Nondeposit Trust Facilities

SIC 6091

Companies in this industry

Industry report:

Establishments in this classification are primarily trust companies engaged in fiduciary business, but not regularly engaged in deposit banking. Some of these establishments occasionally hold limited amounts of special types of deposits, and their uninvested trust funds are usually classified as deposits. These nondeposit trust facilities may have either National or State charters. This industry does not include establishments operating under trust company charters, which limit fiduciary business to that incidental to real estate title or mortgage loan activities, which are classified in SIC 6361: Title Insurance.

A trust company is primarily involved in establishing trusts, mechanisms under which the company manages assets for the benefit of a third party. In the establishment of these trusts, there are typically three parties. The first is the trustor, who is the party creating the trust and also maybe known as the settlor, grantor, or donor. Second is the beneficiary for whose benefit the trust is established. Finally, the third party is the trustee, who is responsible for the management and preservation of the property of the trust estate.

Trust arrangements became more popular in the 1990s. They are often established to provide for the education of children and provision for old age. Once the trust is created, it is irrevocable, even by the trustor himself, unless there is express provision for revocation or the purposes of the trust have been accomplished. Trusts allow an individual to guard against the dissipation of wealth while still allowing for the necessary use of available funds.

A trust is a fiduciary relationship in which one person or entity is the holder of the legal title to property, subject to the equitable obligation to keep or use the property for the benefit of another. The trust company must use the assets entrusted to it in the best interest of the beneficiary of the trust.

A trust company is a company organized for the purpose of executing such arrangements. The functions of these companies can be divided into two broad categories: individual trusts and corporate trusts. Individual trusts act in several capacities including executor, administrator, trustee, guardian, conservator, custodian, and conservator in lunacy. Corporate trusts act as fiscal agents, registrars of stock, transfer agents, trustees under deed of trusts, depositary for protective committees, reorganization committees, and escrow agents.

Individual trusts are often established for individuals with lack of business experience, people in poor health, absentee property holders, the elderly, and persons traveling or residing in foreign countries. In these cases the trust company will take complete charge of the assets and property of the individual and collect all income due the estate. The trust company must also make all payments required by the estate, such as property taxes.

Corporate trusts are often established to act as a trustee under a mortgage securing an issue of bonds, as a financial or fiscal agent of a municipal or private corporation, as a transfer agent and registrar, as a depositary for protective and reorganization committees, and as an escrow agent. These functions tend to be more specialized and complex than those associated with individual trusts.

The history of the trust can be traced to feudal concepts of property. They became a part of American law through the common law of England. From this early point in time, trusts served the purpose of preserving property so that the beneficiary could benefit as recipient of income from the principal of the trusts.

Many different fields of endeavor are represented in this industry classification. Financial professionals play a key role, just as their supporting functions have played a role in the development of these new financial services. In addition to these, lawyers are heavily represented because this field is so tightly constrained by the principles of property and banking laws.

During the mid-2000s, the trust field was as competitive as the rest of the financial services marketplace when the baby boom generation discovered trusts as a way to safeguard wealth. Trillions of dollars in wealth will be passed on from generation to generation during the decades to come. Many banks operated nondeposit trust companies as subsidiaries. By the end of 2005, nondepository trust institutions held more than $30 trillion of assets for retail and institutional clients in custody and safekeeping accounts. According to Dun & Bradstreet, nondeposit trust companies numbered 142 in 2007, with total sales of $1.03 billion.

Making headlines in 2005 was the high-profile case of United Airline's defaulting on its pension payouts to its employees. Unable to afford to pay retiree benefits, the Pension Benefit Guaranty Corporation (PBGC), a government agency, stepped in and took over United's pension plan. However, many retirees were expected to receive benefits reduced from those originally promised by the company. This, along with other pension fiascos (PBGC had $62.3 billion in long-term commitments in 2004 but only $39 billion in assets, for example), opened the debate over the management of pension funds and whether they should be administered through a trust.

Another trend during the mid-2000s was for the personally wealthy to consider trusts as a safe place for their money, as more and more substantially wealthy considered the stock market a risky investment. The uncertain future of Social Security also had baby boomers looking for ways to protect their wealth.

