Iowa Trust Association
Issue 4
Nov 3, 2006

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In this issue:
ITA Conference A Great Success
ITA elects new officers at annual meeting
ITA Supports Legislation of Mere Expectancies and Unvested Future Interests
Legislative Proposals from Probate and Trust Section
IBA's 2007 Legislative Issues Preview Meetings
Banks Face Serious Challenges in Personal Trust Business
The Great Wealth Transfer - Will You Get a Share to Manage?
Easing the Administrative Burden
Trustcompare.com
ITA Newsletter Subscription

ITA Conference A Great Success


A special thank you to all who helped make the 2006 ITA Annual Conference a great success. Over 60 trust professional attended this years event featuring sessions on portfolio construction, Roth 401(k)s, employee retention, ethics and the Iowa prudent investor statute. Special sessions were also held this year for operations personnel discussing industry hot topics and system vendors. This year's event was approved for 6.5 hours of CEC credit with 1 hour of ethics credit.

Fourteen exhibitors were present at this years event. Thank you to representatives from these companies for sharing their products and services with attendees.

  • Accutech Systems Corporation - Bob Darby
  • ADP Investor Communication Services - Jessica Kruszka
  • Adams Inc. - Jay Adams, Stuart Kazor
  • Federated Investors - Shawn Knutson
  • Feldman Securities Group, LLC - Mark Swiderski
  • FinTech Securities - Jack Curran
  • Goldman Sachs Asset Management - Mike Droese
  • HWA International, Inc. - Laura Morine
  • INFOVISA, Inc. - Jeff Kingston
  • Main Street Advisors - Rick Milton
  • Northern Trust - Frank Judisch
  • Proxy Trust - Walt Lotspeich
  • Schools of Banking - Sean Payant
  • VMF Capital - Jamie Turner, Brian Rolland
Thank you also to VMF Capital and ProxyTrust for their sponsorship of the conference.

Mark your calendar for next year's ITA Annual Conference. The event will be at the West Des Moines Marriott on October 11-12, 2007.

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ITA elects new officers at annual meeting

At the annual meeting of the Iowa Trust Association James Tiedje was elected President and Mike McAlpine was named Vice-President of the statewide association. Tiedje is Vice President and Business Development Officer at Quad City Bank & Trust in Davenport. McAlpine is Vice President of Peoples Bank in Sioux Center. Incoming board members for ITA this year are Kristie Brown from Iowa State Bank in Algona, Carol Stone from West Bank in West Des Moines and Matt Spading from First Citizens Trust Company in Charles City.

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ITA Supports Legislation of Mere Expectancies and Unvested Future Interests

The Iowa Trust Association supports legislation to overrule a recent Iowa Supreme Court decision which gives universal consideration of possible inheritance as a factor in the division of property when a divorce occurs.

The dissenting Justices in the case noted that, "The concept of an equitable division of property has taken on a new meaning in Iowa as a result of this case, far removed from the concept declared by our legislature and articulated by this court in the past. It means that future inheritance has now been injected as a factor in the division of property in all cases. It means a spouse may be deprived of the right to share in an equal distribution of the property of the marriage at the time of the divorce when the spouse is expected to receive an inheritance in the future."

In the Supreme Court Case, the majority opinion reasoned that it is permissible to consider future inheritance in determining an equitable division of the parties' properties even though both parties' contributed to the accumulation of those assets.

This ruling places trust officers in an untenable situation of being subpoenaed by a court to testify on the private estate planning of a customer when one of the beneficiaries of the trust is involved in a divorce action. Additionally, in the case of a revocable trust, the beneficiaries can be changed at any time before death so the financial future of an individual is not guaranteed and should not be injected as a factor in the division of property in all cases.

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Legislative Proposals from Probate and Trust Section

by Susan M. Pence, Second V.P. and Trust Officer, Iowa State Bank & Trust Co.

The following items are proposals approved by the Iowa State Bar Probate and Trust Section for inclusion in the 2007 ISBA Affirmative Legislative Agenda. The Iowa Trust Association has also endorsed these agenda items.

