Fiduciary Standards

A Higher Standard

Trust companies provide greater client service, and more flexibility

When it comes down to the competitive business of caring for clients’ money, an advisor’s flexibility to choose the right investments, while keeping expenses low, and giving investors great service, one only needs to turn to the rock-solid registered investment advisors who always stand stoic in protecting the clients best interest.

In fact, an increasing number of registered investment advisors (RIAs) are converting to state or federal chartered trust companies which allow for greater client service without the onerous, some would say ineffective, Securities and Exchange Commission rules that frown upon advisors acting as so-called custodians.

Trust accounts, often brimming with assets to manage, can benefit from an RIA who must pass a rigorous regimen of state and FDIC regulations.

“I think trust companies have a higher standard in regards to their fiduciary role,” said Ty Haberling, CFP® a financial advisor, president and chief investment officer of HFG Trust. Haberling describes the conversion as a way to improve the client experience by providing a service that is vital for succession planning.

Converting to a trust represents a “natural progression” for wealth managers, Haberling said. That may be, as conversion is certainly becoming more popular. The Trust Advisor reported in January 2012 that New Hampshire and South Dakota were seeing spikes in conversions from RIA to trust companies in response to Dodd-Frank and consumer demand. Financial Advisor, another wealth management publication, also noted a growing conversion trend as far back as 2004, when an increase in RIA to trust company transformations attracted attention. Both publications’ coverage echoed Haberling’s sentiment that the conversion allows a firm to provide more comprehensive services and that clients’ feel safer working with a trust company.

And while the thought of wealth managers holding trustee power over funds can evoke memories of disgraced advisor Bernie Madoff — who swindled clients in a multi-billion dollar Ponzi scheme — Haberling insists the rigorous vetting trust companies go through tops the level of scrutiny faced by other SEC regulated firms.

“[Comparing] RIA to trust company oversight is totally night and day,” Haberling said, adding that state and Federal Deposit Insurance Corporation investigators scrutinize HFG Trust annually, on-site, and for weeks at a time.

“That’s quite a lot more intense than whatever the SEC is doing,” he continued, adding that his old RIA was only audited once. “That type of supervision likely isn’t going to cut it going forward when these firms today [are] handling … Millions of dollars.”

A few years ago, Haberling decided, for the good of his clients, to convert his registered investment advisor firm into a trust company, and never looked back. HFG Trust, based in Kennewick, Washington, provides wealth management, retirement planning, and investment management services.

The firm is part of a growing list of RIAs that made the trust company switch in the wake of the Dodd-Frank Act’s sweeping new regulations on investment advisors. A state chartered trust company can manage wealth just like an SEC-registered advisor. But the trust company also can act as a trustee and wealth custodian, according to The Trust Advisor, a leading wealth management publication.

HFG Trust seeks out clients who understand the value of a professional advisor. Haberling said investors should avoid choosing an advisor solely on “likability” or other intangible factors, and look at education — all of HFG Trust’s advisors have a finance or accounting background. HFG Trust operates on a fee-only model and seeks to offer clients customized solutions to meet their financial goals, but also works to protect clients from the minutiae of financial jargon.

“Typically [our clients are] people who want to simply life,” Haberling said. “They don’t want to pick investments, they don’t want to calculate the amount of money they need to retire.”

HFG Trust works to understand investor goals, and then handles the rest, Haberling said. He compares a visit to a financial advisor to visiting the doctor; a doctor, hopefully, would not ask a patient if they need a transplant, but would conduct tests to see if one is necessary. Wealth managers should operate on the same principle, he said, and should look to develop an understanding of client goals and needs.

“Our approach is very holistic … We’re letting clients know they have enough capital, or in some cases they may not have enough capital and we need to let them know that as well,” Haberling said, adding clients often have loose ends left over from previous advisor relationships, such as estate planning or beneficiary designations.

“When it comes to the estate planning, what we see is there’s been a lot of living trusts … But they were never signed, or they were never funded,” he said. “Our job is to make sure certain things were implemented.”

That fiduciary attitude toward clients is something Haberling would like to see more of from the financial industry. While the financial industry has a place for brokers who are paid a commission, those advisors should not be allowed to “hide behind financial planning.” HFG Trust operates as a fiduciary, meaning it puts client interests before its own.
“I can honestly say that I feel I do a better job being a fee-only advisor,” he said. “My conflicts of interest are easily identifiable.”

Haberling hopes to expand across the West Coast in 2018. HFG Trust has been working to refine its investment rebalancing system and will seek out potential partners in the near future to expand. The key to any client, however, remains open, honest, and thorough dialog, he said.

“Good financial planning is sort of like going to the doctor, but there is a key difference. Most doctors in their questioning and prescriptions are just trying to get your health to the level you were before stepping in their office. We, on the other hand, are trying to maximize, not just stabilize, your financial potential so you can lead a fuller life.”

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