What are trust companies and how do they operate? As a complicated sector, this article will explain the nature of their activities in the broader asset management industry.
June 29 2020 | AtoZ Markets – Wealth generation sits atop the priority list of every man and woman today as it was in the past. Presently, the need to earn more income is even more urgent because of the rising costs of living. That means a comfortable paycheck and a small account with a securities or forex broker is not enough. For this reason, people are looking beyond brokers to improve their finances.
What could be the other opportunity for wealth generation? Trust companies in the United States, over 3.5 million Trust Companies offer services to hundreds of millions of private clients within and outside national borders. In total, the US Trusts and Estates Industry service a market worth $194 billion in value, according to IBIS World. No company controls more than 5% market share in the industry.
From the figures, two things are apparent. In the first place, Trust Companies are a popular investment vehicle. Besides managing estates, clients trust these entities to build a profitable portfolio. The second thing arising from the figures is that the market is highly competitive. Clients are increasingly searching for outfits that suit their evolving needs; hence opportunities for new companies are ever-present.
What is a Trust Asset Management Company?
Asset management is becoming a complicated sector because of the many types of services involved. For this reason, one is better off understanding trust asset management companies in great detail, as well as the nature of their activities in the broader asset management industry.
A trust asset management company is an entity that functions as a fiduciary for its clients.
Notably, this entity serves its clients in four different ways (it could be more or less depending on the structure). The entities manage clients’ assets, offer brokerage services to the clients, create clients' financial plans, and preserve wealth for their clients' posterity.
Given the evolving needs of the clients, some trust companies are taking on more robo-advising responsibilities. Beyond robo-advising, the entities take deposits from clients and then distribute them among a range of assets. Nexus Trust Management is an apt example of this new crop of trust asset management companies. Such companies work with private clients, many of whom are on-boarding because they are of good repute and manage billions in assets.
How Top Trust Asset Management Companies Are Operating
From the foregoing, one can see that a trust asset management company is like a fusion of a trusted company and an asset management company. But how do trust companies operate? Such companies come with different structures. On the one hand, the company might offer fiduciary services and asset management services in equal measure. It could provide services to the same private clients.
On the other hand, an asset management company could have a trust services department. This department may take on new private clients unassociated with the company in any other way. At the same time, the department could offer fiduciary services to existing clients under the asset management department.
Look at it this way. Company X offers fiduciary services. Its private clients have entrusted it with the responsibility of designing an investment plan. To do so, Company X assembles a battery of investment managers, financial analysts, and professional traders to formulate a plan. In the investment plan, Company X distributes clients’ funds to, say, five asset classes. A certain percentage of the funds go to each asset class. Say, 30% goes to stocks, 15% to binary options, 20% to Forex, 30% to commodities, and 5% to Bitcoin cryptocurrency.
Company X is obligated to ensure that its clients earn income from their investments. Usually, an investment plan includes prospective profitability. It is to give clients an idea of what income they can expect after a given period.
Trust Asset Management Companies Versus Purely Asset Managers
In a broad sense, trust companies and asset companies offer similar services. Both take clients’ funds and invest as they deem fit. They manage the investments at the end of which they pay income to clients. However, a gaping difference emerges when one scratches off the coating.
Asset managers’ priority is wealth growth. As such, they take huge risks that expose clients’ funds to immense possibilities of loss. On the contrary, trust companies have an extra duty to the client, which is to preserve wealth. In this sense, the company will come up with investment plans that minimize risks as much as possible.
Besides, trust asset management companies have a personal touch. Each client is treated individually, which means one can get help with things like retirement planning, taxation, and even healthcare planning. Conversely, asset managers view a client as part of a whole. The whole clientele wants wealth creation. In that sense, asset managers’ operations are mostly independent of individual client desires. Ultimately, trust asset management companies are more client-centered.