Today, as we examine our industry, we witness firms of all sizes across the country pushing back hard against proposed regulations that would require the adoption of fiduciary standards when advising clients on retirement assets. Not all assets, mind you, just retirement assets. As we watch this flurry of activity, we are reminded of our founder Deane Kanaly and the example he set for us many years ago.
Both personally and professionally, Deane Kanaly was a man of strong opinions. One such professional opinion was that the needs of the client should always be placed before your own needs, and Deane put this “theory” of fiduciary standards into practice every day. One pivotal day when working to settle the estate of a client, Deane encountered a situation in which the needs of his client’s family far overshadowed his own. In that moment, when tested, he did not hesitate to continue on with his fiduciary duty. In doing so, he set out on the path which would place his career in jeopardy but would also ultimately lead him to form one of the nation’s first private trust companies – Kanaly Trust.
In beginning his work on the estate, Deane noted that the estate’s most significant asset was a family business. The business was successful but definitely illiquid and had several sizeable loans outstanding. Upon further examination, he resolved that there were no problems with the payment history of the loans; his client had always serviced the debt promptly. The client’s company also produced more than adequate income to continue paying all of the bills. Deane accepted fiduciary duty on behalf of his employer with the knowledge that this cash flow would give him time, as executor, to manage the estate without having to worry about the future of the company.
Unfortunately upon learning of the death of the business owner, the lender refused to see things in the same positive light and began the process of calling the loans. Deane was outraged! The bank had no authority to call those loans. The loans were performing and if the loans were called, the company could fold. If the company folded, the family would lose their most significant asset.
At first, Deane tried to speak with the lender about the performance of the loans and the condition of the company. He believed that once he intervened and explained the precarious and unfounded position that the bank was contemplating, he could change their minds. Regrettably, even after his discussion with the lender, he learned that they would not abandon their plan; they intended to call the loans. Deane knew at this point that the only way to uphold his duty to his client was to take a stronger position. He informed the bank that in his fiduciary duty as executor, he would have no other recourse than to take legal action to stop the bank from calling the loans. Deane intended to sue the lender.
Up until now, this story does not demonstrate a choice between a client’s needs and the needs of Deane and his young family, and that is because there is a critical bit of information that you must also factor in: The bank that intended to call the loans was also his employer. Yes, Deane intended to sue his employer, but he did not enter into the decision without knowing the consequences. He knew that by bringing suit, he would likely damage his career, but he also had a strong conviction that he was doing the right thing for his client. He hoped that he would win the lawsuit on behalf of his client (and he did).
Soon thereafter, Deane was offered the position as president of an existing bank to start a Trust department. Deane understood from the offer that once the Trust division was up and running, it would be spun off from the bank as a wholly separate entity. Deane had seen first-hand the conflicts of interest when a bank owned and operated a Trust department, but if he just worked hard enough to build the Trust business, it would eventually be a wholly separate entity; he simply had to avoid conflicts for a short time and then he would no longer have to worry about those issues again.
Deane’s hard work paid off, the Trust department at the bank was quite successful. Unfortunately, it was so successful, the bank decided to keep it. Deane’s hopes were dashed. At this point, he realized that if a stand-alone Trust company could happen, it was up to him to make it happen. He would need to start a new company – the first independent Trust company in the State of Texas.
Deane founded Kanaly Trust in 1975. Since that time, the firm has served clients with the same strong determination to do the right thing, upholding our fiduciary duty while seeking to reduce conflicts of interest. To this day, the only revenue the firm receives is through management or advisory fees, which are fully disclosed and paid by the clients that we serve.
We are very proud of our heritage and grateful to Deane Kanaly for taking the risks in his own career to give us the opportunity to work in this environment. We hope that this story helps you to understand what this means to us and why we are so proud.