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MANHATTAN BEACH, Calif. – Employees were the first to get a taste of new trust services offered by Kinecta Financial & Insurance Services, LLC and after a six-week pilot, a full launch is right around the corner. The CUSO is the wholly-owned subsidiary of $2.8 billion Kinecta Federal Credit Union. Trust services, which will feature an array of traditional offerings such as wills and living revocable trusts, are scheduled to be rolled out to the credit union’s 187,000 member base by early June, said Leonard Gzesh, vice president/COO of Kinecta Financial & Insurance Services, LLC (KFIS). The services will initially be offered to those with a minimum of $100,000 in assets, far below the $1 million that many banks require. Discussions to venture into trust services were sparked by repeated member requests, Gzesh said. After surveying the landscape and seeing other credit unions that were either putting together their own trust program or aligning with trust banks and other entities, Kinecta decided to build on the success of its CUSO, which has $700 million in assets under administration. Interestingly, Kinecta is one of the original participants in MEMBERS Development Co., the CUNA Mutual Group venture that put together the plan to launch MEMBERS Trust Co., the industry’s first nationally-chartered, CU-owned trust company founded by CUNA Mutual Group and Suncoast Schools Federal Credit Union in 2003. “We are a big supporter of credit union-movement entities,” Gzesh said. “We definitely wanted to leverage the tremendous capability with our investment program as opposed to using another program or having to change our brokerage arrangement.” A spokesman from CUNA Mutual clarified that a credit union does not have to change brokerage alliances to offer trust services through MEMBERS Trust. “We always felt our investment services program was very robust but there was a component of the program that was missing – estate planning and trust tools to manage and distribute estates past a member’s death,” Gzesh said. “We wanted to be a leader, not a follower.” Gzesh said the trust services program is a three-component model. The first component deals with the client’s estate needs and analysis, meaning what will be the best approach for their estate. KFIS has partnered with Phoenix-based Trust & Estate Group, which is owned by an estate law firm and will be used to draw up pertinent documents. Paralegals from the firm will work at four of Kinecta’s branches as trust representatives, Gzesh said. The second component is considered “one of the most important” parts – the investment of trust assets. KFIS will utilize the services of Private Trust Co., (PTC) a subsidiary of Linsco/Private Ledger for a multitude of investment options. According to Gzesh, Kinecta was the largest producer of gross dealer concessions for LPL on the financial institutions side in 2004. Gzesh said the third component is optional depending on the member’s situation. The grantors or those who originate the trust, can request that a non-biased, third party can step in to serve as the trustee. KFIC will suggest PTC as the corporate trustee. “This is optional because some people like to oversee their own dealings or for some there’s a certain amount of freedom of not having to deal with the administrative side,” Gzesh said. It typically takes more than five to seven years for credit unions to see any type of return from a trust services launch and most know this before venturing in. For KFIS, its division’s structure did not require a lot of funding up front Gzesh said, who did not want to disclose exact figures. “It was significantly lower than the other operations we looked at,” he said. Gzesh said the “real profitability” is not in writing the trust or third-party fiduciary but in assets under management. “If you can bring that component to the program and you have a successful investment program, I think you can make money early on,” he explained. “We already have that in place and have done so for more than 20 years.” Before credit unions decide if trust services are a likely fit for their members, Gzesh said several key questions must be addressed from the onset. “The credit union and their CUSO need to sit down and say `do we have the three components (mentioned previously) today, do we have the expertise, are we profitable today,’ ” he said. “ If the answer is no, then they should go to something like the MEMBERS Trust model. It’s an excellent model.” If the credit union does have all of the components in place, the question then becomes a matter of accommodation. Another reason KFIS decided on its current model was because at some point in the future, the CUSO may establish alliances with other credit unions. “Can we bring in those we don’t have and capitalize on the ones we do have,” Gzesh said. “Should we buy the pieces of the vehicle or establish a joint venture to get those pieces. There are several different, excellent models out there that they can work for credit unions.” -

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