appear to support that assertion.

Fiduciary Earnings & Expenses 2020 compares performance of nearly 200 independent trust companies to that of bank trust divisions as well as national trust companies.

For sample pages of Fiduciary Earnings & Expenses 2020 go to . For a special year end introductory price on both Fiduciary Earnings & Expenses and Trust Performance Report go to ; under Subscribe, click on either publication to see special offer.

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 1200 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 comparing performance among independent trust companies to that of OCC national trust companies and to bank trust divisions. For information on ordering click here or the link below.

For Sample copies of both publications click here and then, on the web page, check "Trust Performance Report."

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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