2021 Annual Report Letter

To our Stockholders, Clients, and Friends,

Fiduciary’s 137th year of operations built upon the dedication and determination of the Company’s professionals to continue our distinctive client service through the second year of the COVID-19 pandemic. With the arrival of vaccinations and the emergence from the darkest days of the pandemic, much of the Company’s 2020 momentum continued through 2021 to yield our strongest year ever on multiple dimensions.

COVID-19 PANDEMIC

Beginning in the first quarter of 2020 and continuing until the summer of 2021, the Company operated largely in a work-from-home paradigm. Due to the diligent efforts of the Company’s Operations & Technology departments, the Company was able to seamlessly transition and operate without interruption to client service.

During the summer of 2021, the Company began its re-entry efforts, permitting employees to return to the office on a voluntary basis. This process continued through the fall of 2021 with a planned transition to a “new normal” in the winter. Due to the spike in COVID cases caused by the Omicron variant, the Company paused the planned transition until infection rates subsided in early 2022.

As evidenced by its strong client service and financial performance during both 2020 and 2021, the Company has adapted to the operating challenges posed by the pandemic. As a result of the Company’s success, the pandemic encouraged the reexamination of many long-held operating practices. Specifically, balancing: 1) the real benefits provided to our professionals of having more flexible schedules and avoiding daily commuting, with 2) our collective belief that long-term, collaborative interactions, cross-departmental teamwork, face-to-face professional mentoring, and the Company’s special culture benefit from in-person interactions.

Weighing these various trade-offs has helped define the Company’s new hybrid operating model, which requires all employees to be in the office a minimum of two days each week and gives professionals flexibility over the remaining three days. Launched in the first quarter of 2022, this model will be refined as our value propositions to both professionals and clients continue to evolve to ensure we maintain our competitiveness.

BUSINESS ACCOMPLISHMENTS

The Company’s financial results for the year were characterized by very strong operating results—the Company’s 78th year of consecutive profitability [1] —and continued strengthening of its balance sheet. In addition, the Company formally terminated its legacy defined benefit plan, transferring its future servicing and obligations to a highly rated insurance company.

The Company continues to focus on providing distinctive client service and generating positive outcomes for our clients across generations. Because of this focus, the Company maintained its decades-long 97%+ annual client retention rate. In addition, 2021 was an important year for the addition of new client relationships. Like 2020—and despite remote operations during the majority of the year—the Company generated the most new business in its history. In total, new business was 30% more than the prior year and marked the sixth year out of the last seven during which new business increased year over year. We believe this is due to greater awareness of the Fiduciary’s distinguishing qualities, macro trends in favor of the Company’s operating model, and the Company’s structured and coordinated new business development initiatives.

Investment performance has materially improved across client accounts over the past five years, and particularly the past three years, due to the coordinated work of the Investment Department with the Investment Officers. The Company’s ability to maintain a long-term perspective combined with macro asset allocation decisions continued to benefit clients’ portfolios and has enabled most to exceed their investment return targets on multiple time horizons. Within the investment platform, the Company has also made significant strides in expanding its Environmental, Social, and Governance (ESG) offerings for clients.

During the year, we continued to add to our ranks of professionals, including the addition of two new Investment Officers—Mike Stephens and Chris Shepler—as well as a new Trust Counsel on our Trust & Estates legal team, Sarah Grandfield.

The Company’s New Hampshire subsidiary trust company continued its strong growth and concluded the year with a new record in assets under supervision. As has been communicated in prior Annual Letters, the combination of favorable fiduciary laws, hard work by our New Hampshire team, and the evolving trust needs of our clients have made this growth possible.

In addition to our New Hampshire activities, Fiduciary Trust Charitable, which provides a donor-advised fund and direct gifting program for our clients, also continued its multi-year growth during 2021. Combined with Fiduciary’s historic white-glove custody services, we see increasing demand for our flexible business-to-business services to single and multi-family offices, registered investment advisors, and other trustees.

