Are Today’s Trust Platforms Relevant to Individual Trustees?FIRMA 22nd National Risk Management Training Conference

Chris Heilmann, Chairman & CEO – Merrill Lynch Trust CompanyOrlando, FL - April 8, 2008

2

Agenda

The Trends

The Opportunity

The Decisions

- Choosing A Trustee

- Choosing a Provider

An Example of a Fully Integrated Offering

Managing Risk in an Integrated Environment

3

The Trends….From a Transactional Focus…

Twenty five years ago, clients were focused on:

Protection in the event of incapacity

Bill Payment Services

Timely income and principal distributions

Principal preservation

Understanding their statements

4

The Trends…..To an Advice and Solutions Focus

Today, trust clients are interested in:

Establishing and achieving their goals

Aligning the right team to meet their needs

Designing wealth transfer strategies

Family educational programs

Philanthropy and passing on family values

Proactively managing assets to meet tax challenges; managing concentrated positions

5

The Trends

Two important industry trends –

Increase in non-bank providers

Increase in the use of individual trustees

6

The Trends

Non-bank providers of trust services have exploded in the past ten years

Full Service Brokers

Independent Financial Advisors

Attorneys and CPAs

Independent and Private Trust Companies

Insurance Companies

There are nearly 600 non-bank trust companies in the U.S. (Tiburon Strategic Advisors, June 2005)

7

The Trends

Impact of Market Consolidation

Approximately two-thirds (64%) of all institutional personal trust assets are held in the top 10 banks / trust companies

Approximately 84% are held in the top 25 institutions

(SpectremGroup’s 2007 Update of Personal Trust Asset Trends Among U.S. Banks and Increasing Opportunities for Successor Trustees)

8

The Trends

Increase in the use of individual trustees

Wealth < $1 million – 28% have set up a trust

Wealth > $ 1 million – 42% have set up a trust

80% of these trusts have Individual Trustees!

Primary reason (53%) – WANT TO MAINTAIN CONTROL OF ASSETS

(SpectremGroup’s 2007 Update of Personal Trust Asset Trends Among U.S. Banks and Increasing Opportunities for Successor Trustees)

9

The Opportunity

Declining trend in use of corporate trustees by America’s wealthiest households

A vast majority of UHNW households use a family member as a trustee

Baby boomers are getting into the estate planning process earlier than their parents and are better informed

There is nearly $3.3 trillion in personal trust assets (the number of personal trusts has doubled in the past 10 years)

Two-thirds of personal trust assets are held in revocable trusts and one-third in irrevocable trusts

(Tiburon Strategic Advisors, June 2005)

10

The Opportunity

Compelling Demographic Change

Over next 2 decades, 1 in 4 Americans will be age 60+

2000–2010, the number of individuals 85+ is expected to rise by over 43%

Average age of a private client (with $1 million+) is over 60

(Source -VIP Forum - US Census Bureau International Database 2006)

11

The Decisions

Choosing a Trustee

Choosing a Provider

12

Choosing a Trustee

The Best Trustee

Good common sense / competence

Scrupulously honest

Right age

Time

Familiarity with family and family values

13

Choosing a Trustee

The Options

Individual

Family Member

Corporate Trustee

Co-Trustees

Administrative Trustee

Professional Trustee

Private Trustee

14

Choosing a Trustee

Type of Trust Dynasty Trust Charitable Trust GRAT Private Foundation Estate Administration

The Factors

Other Fees Advisors Control Privacy

Family Dynamics Second marriages Complex families Geographically dispersed Wealth creators vs. younger generations

Asset Mix Investable assets Illiquid assets Closely-held assets Real estate

15

Choosing a Provider

The Corporate Trustee

Asset management capabilities

Staff turnover

Number of relationships per trust officer

Proximity of trust office staff to clients

Investment performance

The “soft issues” – beneficiary education, family events, etc.

16

Principal & IncomeAccounting

Tax Preparation

Charitable Valuations

InvestmentAdvice

Advice and Guidance on Distributions

Investment Management

Needs of the Individual Trustee

Targeting the Individual Trustee

17

Choosing a Provider

The Individual Trustee

Investment OnlyModel

Managed AgencyModel

18

A Tiered Approach

Managed Agency Discretionary investment management Complete administrative services Special assets

Investment Plus ala carte services Self-directed investments Trust investment policy statement Administrative services: P&I accounting, Bill paying, tax preparation, distribution guidance

Investment Only Trustee directed investments

Create Successor

Trustee Opportunities

19

An Example of a Fully Integrated Trust Offering

Tailored solutions to coincide with client need…

Self-Trustee Solutions Corporate-Trustee Solutions

Trust Co. as Corporate

Fiduciary

Full suite of trust administrative, investment management, and fiduciary services for personal trusts

Trust Co. acts as fiduciary investment manager and trustee / co-trustee

IRA Custodian or Trustee

Estate Settlement

Philanthropic Planning and Services

Delaware Trust Structures

Managed Agency Services

Brokerage with ala carte Trust

ServicesBrokerage Platform Open Architecture

Investment Management with Fiduciary Investment Offerings

Trust Co. serves as Agent for individual trustee(s) or personal representatives

Full Administrative Services as Agent for the fiduciary

Inclusive of Brokerage Platform with Control and Customization

P&I Accounting

Fiduciary Tax Preparation

Bill Payment Services

Directed Distributions

Valuation services

Full brokerage platform and suite of investment options and capabilities

Elder Care Services via alliance

Valuation services

Marketing materials

20

Managing Risk

Taking a “holistic” approach – LARC Process

Risk Management Operating Committee / Board

Training - Embedding Risk Management in your Culture and Fabric

Involving the client as a “member” of the Risk Management Team

Delicate Balance – To deliver sophisticated products and services for our clients…and to manage risk and jealously protect our integrity as fiduciaries.