An RIA may have a client who needs trustee or trust administration services that fall outside the firm's existing responsibilities. In that situation, the advisor may consider working with a separate trust company.
Outsourced trust services for RIAs can create a defined relationship between the advisory firm and a third-party fiduciary. Before establishing that relationship, advisors should understand the responsibilities, services, and communication procedures involved.
When Might an RIA Consider Outsourcing?
Trust-related needs can arise when a client has an existing trust, needs a successor trustee, or requires ongoing fiduciary administration.
An RIA may also encounter clients whose estate plans involve trusts that require administration beyond the firm's current service structure.
The decision to use a separate trust company depends on the client, trust documents, applicable requirements, and the services the RIA is authorized and prepared to provide.
What Responsibilities Can Be Outsourced?
The specific responsibilities depend on the trust company's engagement and fiduciary capacity. They may include:
Trustee administration
Trust accounting and recordkeeping
Distribution administration
Beneficiary communications
Estate settlement
Coordination with attorneys and tax professionals
An RIA should review the proposed scope carefully and determine which responsibilities will remain with the advisory firm.
How Does the RIA Relationship Continue?
Outsourcing trust administration does not necessarily end the advisor's relationship with the client.
Depending on the arrangement, the RIA may continue providing investment management or financial planning services while the trust company performs its assigned fiduciary duties.
Members Trust Company works with RIAs and other financial professionals in connection with trust and estate services.
The parties should establish how investment information, distribution requests, reporting, and client communications will be coordinated.
What Questions Should an RIA Ask?
Before selecting a provider, an RIA evaluating outsourced trust services for RIAs may want to ask:
What fiduciary capacity will the trust company assume?
Which administrative duties are included?
Who handles beneficiary communications?
How are distributions processed?
What reporting will the advisor and client receive?
How will information be exchanged?
What fees and administrative costs apply?
What responsibilities remain with the RIA?
These questions can help clarify the proposed relationship.
How Should Compliance Responsibilities Be Considered?
An RIA should review the arrangement under its applicable regulatory and compliance framework. This may include evaluating how the trust company is described to clients, how fees are disclosed, what information is shared, and how responsibilities are documented.
The RIA may also need to review applicable agreements and internal policies before referring clients to an outside provider.
Legal, tax, and regulatory questions should be addressed with appropriately qualified professionals.
What Happens After the Relationship Begins?
Trust administration can be ongoing. The RIA and trust company may need procedures for changes in beneficiaries, distributions, investment information, address changes, and other client circumstances.
Periodic communication can help the professionals identify when a matter needs attention or should be referred to another member of the client's professional team.
Conclusion
Outsourced trust services for RIAs can involve a separate trust company handling fiduciary and administrative responsibilities while the RIA continues providing services within its advisory relationship. Before proceeding, advisors should review service scope, fiduciary duties, communication, reporting, fees, and applicable compliance requirements.
Members Trust Company provides trust and estate services for relationships involving RIAs and other financial professionals. Advisors should evaluate any outsourced trust arrangement based on the client's circumstances, governing documents, and applicable requirements.
FAQ
What are outsourced trust services for RIAs?
They are trust or fiduciary services provided by a separate trust company for clients of an RIA, subject to the applicable engagement and requirements.
Can an RIA continue managing investments?
Depending on the arrangement, an RIA may continue providing investment advisory services while the trust company handles its assigned fiduciary responsibilities.
What services might be outsourced?
Depending on the engagement, services may include trustee administration, distributions, recordkeeping, beneficiary communications, and estate settlement.
What should an RIA review before outsourcing trust services?
The RIA should review fiduciary responsibilities, service scope, reporting, communication, fees, agreements, and applicable compliance considerations.
This article is provided for educational purposes only and does not constitute legal, tax, accounting, or investment advice. Trust, estate, retirement, and tax considerations vary based on individual circumstances and applicable law. Trust and fiduciary services are subject to review, acceptance, applicable law, governing documents, and Members Trust Company's policies and procedures. Investment products and services are not deposits or obligations of, and are not guaranteed by Members Trust Company, any credit union or government agency. They are not federally insured and are subject to investment risk, including possible loss of principal. Readers should consult qualified professionals regarding their specific circumstances.
Trust services provided by Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust and Investment products are not NCUA/NCUSIF/FDIC insured. May lose value including the possible loss of principal. No financial institution guarantee. Not a deposit of any financial institution. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.
