Much is being written about the growing wealth of the baby boomers and the importance of developing investment relationships with them now. It only makes sense: If your bank grows with the investment needs of this important market segment, it won't need to capture their business from competitors at a later date.

Many of these baby boomers have started to save for retirement - and not just through their company retirement plans. According to VIP Forum, boomers' number one goal is to maintain the current standard of living during retirement. However, many are realizing that this will require more than the assets from their pension and 401(k) plans.

One financial product that targets this group's need is a mini-trust - in essence, a prototype trust document. Mini-trust products enable banks to acquire emerging-wealth clients and to increase the assets in an institution's propriety mutual funds.

The large banks in California all offer a mini-trust. Bank of America offers TrustAmerica, Wells Fargo has the Wells Trust, and Union Bank of California has introduced the Select Living Trust.

These trusts can be established for as little as $50,000 and assets are invested in the bank's common trust funds or proprietary mutual funds. The annual fee is between one and 1.5 percent. The primary residence can usually be included for an additional fee. Some mini-trusts even accept individual stocks and bonds, particularly those with low-basis that would generate substantial capital gains taxes if sold.

Advantages of mini-trusts

For banks, the advantages of a mini-trust are many:

• This product is a good "starter" trust for emerging wealth individuals.
• It is easy to set up, particularly for perpetually busy, affluent business owners.
• Assets can be easily added to the mini-trust, making it a good
  opportunity for setting regularly scheduled automatic transfers.
• Access to cash is not difficult in a mini-trust.
• Clients tend to see a mini-trust as both a primary and permanent
  relationship - and will be less likely to move their assets to another
  institution.
• And finally, mini-trusts can use the bank's common trust funds or
  proprietary mutual funds.

For clients, mini-trust advantages include:

• Client ownership and control of the assets during their lifetimes
• The absence of investment management responsibility
• Asset management that reflects the specific financial objectives of
  clients
• Clients can receive monthly distribution
• Beneficiaries can be designated and apportionment to each can be
  stipulated
• After a client's death, their beneficiaries are not hindered by costs,
  delays and the publicity of probate
• Mini-trusts can be structured to provide trust asset management and
  payment of bills if the client should become ill or incapacitated
• Clients also have the ability to change investment objectives, current
  distribution amounts and designated beneficiaries at any time
• Lastly, a mini-trust can be terminated during the client's lifetime

Target markets for a mini-trust

The primary markets for a mini-trust product include:

• Emerging wealth baby boomers
• Boomers saving for retirement who already have $50,000 outside of
  their company plans
• Affluent small business owners
• Beneficiaries. (This is a great product for terminating trusts where, for example, the trust assets of $600,000 are split three ways and $200,000 is below your bank's minimum account size. Mini-trusts can keep the assets in the bank in a way that is affordable to the beneficiary and profitable to the bank.)

Tips on mini-trust implementation

Central administration
When banks decided to offer mini-trusts, most banks established a central administration unit. Clients are assigned to one trust officer who communicates via mail or a toll-free phone number. Asset allocation models are developed for various financial objectives.

Anticipating the affect on attorneys
While many senior trust managers are used to being dependent on attorney referrals, many attorneys who work with trust departments don't want $50,000 estate plans -- and, similarly, many people with this size of estate don't want to pay an attorney to draw up a living trust.

Fortunately, a mini-trust can be established without an attorney. Attorney review is recommended, but clients seldom do this. In meeting with a trust and investment management specialist, many clients turn out to have a much larger estate than they realized -- and are advised on the benefits of working with an attorney to set up a comprehensive living trust. Thus, by offering this product banks usually end up generating more business for attorneys.

Minimizing risk
Do not sell this as an investment product (if using common trust funds) - instead, sell it as an estate planning product. Make clear that this is not a comprehensive estate plan and is not appropriate for everyone. Have the client sign an acknowledgment about this.

Additional ways to minimize risk.

• Recommend that clients see an attorney.
• Document the investment profiles in case you need to defend how the assets were invested.
• Make clear to clients how they will be serviced - e.g. toll-free number,
  regular mail and email only.
• If using branch employees to sell instead of trust and investment sales professionals, certify them.
• Do not permit anyone to alter the document in any way without
  approval from bank counsel.
• Make clients responsible for notifying the bank of any key changes in their circumstances.

Proprietary Funds

Since this article was written, most banks are now investing mini-trust assets in mutual funds rather than common trust funds. This allows them to market the mini-trust as an investment product instead of an estate planning product, which is much more appealing to baby boomers.

New target markets

One segment that responds well to this product is the widow with assets between $100,000 and $500,000 who is not expecting to increase her net worth and is worried about who will pay her bills if she becomes ill or incapacitated. They really like this product, but this is probably the least profitable segment for the bank.

Most banks offer this for individuals and married couples. Union Bank of California allows two non-married individuals to set up a trust together.

Branch referrals

It has always been interesting to track the branch referrals for this product. Even though most of the trust departments had offered substantial referral fees prior to introducing the mini-trust, referrals for this product usually take off.

Inquiries revealed that most employees were in awe of the normal account minimums of between $500,000 and one million dollars. They didn't think that any of the customers they knew could have that much in investable assets. When the minimum was lowered to $50,000, however, this became more realistic to them and they were not uncomfortable discussing that amount with a customer.

What happens in many, many cases is that the customer agrees to meet with a trust and investment management specialist, who then learns that the prospect does meet the higher minimum and should have a customized living trust.