As any advisor to high-net-worth (HNW) and ultra-high-net-worth (UHNW) households knows, addressing their specialized wealth-planning needs can be a challenge. Aside from creating robust estate plans that can preserve fortunes across generations, professionals that advise the affluent also have to occasionally help them with unique financial challenges.
While affluent individuals have enough assets to fund their lifestyles and meet their financial goals, they may encounter special situations when unlocking liquidity might prove challenging. Making large purchases, paying a capital gains tax, or investing in their businesses, for example, may require them to sell off some investments, but such a move could open them up to additional taxes and opportunity costs.
To sidestep such issues, such clients may want to consider the option of securities-based lending. “Securities-based lending allows clients to quickly seize opportunities and meet today's business and personal needs without sacrificing tomorrow's goals,” said Katie Swain, director, Global Strategy & Product Management at BNY Mellon’s Pershing.
“By expanding wealth management services to include lending, advisors can make their business more comprehensive and competitive—all while deepening relationships with current clients and the next generation,” she added.
In a white paper titled Win, Grow, Retain: How to Enrich your Business with Smart Liability Management, Pershing explained that offering securities-based lending can help advisors differentiate themselves from advisors who focus only on the asset side of the balance sheet. Such specialized financing capabilities could also improve wealth firms’ prospects of being referred by CPAs, estate attorneys, divorce attorneys, and other centres of influence (COIs) whose clients need ready access to financing for unique situations like divorce settlements, real estate bridge loans, or making luxury purchases.
Discussing lending options with existing clients, the paper added, opens new doors for advisors to learn more about them. Asking what they would do if they had additional liquidity, or how they are paying for a major purchase, could provide new insights into their short-term needs and long-term goals. With the right securities-lending package aligned with their needs, clients could also be encouraged to consolidate assets held from away in order to qualify for a larger line of credit.
The ability to offer a lending solution can also minimize the chances of clients forming relationships with other advisors. When clients enter into a borrowing relationship with another financial institution, they could also be exposed to cross-selling of other financial solutions like investment or insurance products, and even financial planning services.
Pershing recommended a four-step process for advisors to incorporate liability management into their business:
- Profile top clients, targeting sophisticated investors with non-retirement assets;
- Conduct relationship reviews with current clients, digging into their existing debt items and determining potential liquidity or long-term capital needs;
- Ask why clients are liquidating investments, and determine whether lending is a viable option or whether they have non-qualified investable assets; and
- Focus on top prospects and COIs, which could involve hosting educational seminars about the advantages of having a ready source of liquidity
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