Trust and tax services: Worth offering?

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To satisfy the banking needs of some commercial and high-net-worth clients, some community banks provide trust and tax strategy services. These banks report that specialized services are a way to deepen their already close customer relationships.

By Don Sadler

Launching new services to cross-sell to existing customers is one path to organic growth for a community bank. For some banks, those services include specialty trust and tax strategy services.

Some banks outsource these to external service providers, but others find that offering them in-house can strengthen the trusted relationships they’ve built with their commercial and high-net-worth customers.

United Community Bank in Mount Sterling, Ill., is one community bank that offers a wide range of trust and tax services. These include fiduciary, custodial and escrow agency services, managed agency accounts and 1031 exchange services.

The $3.5 billion-asset community bank has been involved in the trust business since its inception more than 100 years ago. “But this part of our business has grown as we’ve made acquisitions,” says Philip Krupps, United Community Bank’s wealth management and market president.

The bank manages these services itself, which Krupps believes is critical to maintaining the close customer relationships it has cultivated. “The more sophisticated the technology, the higher the touch is needed with clients,” he says. “Keeping these services in-house also gives us more control over how they’re delivered.”

Patrick Pacheco, executive vice president and trust and asset management executive at $47.8 billion-asset Cadence Bank in Houston, Texas, says trust and asset management money tends to be “sticky” due to the tight relationships that community banks usually have with commercial and high-net-worth clients.

“The relationships are sticky, but the products themselves are commodities,” Pacheco says. “You have to do a good job in delivering them, because if you mess up, you could lose the entire banking relationship.”

“We’re a boutique community bank where clients expect us to be able to help them with their entire financial picture, so offering these services lets us do that.”
—Michael Hakoun, Ledyard Bank

Comprehensive community banking

Ledyard National Bank in Hanover, N.H., offers integrated investment, tax, banking and wealth management services under the wealth management umbrella.

“We’re a boutique community bank where clients expect us to be able to help them with their entire financial picture, so offering these services lets us do that,” says Michael Hakoun, executive vice president and managing director of Ledyard Financial Advisors, the $1.9 billion-asset community bank’s wealth management division.

The bank performs most of these services in-house, though it works with a tax advisory firm in delivering some tax planning services. “We have credentialed financial planners … and investment professionals on staff, which distinguishes us from most RIAs [registered investment advisors] or asset management firms that are just looking at one component of a client’s finances,” Hakoun says.

Offering these niche services allows Ledyard National Bank to provide a more comprehensive approach to banking and financial management for affluent clients.

“For example, we can help clients determine what risk looks like for them and what the impact of a certain strategy might be on their tax liability,” Hakoun says. “You can only do this when you take a comprehensive approach.”

According to Pacheco, one of the biggest benefits of offering these services to clients is that the community bank increases its share of wallet. “And you’re doing this in a way that’s highly personalized and takes advantage of the relationships you have with your business and high-net-worth clients,” he adds.

These fee-based services also provide community banks with a steady, predictable stream of income. “This can help offset the rise and fall of spread income, which can be unpredictable,” Pacheco says. “Our trust and asset management business didn’t slow down during the pandemic. In fact, it actually picked up, as some people thought more about their mortality and did more trust and estate planning.”

Krupps says offering these services gives United Community Bank another touchpoint with clients.

“Of course, there are also cross-selling benefits,” he adds. “These services add to our arsenal of products and services.”

Hiring and retention challenges

To best deliver these services, Hakoun says community banks need skilled personnel who can deliver the high level of customer service expected by customers who rely on these specialized services.

To that end, Krupps stresses that community banks should prioritize retaining these skilled staff members. “In this business, relationships are crucial, so you have to try to avoid high employee turnover,” he says. “Your employees have to earn the trust of clients, which takes time.”

Pacheco agrees. “You must provide the support your employees need to deliver the high-touch level of service these clients expect,” he says. “You’ve got to go all in; you can’t just dip your toes in the water.”

Importantly, community banks should be patient when planning to offer specialty trust and tax strategy services to clients for the first time. “It could take two to five years to reach profitability if you’re starting from scratch,” Pacheco says, “so you have to stick with it.”

Despite the high barrier to entry, Krupps believes offering specialty trust and tax strategy services is essential in today’s environment.

“It’s a must, because community banks can’t survive in a world of transactions,” he says. “You need these services to have a full and healthy relationship with your clients.”

Don Sadler is a writer in Georgia.