One of the best kept secrets in personal finance is the management agency. At no extra charge, your investment adviser can also pay your bills. Oddly, this service is not one publicly advertised. It’s a courtesy extended to clients with large cash or brokerage balances. The minimum varies, but seems to be on the order of $1 million. Management agencies are most often offered by trust companies and by banks with trust departments.
Not a Trust Substitute
It’s easy to think of a management agency as the poor man’s trust company, but that’s not exactly it. The bank won’t manage anything other than cash and marketable securities. The bank won’t manage real estate, though it will pay the mortgage, taxes, insurance, and utilities on your home. The bank won’t exercise discretion. When it’s time to change an air filter or replace the roof, you’re on your own. However, the bank will take instructions from an agent. That allows the kids to make decisions, and present the bills to the bank for payment. However, if the kids make bad decisions, the bank pays the bills anyway. If anything goes wrong, it’s someone else’s fault, not the bank’s.
But Cheaper Than a Trust
With a management agency, expect to pay 0.8% to 1.25% for the combination of investment advice and bill payment. It’s typical for a trust company to charge 2-3% per annum for fiduciary services. Why is a trust more expensive? As a fiduciary, a corporate trustee is held to a high standard, is required to exercise discretion, and must staff trust clients with more, and more specialized, employees. Whatever happens, it’s presumably the trustee’s fault. Understandably, trustees charge more.
Who Could Use a Management Agency?
As limited as a management agency is, it still can be attractive to a wide variety of clients.
- World travelers enjoy using the bank as their post office box. Bills aren’t missed: they’re paid!
- No kids? No problem. You can serve as trustee of your own living trust, but use a management agency to delay as long as possible the need for an expensive corporate fiduciary.
- Want to test drive a trust company? Get acquainted by using them as a management agent first. If it doesn’t work out, you can always try someone else.
- Overwhelmed taking care of your own business, much less Mom and Dad’s? A management agency can lighten your load.
When Is a Management Agency Not Helpful?
Management agencies aren’t for everyone.
- You may have to move assets away from an adviser you like to meet the bank’s minimum.
- You may have to liquidate rental or other investments that a bank can’t accept.
- You have to commit to investment advisory fees. If you want to manage your own investments or prefer a low-cost solution, a management agency is a step in the wrong direction.
An Estate Planner’s Perspective
A management agency can be an inexpensive way to expand your team and minimize the paper you have to contend with. The additional support and reduced tasks allow you to manage more, and longer, than you would on your own.