SUMMARY:

  1. Fees for extraordinary services in probate: amend §633.199 to standardize application of this statute throughout the state.
  2. Court officer oath/certification: amend §633.168 and §633.178 allowing fiduciary to accept oath of office by certification under penalty of perjury (preserving the option of executing the oath in the presence of a notary).
  3. Small estates: amend chapter 635 allowing any estate with probate assets subject to Iowa jurisdiction with total asset value < $100,000 to qualify for simplified administration. Improved features include less court involvement and allowing "reasonable" fees for personal representatives and their attorneys.
  4. Marital agreements: amend chapter 596 to allow husbands and wives to enter valid contracts with each other affecting their assets and income; such contracts can include wills, trusts and other estate planning devices.
  5. Beneficiary revocation for non-probate assets: add new §§598.20A and 598.20B revoking beneficiary designations to ex-spouse and relatives of ex-spouse for IRAs, life insurance policies, annuities, transfer or payable on death accounts, and stock option plans; makes disposition of these assets consistent with benefit revocation to former spouses and their relatives under probate and trust code amendments enacted in 2005.
  6. Pretermitted heirs: amend §633.267 (for probated estates) and §633A.3106 (for revocable trusts) to clarify the method of determining an after-born child's share.
  7. Final disposition directives: new chapter 144C allows adults to execute enforceable written instruments directing disposition of their human remains after death.
  8. Homestead owners: add new subsection to §561.1 preserving homestead status for property owned by trusts and occupied by settlor and/or settlor's spouse.
  9. Fiduciary investment powers: reinstate §633.123 establishing investment standards for conservators and estate personal representatives (§633.123 was inadvertently repealed in 2000 and needed updating in keeping with modern investment management practices).
  10. Guardianship/Conservatorship fees and costs: add new subsection to §633.551 authorizing courts to assess attorney and expert witness fees and other costs against the petitioner (instead of the proposed ward) if the guardianship/conservatorship petition is dismissed or denied.
  11. Partial intestacy: amend §633.272 to provide a surviving spouse with the same share in partial intestacy as would be received in full intestacy; makes this section consistent with spousal elective share amendments enacted in 2005.
  12. Abatement: amend §633A.4703 to include provision for abating beneficiaries' shares of revocable trusts if surviving spouse takes elective share of decedent/settlor's estate.
  13. Annual reports for conservatorships, guardianships and court-supervised trusts: amend §§633.669, 633.670 and 633.700 making annual reports deliquent if filed more than 90 days following the end of the reporting period.
  14. Small bequests of personal property: add new subsection to §450.4 eliminating inheritance tax on tangible personal property which is distributed in kind to beneficiaries if the aggregate total value of all such personal property in the estate is < $5,000.

For complete details of the of each of the items, complete documentation is available at the ITA website.



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IBA's 2007 Legislative Issues Preview Meetings

The Iowa Trust Association’s Board of Directors voted to endorse the aforementioned legislative issue to be presented during the 2007 session of the Iowa Legislature. The Iowa Bankers Association will be holding its annual Legislative Preview meetings across the state in November. These issues are on the agenda to discuss with elected officials. The Iowa Trust Association is invited and encouraged to attend these meetings. The dates and times of a meeting near you are listed below.

The meetings are a forum for discussion for bankers and legislators.

Wednesday, Nov. 8 Group 5 5:00 p.m.Red Coach Inn
1200 Senate Ave.
Red Oak
(712) 623-4864

Wednesday, Nov. 8Group 11 4:00 p.m.Iowa Wesleyan College
601 N. Main St.
Mt. Pleasant
(319) 385-8021

Thursday, Nov. 9 Group 3 4:00 p.m.Holiday Inn
2101 4th St. SW
Mason City
(641) 423-1640

Thursday, Nov. 9Group 84:30 p.m.Marriott Hotel
300 East 9th St
Coralville
(319) 688-4000

Monday, Nov. 13Group 64:00 p.m.Iowa Bankers Association
8800 NW 62nd Ave
Johnston
(515) 286-4300

Tuesday, Nov. 14 Groups 1&125:00 p.m.Western Iowa Tech
Cherokee Campus
200 Victory Dr
Cherokee
(712) 225-0238

Wednesday, Nov. 15Group 24:30 p.m.Cellar Restaurant
Jct. Hwys 169 & 20
Fort Dodge
(515) 576-2290

Wednesday, Nov. 15Group 74:30 p.m.Elmwood Country Club
1734 Country Club Lane
Marshalltown
(641) 753-8111

Thursday, Nov. 16Group 44:00 p.m.Cedar Lodge Steakhouse
205 S. 12th St.
Manchester
(563) 927-9200

For more information about IBA's Legislative Preview Meetings, call the Iowa Bankers Association at 800-532-1423.