However, the traditional trust industry faced significant challenges. According to American Banker, in the mid-2000s, only 4 percent of the ultra-rich (with investable assets in excess of $5 million) considered a trust department as their primary financial adviser for their wealth. Most turned to brokers and financial managers. According to American Banker's survey, respondents retained 54 percent of their wealth in trusts, but most were managed by a family member or an attorney; less than one-third used an institutional trust as trustee.

On the regulatory front, the Security and Exchange Commission set forth Proposition B, with required implementation set for January 1, 2006. Proposition B amended the Gramm-Leach-Bliley Act of 1999, which opened the banking industry to the financial services industry. Under Proposition B, banks can serve as a trustee or in a fiduciary capacity under certain exemptions without being required to register as a broker, thus avoiding the extended regulations placed on brokering operations. Some, including the then-Federal Reserve Board Chairperson Alan Greenspan, criticized the new regulations as unnecessary and overly complex. In addition, in 2004, the Federal Deposit Insurance Corporation issued insurance rules for living trusts, which clarified provisions for insurance eligibility. One aspect of the new rule was the elimination of the requirement that beneficiaries must be named on the bank records.

Although Delaware was number two in terms of number of trust companies, with 37, it remained the number one state in terms of trust company assets in 2010, as it was home to the trust businesses of companies such as Citicorp, BNY Mellon, and HSBC. South Dakota had taken over the number one position for number of trust companies, with 41. That state was attractive to trust companies due to its low capital requirements ($200,000), no state income tax, and "slew of new business-friendly laws," according to U.S. Banker. One such law protected trust companies from frivolous lawsuits. South Dakota-chartered trust companies managed $53 billion of assets at the end of 2009, up 61 percent from three years earlier. Other states were also trying to lure trust companies in, hoping to capitalize on the expected surge in business as baby boomers accumulated more wealth. These included Alaska, Kentucky, and Nevada.

The trust industry was expected to see continued growth. According to Advisors International president Les Revzon as stated in Investment Weekly News in June 2010, "A full 40 percent of today's wealthiest Americans have no will or trust in place. The opportunities for those who provide such services are enormous."

Nondeposit trust companies that were industry leaders in the late 2000s included The PNC Financial Services Group Inc., First American Financial Corp., Ameriprise Financial Inc., RBC Wealth Management, and the Glenmede Trust Co.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

News and information about Nondeposit Trust Facilities

Court of Appeals Decision on Nonbanks
American Banker; May 24, 1985; 700+ words
...would concentrate banking facilities within a particular area...holding company, U.S. Trust, to expand the nonbanking...Florida subsidiary (Trust Company). II. III. The U.S. Trust Applications a Florida chartered nondeposit trust company. This...
EDGAR Online-8-K Glimpse; August 11, 2006; 700+ words
...Virginia through seven full-service banking facilities, twenty-three ATMs and twenty-four hour telephone...companies, the bank provides title insurance, trust services, and nondeposit investment products. For more information on...
EDGAR Online-Glimpse; August 9, 2006; 700+ words
...accounts, safe deposit facilities and money transfers...Banks offer the sale of nondeposit investment products...clients. UBT operates a trust department, and provides trust services to UBTW on a contract basis. The Trust & Investment Group offers...other employee benefit trusts. The ...
EDGAR Online-Glimpse; November 14, 2005; 700+ words
...The newest banking facility, located in downtown...the Bank was granted Trust powers by the OCC. The Bank's Trust Department provides trust and fiduciary services...Additionally, the Bank offers nondeposit retail investment products...
Messenger-Inquirer, Owensboro, Ky., Business Briefs Column.
Knight Ridder/Tribune Business News; October 10, 1999; 700+ words
...Corp., and will manage the company's nondeposit investment product line under the name...operates 13 banks with 65 banking facilities in 24 cities throughout Kentucky. Through...The transfer agent is First Chicago Trust Co. of New York. The contact number...

Search all articles about Nondeposit Trust Facilities