DIVERSITY, EQUITY, AND INCLUSION

During 2021, the Company continued its focus on seven long-term initiatives to enhance diversity, equity, and inclusion. These broad-based initiatives are both internally and externally focused and include: 1) Education, Training & Discussion, 2) Mentorship / Internships, 3) Volunteerism & Corporate Support, 4) a Diversity, Equity, and Inclusion Committee, 5) Hiring & Promotion Practices, 6) Marketing & Communications, and 7) Measurement & Tracking.

The Company took the following actions during 2021 in pursuit of its continued evolution as a more diverse, equitable, and inclusive firm: conducting mandatory Company-wide DEI training, holding facilitated brown-bag lunch discussions, establishing a quarterly corporate contribution program focused on DEI initiatives, signing the “Positive Philanthropy Pledge,” continuing our internship program with the Posse Foundation, increasing tracking of DEI statistics across the Company’s business processes (e.g., interviewee selection, marketing images, and ongoing employee composition), incorporating DEI metrics into senior managers’ performance evaluations and sponsoring several targeted volunteer opportunities.

In addition, the Company is focused on transparency in its DEI efforts. In that spirit, on December 31, 2021, the Company had a total of 130 full-time employees. Of these professionals: 50% were females; 18% were non-white; and, 19% were under 30 years of age, 39% were between the ages of 30 and 50, and 42% were over the age of 50.

FORWARD PERSPECTIVE

The Covid-19 pandemic will be a seminal period in American and world history. While this period is not fully over, nor are its rippling implications fully understood, the virus’ transformation to being endemic is approaching. And, as we re-emerge into a “new normal,” the way we view the world, set expectations, and prioritize our personal and professional time will forever be influenced by our pandemic experiences.

For wealth management firms—like Fiduciary Trust—the pandemic in many ways has acted as an accelerant to macro trends that were influencing companies before March 2020. These trends, largely associated with demographic shifts and technology transformations, are now rapidly changing how companies operate internally and how they relate to their employees, clients, and broader societies.

Over the past two years, wealth management firms worked tirelessly to insulate their clients from the disruption due to the operational challenges associated with the pandemic. While the majority of the traditional client experience was not challenged (e.g., buying and selling securities, moving money, quarterly statements), the pandemic did accelerate the adoption by clients of many new technologies that already existed and previously were gaining modest acceptance. Before the pandemic, most clients were amenable to the concept of online meetings, but few had actually experienced them. This has shifted and clients are now quite facile with Zoom meetings and similar technologies. Online execution of documents (e.g., DocuSign) and electronic tax filings are other technologies with accelerating adoption rates. The same is also true—to a lesser degree—of online statements, largely due to generational preferences. Even the notarization process was impacted and its re-envisioned digitization was accelerated by the pandemic. If adversity breeds innovation, it has also hastened existing technology adoption.

Outside of view from clients, one of the most tangible transformations that the pandemic caused was the acceleration of digitization of operational processes. For many older firms that were incrementally transitioning to digital workflow, the final elimination of legacy paper-based processes occurred over a weekend. Initially, work-around solutions prevailed, but as the pandemic continued into its second year, these soon became the focus for longer-term digital optimization. The distribution of physical mail, cutting of checks, and printing of many types of client meeting materials are all examples of processes that the pandemic digitally transformed in a very short period of time. Digital productivity gains since the early 2000s not only allowed firms to maintain seamless client service through the pandemic but also have helped them come out of the pandemic more efficient and able to devote management’s time to redefining critical relationships with key constituencies.

Probably the most discussed business implication of the pandemic has been the reexamination of the relationship between companies and their employees. From restaurants to investment banks, the pandemic has challenged longstanding employer/employee dynamics. Whether this is temporal or permanent is debatable, but—particularly among professional services firms—the pandemic has exacerbated the war for talent. It has now been a quarter-century since Ed Michaels et al. published The War for Talent and highlighted the demographic consequences of Baby Boomer retirements and the critical need for competitive companies to attract and retain the best talent. For professional services firms, talent is the only game.