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Banks Face Serious Challenges in Personal Trust Business

CHICAGO, August 23, 2006 - U.S. banks are facing serious challenges in the personal trust business, which they have dominated for years.

The emergence of several important trends has caused significant erosion in the personal trust area for banks, according to a new report released today by Spectrem Group. Personal trust assets held by U.S. banks fell 10% to $986.2 billion in 2005 from a peak of $1.1 trillion in 1999, according to the report, "2006 Update on Trust Assets Among U.S. Banks."

Further, the number of personal trust accounts at U.S. banks dropped 23% to 719,658 in 2005 from 929,036 in 1999. Compared with the peak year for accounts (2002 - 940,961 accounts), the decline was 24%.

Driving this erosion is 1) the rise of non-bank trust services, 2) a trend toward self-trusteeing or family-members acting as trustees, and 3) the fact that old-fashioned trust services are losing their appeal to younger generations. Of particular concern is that this is happening as more individuals reach the age where they typically need personal trust services.

"For banks intending to remain in the personal trust business, the erosion in both trust assets and accounts since 1999 suggests a significant re-evaluation of their trust offerings is in order. Everything from providing up-to-date online tools to making sure trust department staffers are skilled enough to be perceived as wealth managers are critical. Banks are typically viewed as more trustworthy and objective than other types of providers, so there's every reason to believe they can be competitive in this area with the proper service offerings," said Catherine S. McBreen, Managing Director of Spectrem Group.

The report, "2006 Update on Trust Assets Among U.S. Banks," is based upon FDIC surveys of member trust institutions as well as data from Spectrem's "2005 Ultra High Net Worth Market Analysis."

About Spectrem Group
Spectrem Group is a strategic consulting firm specializing in the affluent and retirement markets. It integrates proprietary research with expertise in building business, marketing and M&A strategies. Spectrem professionals have held senior management positions at leading global companies. Through a collaborative process, they create and implement practical and profitable strategies that fit the cultures of client firms.



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The Great Wealth Transfer - Will You Get a Share to Manage?

By Ray L. Unger, AccuTech Systems

The Great Wealth Transfer: Is It for Real?
The greatest wealth transfer this country has experienced is just beginning and will continue over the next 10-25 years. Although great wealth was also generated in the late 19th and early 20th centuries, this was held by relatively few in the U.S. population. Today, there are more millionaires in the U.S. than at any time in history. This wealth is shared primarily between the WWII generation and the baby boomers and was created in multiple ways, including:

  1. Overall prosperity in the U.S. economy for most of the past 50-60 years
  2. Lower tax rates for the past 20 years encouraged greater investing, including entrepreneurial activities
  3. Relatively low interest rates for most of this period of prosperity
  4. Low unemployment for most of the last 50-60 years
  5. Technology playing a major role, first, as an investment vehicle and, second, in improving the productivity of the American worker overall

Virtually every segment of our economy has benefited from the factors above, giving the average investor a greater amount of disposable income. Stock market investing performed well overall for most of the past 50-60 years. Real estate investing has shown very positive returns, especially over the last 20 years due to:
  • Relatively low interest rates
  • The general public's, and especially baby boomers', willingness to take on real estate mortgages
  • Real estate lending policies becoming more lenient due to increased competition
  • More disposable income and IRA savings enable more people to buy bigger homes, multiple homes and homes overall

All of this combined has led to the greatest wealth this country, and probably the world, has ever seen. And given the premise that we all someday will die and no one is taking it with them, the greatest transfer of wealth will inevitably occur over the next 10-25 years.

Where is the Wealth Today?
Looking at the factors that created the wealth, one would assume that the majority of it is held in the stock or real estate markets. This assumption overlooks at least two very important participants:

  • The WW II Generation
  • Entrepreneurs

Much of the WW II generation never participated in the stock market to a significant degree, or money that was previously in the stock market may have been moved to more liquid assets, such as in certificates of deposit or money market funds. Lack of interest in the stock market may be due to this generation's living through the crash in 1929 or their lack of knowledge of trading. Even those who never invested in stocks may have accumulated wealth by utilizing two fundamental principles:
  • Regular savings investment by spending less than one earns
  • Compound interest, which has been referred to as the eighth wonder of the world.

