Custodial & Trust Services
Description
Companies in this industry hold or manage assets for the benefit of an individual or business. Major companies include the custodial or trust operations of Bank of New York Mellon, Citigroup, JP Morgan Chase, and State Street Bank and Trust (all based in the US), as well as BNP Paribas (France), HSBC (the UK), and Royal Bank of Canada.
The custody service market will grow from about $45 billion in 2024 to about $50 billion in 2025 with a compound annual growth rate (CAGR) of 8.3%, according to the Business Research Company. Q3 2023 key global custody banking giants based in the US (Bank of New York Mellon, State Street, JPMorgan, Citigroup, BNP Paribas, and Northern Trust) together account for about $6 billion, according to PostTrade360.
The US custodial and trust services industry includes about 2,300 establishments (single-location companies and units of multi-location companies) with a combined annual revenue of about $16 billion. The industry includes establishments such as bank trust offices, nondepository trust companies, and administrators of private estates. Providers of custodial and trust services are included in the asset management industry, which is covered in a separate profile.
COMPETITIVE LANDSCAPE
Demand is driven by demographic and market trends such as the growing population of retirees and the accumulation of wealth and investable assets. The profitability of individual companies depends on the volume and performance of the assets they hold. Large companies have advantages in providing expertise in a wide range of custodian or trustee services. Small companies can compete by focusing on a single service or type of trust. The US industry is highly concentrated: the 50 largest companies account for more than 85% of revenue.
Because the law states that a trustee can include any individual of legal age (18 in most states), trust companies may compete with family members or professionals such as accountants, attorneys, financial advisers, or any other private individual who is paid for his or her services as trustee. An entity such as bank or trust company can act as a trustee only if it has been given trust powers under federal or state law. Commercial banks generally have trust powers; savings banks and credit unions do not.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major custodial services include the holding and safekeeping of assets for a client, collecting interests and dividends, and providing statements of accounts. While a custodian's duties are limited, a trustee typically has a higher level of responsibility to ensure that the trust achieves the goals set by its creators. Trustee services may include managing investments of the trust, paying taxes, and making distributions in accordance with the terms of the trust. Assets held in custody remain in the name of the account holder; assets held in trust are in the name of the trust account.
All types of trusts have four components: a grantor (someone who creates the trust); a trustee (a person or entity who holds the trust's assets); principal (the assets, such as money or property, held by the trustee); and a beneficiary (person or entity who benefits from the trust). A trust that becomes effective during the grantor's lifetime is called a living trust, while a trust that is created as part of a will, to become effective after the grantor's death, is called a testamentary trust. In a living trust, if the grantor reserves the right to revoke or change any of the terms of the trust after it becomes effective, then the trust is said to be a revocable trust. If the grantor gives up the right to revoke or change the living trust after it becomes effective, then the trust is said to be an irrevocable trust. Trusts may also be classified by purpose. Common types of trusts include charitable trusts, family trusts, and life insurance trusts.
Each type of trust has tax consequences, and many trusts are established primarily to take advantage of benefits provided under various tax laws. For example, a trust is often used for minimizing estate taxes (taxes on the right to transfer property at death). Since trusts usually avoid probate (the legal process of settling an estate during which a will is proven valid, assets are collected, and debts and taxes are paid), beneficiaries may gain access to trust assets more quickly than if assets are transferred using a will. Additionally, irrevocable trusts may not be considered part of the taxable estate, so fewer taxes may be due upon a grantor's death.
The terms of a trust may leave room for personal interpretation on the part of a trustee. For example, a trust may indicate that the trustee can make principal payments after considering other sources of income available to the beneficiary, and can demand documentation from the beneficiary before making a decision. To ensure that client-specific objectives are met, companies often work closely with their client's financial advisers, attorneys, and accountants.
Larger custodial and trust services companies may provide a range of additional services such as investment operations and treasury functions. More financial institutions are turning to custody banks for accounting, back-office, and middle-office functions in light of added complexity in newer compliance and reporting regulatory requirements.
The custody service market will grow from about $45 billion in 2024 to about $50 billion in 2025 with a compound annual growth rate (CAGR) of 8.3%, according to the Business Research Company. Q3 2023 key global custody banking giants based in the US (Bank of New York Mellon, State Street, JPMorgan, Citigroup, BNP Paribas, and Northern Trust) together account for about $6 billion, according to PostTrade360.
The US custodial and trust services industry includes about 2,300 establishments (single-location companies and units of multi-location companies) with a combined annual revenue of about $16 billion. The industry includes establishments such as bank trust offices, nondepository trust companies, and administrators of private estates. Providers of custodial and trust services are included in the asset management industry, which is covered in a separate profile.
COMPETITIVE LANDSCAPE
Demand is driven by demographic and market trends such as the growing population of retirees and the accumulation of wealth and investable assets. The profitability of individual companies depends on the volume and performance of the assets they hold. Large companies have advantages in providing expertise in a wide range of custodian or trustee services. Small companies can compete by focusing on a single service or type of trust. The US industry is highly concentrated: the 50 largest companies account for more than 85% of revenue.
Because the law states that a trustee can include any individual of legal age (18 in most states), trust companies may compete with family members or professionals such as accountants, attorneys, financial advisers, or any other private individual who is paid for his or her services as trustee. An entity such as bank or trust company can act as a trustee only if it has been given trust powers under federal or state law. Commercial banks generally have trust powers; savings banks and credit unions do not.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major custodial services include the holding and safekeeping of assets for a client, collecting interests and dividends, and providing statements of accounts. While a custodian's duties are limited, a trustee typically has a higher level of responsibility to ensure that the trust achieves the goals set by its creators. Trustee services may include managing investments of the trust, paying taxes, and making distributions in accordance with the terms of the trust. Assets held in custody remain in the name of the account holder; assets held in trust are in the name of the trust account.
All types of trusts have four components: a grantor (someone who creates the trust); a trustee (a person or entity who holds the trust's assets); principal (the assets, such as money or property, held by the trustee); and a beneficiary (person or entity who benefits from the trust). A trust that becomes effective during the grantor's lifetime is called a living trust, while a trust that is created as part of a will, to become effective after the grantor's death, is called a testamentary trust. In a living trust, if the grantor reserves the right to revoke or change any of the terms of the trust after it becomes effective, then the trust is said to be a revocable trust. If the grantor gives up the right to revoke or change the living trust after it becomes effective, then the trust is said to be an irrevocable trust. Trusts may also be classified by purpose. Common types of trusts include charitable trusts, family trusts, and life insurance trusts.
Each type of trust has tax consequences, and many trusts are established primarily to take advantage of benefits provided under various tax laws. For example, a trust is often used for minimizing estate taxes (taxes on the right to transfer property at death). Since trusts usually avoid probate (the legal process of settling an estate during which a will is proven valid, assets are collected, and debts and taxes are paid), beneficiaries may gain access to trust assets more quickly than if assets are transferred using a will. Additionally, irrevocable trusts may not be considered part of the taxable estate, so fewer taxes may be due upon a grantor's death.
The terms of a trust may leave room for personal interpretation on the part of a trustee. For example, a trust may indicate that the trustee can make principal payments after considering other sources of income available to the beneficiary, and can demand documentation from the beneficiary before making a decision. To ensure that client-specific objectives are met, companies often work closely with their client's financial advisers, attorneys, and accountants.
Larger custodial and trust services companies may provide a range of additional services such as investment operations and treasury functions. More financial institutions are turning to custody banks for accounting, back-office, and middle-office functions in light of added complexity in newer compliance and reporting regulatory requirements.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
Pricing
Currency Rates
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