Experienced advisory industry practitioners know all about the critical role played by trust companies when it comes to servicing retirement clients’ intergenerational wealth objectives, but the job they do is not always well understood by individual investors.
As defined by Investopedia, a trust company is, at its core, a separate corporate entity owned by a bank or other financial institution, law firm, or independent partnership. Its function, as the name suggests, is to prudently manage trusts, trust funds, and estates for individuals, businesses, and other entities such as corporate sponsored retirement plans.
In today’s defined contribution (DC) plan industry, independent investment advisers tend to rely on unrelated third parties to play the role of a trust company, but that is not universally true. Indeed, Moneta is the latest independent registered investment adviser (RIA) firm to take the step of launching its own independent trust company. Technically, the Moneta Trust is chartered pursuant to Kansas statutes as a non-depository retail trust company and regulated by the Kansas Office of the State Bank Commissioner. Moneta Trust is a wholly owned subsidiary of Moneta Holding Corp., which itself is a wholly owned subsidiary of Moneta Group LLC.
Explaining the move, Moneta CEO and Chairman Eric Kittner, says the launch of the trust company aligns with his firm’s broader commitment to fiduciary practices and independence, especially as more of the firm’s advisers are being called upon by clients to plan for and support intergenerational wealth transfers.
“Our advisers and clients have been asking for this to more efficiently pass on their net worth to the next generation,” Kittner explains. “Furthermore, we are demonstrating our commitment to deliver on their long-term needs without the influence of outside funding. Investing in your own trust company is not something a firm that plans to sell in five years does.”
In practice, creation of the Moneta Trust will enable clients to appoint a single corporate trustee for both liquid and illiquid assets held in trust. Thus, a singular trustee can oversee and help to simplify the intergenerational transfer of wealth. Kittner says this is a timely development, given the fact that wealth transfers are expected to approach $70 trillion over the next 25 years.
“The numbers are astounding in terms of the need for advice around wealth transfer from one generation to the next,” adds Moneta Partner Gene Diederich. “Because we are often in the driver’s seat with clients as they design their wealth transfer plan, we have intimate knowledge of how to execute it in a way that is best for their family, and now we can do so with the resources of Moneta Trust.”
Echoing Kittner, Diederich says the launch of the trust shows the 100% employee-owned advisory firm “is not looking to cash out to private equity or an aggregator.”
“We are demonstrating that we are a dedicated group of practitioners in this space,” Diederich says. “Sure, we may be leaving some financial chips on the table by being so committed to independence, given the extremely high multiples that other firms have earned when they have sold. Ultimately, we think our clients are well served by our desire to be independent and to not have external corporate ownership.”
For context, this development comes at a time when the broader retirement plan advisory industry is seeing record-setting merger and acquisition (M&A) activity. Many of the deals involve previously independent firms join larger financial services conglomerates which themselves may operate trust companies or have close ties to established trust companies—in addition to being able to provide ancillary benefits and insurance services and products.
As explored in a blog post published by Bob Pennington, regional director of Pendleton Square Trust Company, an RIA’s service offering can be substantially improved through the best-in-class services and collaborative approach provided by the right independent trust company.
“A resourceful and experienced independent trust company that works effectively with clients and their advisers in handling trust distributions, managing trust accounting and reporting, providing oversight of investments, and coordinating interested parties can add significant value to the wealth management services provided by an RIA,” Pennington says.
Among other factors, Pennington says the growth and success experienced over the last decade or more by independent RIAs has increased demand for reliable, effective trust services from outside providers.
“For example, financial institutions [such as brokerage wirehouses] aren’t in the habit of providing standalone trust services for their former advisers and clients,” he explains. “Enter the independent trust company.”