Entrepreneurs have invested much, if not all of their disposable investment dollars into their own organizations, from farming to retail services, manufacturing and technology to name a few. These businesses, like any other asset will be transferred in some manner at some point in time.

Looking Ahead, Who Will Be Your Future Client?
Before financial executives decide what services will be in demand, they need to consider future clients, in addition to those that have the wealth today. Future clients are typically the beneficiaries of those that currently hold the wealth. Mr. Gene Maloney, senior vice president, Federated Investors, has described these future client individuals, in general, as:

  • a consuming generation
  • a more dysfunctional generation
  • a litigious generation

These characteristics should have a major impact on how financial executives and CEOs prepare their institutions with the appropriate policies and procedures to do business with this emerging generation.

What Services Will Be in Demand?
To answer this question, bank executives should first consider clientele market segments.

  • WW II Generation
  • Baby Boomers
  • Entrepreneurs
  • Beneficiaries
  • Wealth Builders
Each segment will have unique service requirements in addition to the general services demanded by all. Many unique services are obvious; others may require market research conducted personally or in focus groups. This market research may be conducted by in-house staff or a consultant assisting in gathering and processing the data.

Preparation for Growth in Wealth Management Services
The question that may come to mind for many financial executives is, "Are we prepared for significant growth?" If the answer to that question is not an unequivocal yes, then the next question is, "How do we get prepared for it?" The following steps will provide a framework to answer these critical questions.
1. The first step is for executives to review the business plan and update it as necessary. Goals and objectives may have changed and the business plan should reflect it.
2. Additionally, executives need to get the commitment of senior management and the board of directors. They show their support in two ways:
1) Support the business plan by providing the necessary resources to execute the plan
2) Support the business plan by personally using the wealth management services. This may be more critical than the first, because it strongly communicates confidence in the services and those rendering it.
3. Next executives must review policies and procedures to be sure they are in compliance with the most current regulations or examiners' latest issues of focus. If a department has not been reviewed recently, this is a particularly critical step. Changes in the focus of examinations do not always need to be prompted by updates in regulations; bank executives can also benefit by networking with other departments to know what the latest "focus items" are for examiners.
4. Another very important step is to evaluate the department's operational efficiency. This is important for the following reasons:
1) If the department is not operating efficiently, growth can bury staff and adversely impact customer service.
2) Executives otherwise will not be able to accurately estimate the resources required to support the anticipated growth.
3) It is easier to make any necessary changes, from updates in procedures to an entire software system overhaul, before a rapid growth phase occurs. This principle is true regardless of the organization's current size.

Many managers find it difficult to objectively measure operational efficiency. There are several factors to consider, i.e., number of new accounts opened and number of trades per month. Many of these need to be evaluated over time and in contrast to other departments of similar size. To establish benchmarks for this analysis, it may be beneficial to participate in survey services. Executives should be sure that the survey population has a sufficient number of departments that are similar to its size to make the comparison meaningful.
5. Training employees has many benefits but is often overlooked or simply given lower priority. The following are important considerations:
1) Training should improve knowledge and understanding of the respective job, including the latest changes in regulations.
2) Training should improve the staff's efficiency and effectiveness.
3) Customer service should be improved as a result of the increased efficiency and effectiveness.
4) Depending on the delivery method of the training, the opportunity to network with peers from other institutions can be very valuable.
5) Self confidence increases not only from the knowledge gained but also from the fact that the employee realizes a further investment is being made in his/her success. Training that results in some type of certification or accreditation adds a sense of achievement.

6. Developing a marketing plan is a step that is often overlooked. Many trust officers do not have the resources of a marketing department to assist with this function. Therefore, it often receives low priority or is ignored completely. However, even if the marketing plan has been developed previously, it should be evaluated and revised annually.

7. Many departments within banks achieve growth by developing a business plan and executing the plan. If bank trust departments are losing business to non-bank competitors, a major reason may be that they are getting "out managed. Many banks neglect changing their approach toward trust even though the business environment and opportunities have changed significantly. Executives should put an emphasis on developing and executing a dynamic business plan.

