When a Fellow Needs a Fiduciary

More and more people have stopped trying to figure out today's erratic securities markets and have turned their investments over to professional managers of money. No institution manages more "O.P.M.," or Other People's Money, than Manhattan's 116-year-old United States Trust Co., one of whose few advertising themes is "Planned silence is essential to a trust company's character." Evidently, silence is also golden. A recent study by the House Banking and Currency Committee reveals that U.S. Trust, which is really a commercial bank, directs the destinies of $11 billion in personal trust and investment money. O.P.M. last year brought the company nearly $18 million in fees and commissions. That, plus income from investments and interest on loans, lifted revenues to $34 million. So far this year, total income is running 28% ahead of 1968 levels.

For many years, U.S. Trust had a staid image because its investments rose less rapidly than those of small mutual funds, whose young managers hopped from fad to fad, making quick gains on chicken franchises or computer-leasing companies. These smaller investment funds, which rose rapidly in the highly speculative markets of 1967 and 1968, have fallen sharply in the recent market slide. This year, U.S. Trust has done much better than most of the newer, smaller investment institutions. It has--as it usually does--outperformed the market averages by about 30%.

Golfing Decision. U.S. Trust's basic investment policies are set by a three-man leadership: Chairman Hoyt Ammidon, Vice Chairman Berkeley Johnson and President Charles Buck. The decision as to whether or not to invest is based about 20% on a company's product and ability to market it, and 80% on the bankers' personal assessment of the company's president and top management. Vice Chairman Johnson believes that "you can learn quite a bit about the ethics and personality of the man you are dealing with by playing golf or going shooting with him."

The bank's analysts handle more than 11,000 personal and institutional investment accounts, each of which usually must have a minimum of $200,000. Portfolio managers service the proverbially helpless richman's widow as well as the young business-school graduate who uses his M.B.A. training to turn the modest old family firm into a gold mine. Real estate experts on the bank's 1,200-man staff will advise on matters like buying a villa on the Mediterranean. The bank also lends money for many investments. Altogether, the company charges the usual brokerage commission plus advisory fees, which can run as high as three-quarters of 1% of the total investment.

Look for Loopholes. How does this really work out for investors? Not long ago an East Coast surgeon developed a new operating-room device in his home workshop, and it sold so well that he found himself worth $14,500,000. He turned to U.S. Trust. The bankers set up an estate for him by making three real estate investments, buying a portfolio of tax-free municipal bonds and long-term growth stocks, and setting up trusts for his two children. Estate advisers even thought of future grandchildren and provided trusts for them in the doctor's will. "By creating charitable trusts," says Vice Chairman Johnson, "it is possible to make money stick to a family's bones decade after decade."

U.S. Trust increased the income of a furniture-company sales manager and his wife, an author of children's books. Despite their combined earnings of $110,000 a year, the couple found themselves strapped for cash. The bankers raised a tax shelter around cattle, which can be bought with help from a loan, then depreciated over eight years and sold for capital gains. The sales manager put $40,000 into a herd, of which $30,000 was borrowed from U.S. Trust. For investors in the 50%-plus tax bracket, the tax savings from this kind of investment can often repay the loan within the first year.

Now that Congress is moving at last to reform the tax code (see THE NATION), many well-used loopholes will be plugged. U.S. Trust will undoubtedly find new gaps in the law and apply them for the enrichment of company and client alike. Meanwhile, there probably will be a strong growth in what Chairman Ammidon calls "the managing of money so that its owners will be free to turn their full attention to their own businesses." Not only will troubled markets and tighter tax laws make it harder for the amateur investor to turn a profit, but many of the new millionaires --or the merely affluent--will find that they do not have the time even to try.

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