Registered investment advisors may encounter clients who need trust administration or corporate trustee services. An advisory firm may determine that these responsibilities are better handled through a separate trust company when they fall outside the firm's existing service structure.
Outsourced trust services for RIAs can involve a defined relationship between the advisory firm and a third-party trust company. Understanding how responsibilities are divided is an important part of evaluating this type of arrangement.
What Are Outsourced Trust Services?
Outsourced trust services refer to trust or fiduciary services provided by a separate trust company rather than administered internally by an RIA.
Depending on the engagement, services may include trustee administration, trust accounting, recordkeeping, beneficiary communication, distribution administration, and estate settlement.
The scope of services depends on the trust documents, applicable requirements, and agreements between the parties.
Why Might an RIA Use a Trust Company?
Trust administration can involve fiduciary responsibilities, administrative procedures, recordkeeping, and ongoing communication with beneficiaries and other professionals.
An RIA may work with a trust company when a client needs services that are outside the firm's existing advisory responsibilities. Depending on the arrangement, the trust company may assume the fiduciary duties assigned to it while the RIA continues providing services within the scope of its advisory relationship.
For RIAs considering this type of arrangement, Members Trust Company is an example of a trust company that works with financial advisors and other professional partners on trust and estate matters.
How Are Responsibilities Divided?
The division of responsibilities should be established before the relationship begins.
For example, the trust company may administer distributions and maintain trust records, while the RIA continues providing investment advice. An attorney may address legal matters, and a tax professional may provide tax guidance.
The actual division depends on the trust documents, service agreements, and applicable law.
Clients should understand which organization is responsible for each service and whether separate agreements and fees apply.
What Should RIAs Evaluate?
When considering outsourced trust services for RIAs, firms may review:
Fiduciary responsibilities
Scope of trust administration
Trustee appointment and authority
Beneficiary administration
Reporting and recordkeeping
Communication procedures
Technology and account administration
Coordination with financial, legal, and tax professionals
Fees and administrative costs
RIAs may also consider how the trust relationship will be introduced to clients and how ongoing communication will be managed.
How Does Investment Management Fit In?
Trust administration and investment management can involve different responsibilities. Depending on the arrangement, an RIA may continue providing investment advisory services while the trust company handles its assigned fiduciary duties.
Investment responsibilities should be identified clearly in the applicable agreements and trust documents. The parties should also establish how information will be shared when investment decisions and trust administration intersect.
When Might Outsourcing Be Considered?
An RIA may consider a third-party trust arrangement when a client has an existing trust, needs a corporate trustee, requires ongoing trust administration, or has estate planning needs involving fiduciary responsibilities.
The appropriate structure depends on the client and the advisory firm's circumstances.
Conclusion
Outsourced trust services for RIAs may provide a separate structure for trustee and trust administration responsibilities when those services are needed by a client. The arrangement should clearly establish fiduciary duties, administration responsibilities, communication procedures, and the roles of other professionals.
Members Trust Company is an example of a firm that provides trust and estate services for relationships involving RIAs and other financial professionals. Advisors considering outsourced trust services should review the proposed arrangement with appropriate legal, tax, and compliance professionals.
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 arrangement and requirements.
Can an RIA continue managing investments?
Depending on the arrangement, an RIA may continue providing investment advisory services while the trust company performs its assigned fiduciary responsibilities.
What can a trust company administer?
Depending on the engagement, responsibilities may include distributions, trust records, beneficiary administration, and other duties established by the governing documents.
What should an RIA review before outsourcing trust services?
The RIA should review fiduciary responsibilities, service scope, reporting, communication, fees,
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. Investment products and services are not deposits or obligations of, and are not guaranteed or endorsed 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.
