Bigger isn’t always better when it comes to bank-affiliated trust firms.

Banks with more trust assets under management produce less revenue on average than banks with fewer assets, a new study from Kehrer Saltzman & Associates has found.

“Average revenue on assets is actually lower, the larger the firm,” James Duca, a senior associate at Kehrer Saltzman and director of the firm’s wealth management consulting practice, says in a statement.

The study found that banks with less than $1 billion in trust AUM produce 75 basis points of revenue on those assets, 15% more than firms with between $1 billion and $10 billion in assets, and 39% more than banks with more than $10 billion.

Dr. Kenneth Kehrer, a principal of Kehrer Saltzman and a co-author of the study, explains the
counterintuitive findings this way: “The larger firms attract clients with more assets, and the larger client relationships are charged lower fees in most fee schedules. In addition,” he says, “there appears to be a greater proclivity to discount fees for large account relationships, even from these lower incremental levels.”

Business models also impact the productivity of assets. Firms that either manage assets in-house or rely on third-party investment management have higher revenue and profit on assets under administration than firms that use a combination of proprietary and third-party asset managers, the study found.

The study is based on a survey of 21 full-service, bank-affiliated, personal trust firms that offer asset management. Collectively, the firms hold $152 billion in AUM and an additional $64 billion in custody-only assets for total assets under administration of $216 billion.

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