Editors’ note: The research for this article was supported by a grant from the Fund for Investigative Journalism. The article comes from NPQ’s summer 2015 edition, “Nimble Nonprofits: The Land of the Frugal Visionary.”

Imagine you’ve been invited to be a trustee of a longstanding family foundation. You join the board meeting and nod and exchange pleasantries with the other trustees—and then you are introduced to one whose affiliation might be Bank of America or JPMorgan Chase & Co.

Individuals and banks may be trustees (or cotrustees) of a foundation—that is, a trust established to charitably benefit a class of beneficiaries consistent with the instructions and priorities of the grantor of the trust, who can name as trustees individuals, banks, or both to carry out the beneficial purposes of the trust. As a trustee, you might not be able to shake hands with John Pierpont Morgan but you’ll know from the trust documents some of the powers of the bank trustee—typically, to be paid, often handsomely, for the foundation’s investment, management, and administrative functions. (Indeed, while more than likely your individual role as a foundation trustee is gratis, when a bank is serving as a trustee its interest may fundamentally be one of getting paid—and, in light of competitive pressures on banks’ bottom lines, getting paid profitably.)

Sometimes, however, bank trustees’ powers are more extensive—more like those of the trustee you might be—such as having a say in determinations about potential grant recipients’ qualifications for foundation dispositions, or suggesting modifications in the trust’s priorities if those priorities have become impractical or unnecessary.1 The bank trustee role is a business function built right into the operations of some foundations, but it gets scant attention among nonprofits. As a foundation trustee, however, you’11 be familiar with the latent power of the bank trustee—a power that Mary L. Smith, the widow of oilman William Wikoff Smith, discovered when the bank trustee of the W. W. Smith Charitable Trust attempted to get a large, retroactive fee increase for its role in administering the trust Smith left in support of medical research, college scholarships, food and clothing for children and the elderly, and maritime education.

In this article, we look at the costs charged by a handful of large banks as trustees (not individual bankers as trustees) to private foundations that they serve—specifically, banks serving private foundations with assets of over $50 million. The costs are drawn from the 2014 financial information of three of the four largest banks in the United States: JPMorgan Chase, Bank of America, and Wells Fargo (the fourth, Citigroup, does not appear to hold bank trustee roles with private foundations with over $50 million in assets). Given the mammoth size of these banks, the trustee fees earned from their services to foundations can hardly constitute a large slice of their profits. But banks are back to earning huge profits in our society, taking in just short of 30 percent of total U.S. profits, and higher profits than they were generating before the financial crisis of 2008.2 Increasingly, bank profits are dependent less on lending and more on other business activities. And while this analysis doesn’t establish exactly how profitable bank trustee roles with private foundations might be nor purports to calculate the bank trustee earnings of all banks, what it does establish is that three of the largest banks in the nation are functioning as bank trustees for dozens of foundations and earning substantial revenues for their services. For these banks—and likely for others—bank trustee roles constitute a revenue source that is largely unknown to the American public and even to most nonprofits.

Large Banks Earning Bank Trustee Fees

In the competition among American industries for the title of most distrusted, banks rank near the top. Sitting at the head of Time magazine’s list of the twenty-five people most “blameworthy” for the global financial crisis at the end of the last decade is Angelo Mozilo—once the CEO of Countrywide Financial Corporation, the nation’s largest mortgage lender, whose collapse led to a “rescue-sale” by Bank of America and a $8.7 billion settlement of predatory lending charges filed by eleven state attorneys general.3 In the view of the Economist, “Start with the folly of the financiers”—abetted by the ratings agencies such as Moody’s and Standard & Poor’s, entities that the public might have believed were trustworthy guides of investor risk but actually “were paid by, and so beholden to, the banks”— and end with a national and global collapse in the housing markets and overall financial systems of Europe and America.4 Although it is rising in public attitudes from the bedrock basement to which the industry sank, beginning in 2007 and 2008, the banking sector is still viewed by the American public, according to Gallup, as “below average”—a category that includes the airline industry, the pharmaceutical companies, advertising and PR firms, and electric and gas utilities.5

Not long before the national and global fiscal collapse, banks had earned themselves a troubled reputation in philanthropic circles, due to an unusual case in Philadelphia. Wachovia (now Wells Fargo) had been the bank trustee for the W. W. Smith Charitable Trust. Wachovia had inherited this fiduciary role when it acquired First Union Bank, which had been the bank trustee after it acquired CoreStates Bank, which itself had become the Smith trust’s bank trustee when it absorbed Philadelphia National Bank (PNB)—and so on during the wave of serial bank mergers and acquisitions that occurred in the 1980s, 1990s, and early 2000s.6 And that trustee wanted an increase in its annual fee—a shift in the calculation to a percentage of the trust’s total assets rather than a percentage of its annual income; in 1998, when First Union made the request, this would have more than tripled its annual fee, from $261,799 to $914,370. First Union and then Wachovia as its successor also asked that the fee be increased retroactively for the previous fifteen years, on the theory that the bank trustee had been inappropriately undercompensated ail that time. The trust’s only other trustee, Smith’s widow, didn’t agree, and the bank trustee went to court and challenged the institution it purportedly served as a fiduciary.

“Why Mr. Smith put that provision in his trust is he wanted this money to go to charity, not to PNB, and he wanted a reasonable limitation on it,” Lawrence Barth, a senior deputy attorney general, said about the controversy. “And experience has shown, in this case, that the bank can live within it, and should live within it, and should not gain windfalls.”7 The notion of 5 percent of assets, as First Union and then Wachovia requested as a fee, was essentially equivalent to what nonprofits would expect as the mandatory minimum qualified distributions, or “payout,” from a private foundation (or, if increased, a potential “windfall”)—not a service fee to a bank. Charity might have had more at stake in the outcome of the litigation than just the Smith trust assets if Wachovia could sue to get higher fees going back years. For most of the nonprofit world, the idea that a big bank might earn a million dollars a year for serving as a trustee to a foundation with a somewhat limited range of activities was unknown. “If Wachovia wins this case, they’re coming after other private foundations and other high-net-worth individuals with trusts who give away lots of charitable donations,” Bruce W. Brown, a former administrator of the Smith trust and senior official at two other Philadelphia foundations, told the Chronicle of Philanthropy. “Charities need to pay attention to this, because they’re the ones who could lose.”8

A 2003 Georgetown Public Policy Institute study examining 238 foundations found in their 1998 Form 990 filings that twenty-five of them had paid their bank trustees in the aggregate of $13,837,726, and observed, “The 990-PF’s provided no details about the bank trustees. It was impossible, therefore, to assess the services that banks provided to the foundations and the banks’ relationships to the principals at the foundations.”9

The analysis collected information about any bank that might have served as a bank trustee for the foundations in the sample of that study. Although the number of federally insured financial inst