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ANCHORAGE, Alaska – Credit unions looking to get into the trust business can learn a thing or two from Alaska USA Federal Credit Union. While most CUSOs enter the trust services realm initially seeking to build long-term relationships with members, Alaska USA Federal Credit Union took what is claims was the more sure approach and sought out institutional investors first, and now it is in a position to take care of members as well. Formed in 1997, Alaska USA Trust Co.’s non-traditional route to profitability has proved to be a windfall. Over a nearly seven-year period, its institutional portfolio alone has garnered $3.5 billion under administration, according to Bill Eckhardt, president/CEO of $2.4 billion Alaska USA FCU. It has also secured more than $30 million under investment management and another $10 million in self-directed investment accounts. “Building a trust business on the personal side takes about 12 years, we felt that we could leverage the institutional side a little easier and build it faster,” Eckhardt said. The trust company provides personal trust and investment services to individuals and has the advantage of working with attorneys and individuals attracted to Alaska trusts. In addition to investment custody, safekeeping and securities lending services, Alaska USA Trust also provides mortgage document custody services, a distinction for the company since it’s the only CUSO that offers such a service. Granted, the impetus for offering trust services started with having an estate planning division that would cater to the credit union’s aging Baby Boomers, Eckhardt said. But it was only in November 2000 that the trust company aggressively launched its personal trusts to members, nearly six years after launch. Alaska USA Trust got its feet wet by initially offering services to other credit unions and then began branching out to public units such as cities, brokers, corporate credit unions, financial institutions and other trust companies, said Fred Miller, senior vice president at Alaska USA Trust. The biggest hurdle the first year was proving to institutional investors that the credit union could effectively create and manage a trust program, said Nancy Bear Usera, Alaska USA FCU senior vice president of corporate development. “We had the name recognition, Alaska USA is very well-known name here,” Bear Usera said, but we still had to prove ourselves.” Miller said like any other start-up business, some potential clients wanted to see a track record – how many other entities had already signed on and what were the current assets under administration. Still, that first year saw $100,000 in revenue, on par with projections, Eckhardt said. Today, the trust company has 15 employees, 130 institutional accounts with the smallest being $500,000 and the largest at $1.2 billion. There are 500 personal trust accounts with the smallest being $100,000 and the largest is $4 million. The credit union serves more than 260,000 members. Eckhardt said Alaska USA has the distinction of being the only CUSO to provide fiduciary and investment services to credit unions throughout the United States, specializing in investment custody, safekeeping and securities lending services. These programs help credit unions, protect and enhance their investment revenues, he added, and was the result of leveraging the expertise system infrastructure developed to service the investment needs of Alaska USA FCU. Other distinctions Alaska USA Trust has include its ability to provide mortgage document custody services and being the only CUSO that is a participant, settlement bank and shareholder of the Depository Trust Company (DTC), Bear Usera noted. The DTC is a member of the U.S. Federal Reserve System, a limited-purpose trust company under New York State banking law and a registered clearing agency with the Securities and Exchange Commission. It provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, over-the-counter credit derivatives and emerging market debt trades. DTC also provides custody and asset servicing for more than two million securities issues from the United States and 100 other countries and territories. Going the DTC route “(cuts) the big bank middle man out of the equation,” Eckhardt said. Alaska USA Trust has nearly $1.6 billion in collateral through its mortgage custody service and provides certification for 7,500 including those from a number of banks, Miller said. In addition, the trust company acts as a paying agent and manages $150 million in municipal debt. On the personal trust side, unlike banks, which traditionally target clients with at least $1 million in assets, Alaska USA has no set income criteria that it enforces, Eckhardt said. Individual clients have access to an array of services including managed, custody, self-directed or custodial for minor accounts to retirement accounts, mutual funds and a variety of specialized trusts. “We’ve been able to fee schedule about 50% of what you can get at a bank and it’s based on activity not the size of the portfolio,” Eckhardt said. Many trust CUSOs say educating members about the real need for estate planning services is an ongoing campaign. Eckhardt said the credit union’s 56-year legacy in Alaska coupled with it being the second largest financial institution behind Wells Fargo has literally made it a household name here. That recognition has gone a long way in wooing members to Alaska USA Trust. The CUSO runs ads on television, radio and newspapers, Miller said. “You have to remember when we launched (the personal trusts) in November 2000, we were coming out of a stock market that was just horrible,” Miller said. “We had 40% growth that first year and right now we’re slightly ahead in terms of our assets.” The CUSO’s success can also be attributed to having a close, working alliance with the certified financial planners here and the Alaska Bar Association. The latter just so happens to be one of Alaska USA FCU’s select employee groups. “We found that while the attorneys knew about the credit union because they belonged to it, many did not know about the trust company,” Miller said. “We’ve gotten to know not only estate attorneys but trial attorneys as well.” Over the years, Alaska USA Trust has held joint trade shows with the Alaska Bar Association and is a member of several estate planning councils. The CUSO has distributed educational brochures at many planner and attorney firms for potential clients. Besides the trust company’s launch in 1997, two pivotal events took place that same year. Alaska passed a “very liberal” trust law that now allows residents and non-resident to take full advantage of options not offered in many other states. Alaska’s trust law perpetuity means that its governance is active forever. The grantor can also be the beneficiary and after four years, a trust becomes unattached, meaning creditors cannot sue the trust for sums owed by the grantor or beneficiary. Alaska also has the unique feature of being one of a handful of voluntary community property states. This means the state’s trust law allows the surviving partner to reassess tax liability after a spouse dies. Miller said there are nine states that are considered community property states. The rest of the nation does not have that option. Alaska also may be more attractive to investors because there is no statewide sales tax, state personal tax or trust income tax. In 1997, Wells Fargo also bought National Bank of Alaska, the state’s largest bank, Eckhardt said. The timing could not have been better as the fledgling Alaska USA Trust started to build up of its staff. Indeed, a senior trust officer from the merged bank was among the trust company’s first professional employees. “One of the keys to our success has been hiring the right professionals,” Eckhardt said, adding that an estate-planning attorney had recently been hired. “This is a trust business, credibility goes a long way in building trust with members and clients.” [email protected]

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