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Independent RIAs Join Forces to Take On the Big Trust Companies

National Advisors Trust supports registered investment advisers through a consortium that gives them an ownership stake.

National Advisors Trust Co. keeps building its wealth management footprint by offering registered investment advisers an alternative to traditional trust companies. On September 30 Cornerstone Advisors, an independent RIA headquartered in Bellevue, Washington, announced the launch of Cornerstone Advisors Trust Services with NATC. The deal brought Overland Park, Kansas–based NATC’s total number of RIA partners to 155.

For NATC president and CEO Jim Combs, this growing base helps prove the validity of a unique business model. “Our concept of shared fiduciary responsibilities allows us to provide undivided loyalty to both the adviser and the trust,” Combs says. “The client looks to us for administration and support, and to the adviser for planning and investment advice, creating a set of checks and balances.”

Founded in 2001 exclusively to serve the clients of independent RIAs on a noncompetitive basis, NATC is owned by its adviser partners. The firm traces its origin back to adviser Tom Bray, who, after spending 20 years building two key relationships, saw those accounts stolen by the bank trust company he had worked with to custody the trust assets.

Using his own time and money, he inspired a group of similarly frustrated RIAs to form NATC; 82 firms signed up to found the chartered federal savings bank as a thrift. Today NATC counts RIAs in 43 states as shareholder-members and is set to exceed $10 billion in assets under advisement by year’s end.

When it comes to tax and estate planning, trust services play a critical role in managing U.S. multigenerational wealth. As of the second quarter of this year, the country’s 25 largest trust companies held more than $17 trillion in assets, the Federal Deposit Insurance Corp. estimates.

For independent advisers, working with traditional trust companies is fraught with risk. By definition a trust is a separate legal entity, and the trustee may have tremendous latitude to interpret the grantor’s wishes by making decisions that include firing the RIA that helped create the trust as a fiduciary. When the trustee is an employee of the trust company itself or of another party that works closely with it, such as a preferred law firm, the chips can be stacked against the adviser of record once the grantor passes away.

The experience of Ray Ferrara, chairman and CEO of ProVise Management Group, is typical. “Like many other advisers in the ’90s, I was always worried about custodians soliciting my clients,” says Ferrara, who founded Clearwater, Florida–based ProVise, a financial planning specialist, in 1986. Today his firm employs 12 financial professionals overseeing a total of $1.14 billion in assets for some 900 families.

Shortly after a leading national trust company took over an account that he had introduced, Ferrara joined the consortium of RIAs that founded NATC. For ProVise the benefits of working with an adviser-owned trust company go well beyond the security of client relationships. “Investors like to have a trustee that is truly independent to manage after they are gone,” Ferrara says, adding that “from a practice management standpoint, the opportunity to share ideas with a large group of peers is invaluable.”

Working as a group is central to the NATC mandate. “We strive to foster a community among our advisers,” notes president and CEO Combs. “Our model is built on providing service and advice to our advisers but also allowing them to share information to improve their individual practices.”

NATC capitalizes on its client-owned structure to provide buying power through scale, thereby reducing advisers’ technology and administrative costs. The advantages of this structure outweigh traditional shareholder perks, according to Jeff Ramsey, COO and chief compliance officer for Lee Financial, a Dallas-based financial planner with $1 billion in assets. Founded in 1975, Lee was among the initial investors that launched NATC.

“Shareholders like our firm are not looking for dividends,” Ramsey says. “We are looking for capital to be redeployed to maximize the value for our customers and our practices.”

As NATC keeps expanding its adviser network, it has broadened its product offerings to compete with national players. In 2013 the firm created National Advisors Trust of South Dakota, which allows adviser partners to use trust services in a state that offers the best asset legal protection and client confidentiality in the U.S. Says ProVise’s Ferrara: “The South Dakota entity definitely provides us with a competitive edge — one that many trust companies do not have, let alone financial planning firms.”

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