This is why the pandemic’s awakening of how employees view their companies are already having material competitive influence on the wealth management industry. As studies have consistently shown, non-financial firm characteristics are far more important than compensation when seeking to attract and retain truly distinctive professionals. These players not only require being well-compensated but also migrate to vibrant corporate cultures with dynamic colleagues and meaningful purpose to the work pursued. A company’s culture is an all-encompassing term used to describe how decisions are made, how colleagues engage and respect one another, and what it ultimately feels like to show up for work every day. The same way that many clients may be reexamining their client experience over these past two years, professionals are reflecting on how they were treated through the pandemic and how they are being engaged as companies navigate to the new normal. Some companies that have always prioritized the professional are excelling by embracing the silver linings from the pandemic, adopting flexible work models, and moving forward rapidly. Other companies may be trying to return to a world that no longer exists and will be disadvantaged.

The very serious nature of the pandemic has also highlighted the importance of purpose in one’s professional endeavors. As a result, pre-pandemic differences between wealth management firms over their goals and strategies have become even more pronounced and important in attracting and retaining great players. For example, many mega-institutions employ a more industrial model—manufacturing standardized products (e.g., mutual funds) that are then distributed into clients’ accounts. In a post-pandemic world, these product-centric (i.e., “product pushing”) firms are now even more disadvantaged relative to firms that take a more holistic, client-centric approach. As I have written many times, I believe this is a noble profession focused on helping others. The very personal interaction of helping clients navigate life’s uncertainties is not only meaningful, but also incredibly purposeful. The shift from traditional models to more client-centric entities was already underway before the pandemic (e.g., the migration of advisors leaving Wirehouses for the RIA channel), but again, one sees how the pandemic has accentuated this trend.

Many of these components of a company’s culture are interconnected. If pursued in a conscientious approach, they can be reinforcing. For example, another important part of culture is with whom you work. Are your colleagues diverse, interesting, engaged, and collaborative? Are you proud to be among them? Indeed, beyond the corporate sphere, the societal impact of the pandemic in re-examining and taking action on long-standing wrongs as it relates to diversity, equity and inclusion is very important to the workforce of the future. Companies that embrace DEI initiatives and actions with genuine intention are more attractive to professionals and clients. This leads to more diverse viewpoints, more open discussions, better client solutions, more vibrant cultures, and ultimately enhances the value proposition to highly talented professionals.

While the pandemic has accelerated the multi-front war for talent, it has also emphasized the limitations of some business models. Fiduciary’s business model is predicated on the attraction and retention of distinctive professionals. Distinctive professionals is an amorphous phrase, but I have always stated that you know them when you meet them. They are great problem solvers, good communicators, empathetic, proactive and reliable. They make positive things happen and are someone you would trust in a foxhole. By definition, they are not average. For wealth management clients, the past two years have demonstrated the importance of working with distinctive professionals who provide enormous value during periods of global tumult. The pandemic has also reinforced—at least for Fiduciary—an unwavering commitment to continuing to field a team composed of these distinctive professionals. While only pursuing the best talent is limiting in scale because of their scarcity, it maintains our commitment to quality and further enhances the specialness of Fiduciary.

The past two years have been an extraordinary period and have accelerated many macro trends across our industry, and Fiduciary has risen to the many challenges with its historic convictions. I continue to be grateful to lead Fiduciary and want to thank the entire professional staff for their dedication and spirit in the face of adversity. The pandemic has changed us and the world, but, undeterred, we embrace our collective learnings and are excited about the future for our clients and ourselves.

 

Best,

Austin V. Shapard

President & CEO

 

1We believe Fiduciary has been consecutively profitable since 1928—93 years—but do not have the records on profitability prior to WWII.