In summary, trust departments are in a prime position to gain control of a significant share of this upcoming "great wealth transfer." To capitalize on it, executives must recognize the impact that it can have not only on the trust department and bank, but to the community. Many individuals with wealth desire to see some of their wealth invested in improving their church and its mission projects, their community or the community of their youth, as well as other programs. By managing the assets locally, bank executives are in a good position to have greater impact on local community programs. This also brings greater awareness to their institutions.

Capturing a greater share of the "great wealth transfer" is a win-win-win situation. To make it a reality takes planning, commitment and executing the plan.

Ray L. Unger is co-founder and president of the nation's fastest growing trust and investment management solution provider, AccuTech Systems, and founder of AccuTech University, providing educational opportunities to the Trust Industry, online at www.trustasc.com. He also formerly served as the VP for Citizens Bank & Trust of Lebanon, Indiana. His company's software has been deployed by over 300 community banks, private trust companies, non-profit organizations and IRA administrators throughout the U.S. and Canada.



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Easing the Administrative Burden

Iowa bank trust department finds success with trust accounting and custodial services
Northern Trust Corporation, one of the most globally recognized and enduring names in the trust business, is offering its expertise and technological resources to Iowa's independent trust companies and bank trust departments that are seeking ways to effectively meet the operational needs of their expanding trust business. In November 2004, Iowa State Bank, an independent banking company, retained Northern Trust to provide trust, accounting and custodial services.

Headquartered in Des Moines, Iowa State Bank's trust department realized that their current trust accounting system was rapidly becoming obsolete and inefficient in the management of their 600 accounts. Recognizing the limitations of this system, Executive Vice President Larry Cobb led the search for a more comprehensive trust solution. Iowa State Bank then teamed up with Northern Trust to gain access to their TrustPortal, a solution approach including all the tools necessary to support their trust function.

Front-End Reporting
According to Cobb, among the most significant TrustPortal offerings is the Trust/Rite trust accounting system which includes a flexible engine for monthly or quarterly report generation. Of numerous reporting styles, one of the most popular is a one-page, brokerage-style report that eliminates the clutter and brings more important account information to the forefront. Another benefit of the Northern Trust system, Cobb notes, is the ability for trust clients to view their account activity online and receive statements electronically.

Back-End Accounting
From an operational standpoint, automated processing capabilities within the Trust/Rite application allow organizations to process time-consuming reports overnight or in "unattended" mode, allowing for greater volumes of reporting at a higher level of efficiency. "Ten years ago, a typical administrator barely had the resources to manage 100 to 150 accounts," observes David Batrich, vice president and director of sales, correspondent services for Northern Trust. "Now they can double that load without jeopardizing the level of service."

Trust Expertise
The trust accounting system integrates actual trust experience from Northern Trust's tax experts and accountants with an ongoing investment into research and development. On matters such as qualified and non-qualified dividends or regulatory concerns, Batrich says: "Our own trust department faces the same types of issues. It's what we're doing for our own client base across the board."

With access to these capabilities, regional bank trust departments can participate in the market with a fraction of the resources that Northern Trust has available. They can add new clients through TrustPortal without experiencing operational staffing challenges. Cobb says, "We are impressed with the efficient environment that Northern Trust has helped us attain. These applications allow us to focus on our strengths and provide us with the tools that other vendors cannot provide."

Northern Trust offers a full suite of trust accounting, custody, mutual fund and investment advisory services to its own trust and custodial clients, but these capabilities are also available to smaller banks and start-up trust companies through Northern Trust's Correspondent Trust Services. As clients continue to demand more timely and detailed information regarding their accounts, trust departments increasingly rely on services such as front-end reporting, back-end accounting and external trust expertise.

For more information on Trust/Rite and Northern Trust's correspondent trust services, please contact David Batrich at (312) 557-2890.



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Trustcompare.com

Trustcompare provides valuable information ranging from broad references to industry standards to specific detail of your strengths and weaknesses. From data submitted by each organization regarding assets, income, expenses and profits, Trustcompare analyzes performance from several perspectives. Trustcompare allows you to compare your trust department performance with that of similar organizations. As a member of the Iowa Trust Association, you will receive 10% off the price. Visit Trustcompare at www.trustcompare.com.

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