How advisor directed trust can streamline your wealth management team
Many high-net-worth clients want a trusted financial professional or family member to manage investment assets. A directed trust format is an effective solution. It helps reduce fiduciary liability and enables your team to maximize specialization and expertise. Directed trust statutes formally bifurcate your team’s administrative, investment, and distribution management duties, reducing conflict of interest risks and limiting liability to parties well-suited to their roles.
Liability reduction
Many clients desire to give their trusted financial professional or family member investment discretion in their trust. This is often true for nontraditional assets such as family businesses, private equity investments, and cryptocurrencies. These assets can be difficult to fit within the parameters of a traditional corporate trustee. A directed trust structure allows these advisors or family members to assume decision-making responsibilities for distribution and investment actions while reducing the administrative fiduciary duties of the trustee.
By separating the investment management, distribution, and trust protector roles, an advisor directed trust optimizes specialization and continually creates a high standard of care. This powerful value-add can be discussed with clients and estate planning attorneys to enhance your relationship and reduce liability for you as their trusted adviser. This model can be a powerful alternative to bundled trust models in which the trustee company takes on all investment management fiduciary risk, fees, and expenses.
Streamlined administration
In a directed trust, the trustee’s administrative duties are split between an administrative trustee and an investment advisor of the client’s choice. This approach gives the client greater flexibility while maintaining a trusted relationship with their investment professional. Clients can achieve their desired planning goals by splitting these duties between two parties without compromising the trustee’s fiduciary duty. Typically, the investment and distribution decisions are made by a team of financial professionals, including their existing family or wealth management advisors.
Investment discretion
Directed trusts allow clients to work collaboratively with long-time trusted advisors while leveraging the industry-leading fiduciary capability of a directed trustee company. The trustee handles administrative duties, and the investment advisors focus solely on investments. This structure benefits current and contingent beneficiaries by reducing trustee liability and better aligning the investment advisor’s interests with the client’s.
In addition, many directed trustee companies have established fee schedules that separate the investment advisory fee from the corporate trustee fee. This allows the advisory firm to charge what is appropriate based on the unique assets being held within the trust.
Finally, many directors deeply understand trust law and can provide valuable insight for clients. This knowledge can also help to position a directed trustee as a strategic partner for estate planning attorneys. Some states have statutes that delineate the responsibilities of trustees and advisors, providing greater liability protection to both parties.
Flexibility
Directed trustees typically specialize in investment management and have a high degree of expertise in managing trust assets. They also tend to work on trust administration full-time, bringing focused expertise and efficiency to your clients’ trust assets.
Directed trust statutes formally define the duties and responsibilities of trustee and advisor, mitigating liability for both parties. This is particularly valuable for clients with unique assets, such as family businesses, private equity investments, and cryptocurrencies, that must fit better into most corporate trustees’ investment parameters.
Directed trusts also allow investment advisors to retain custody of marketable investment assets, keeping them on the same trading/custodial platform they are used to. This offers greater operational efficiency and client service, enabling advisors to attract new wealth with a powerful value-add. Separating these roles enhances specialization and maintains a high standard of care.