Help clients unlock cash with their non-retirement portfolio

08/21/2024 — Key takeaways:

• Your clients are looking to you for credit management guidance and you can help by providing advice on managing current and future debt.
• Borrowing and having debt is not necessarily a bad thing if it provides an overall net value.
• Securities-backed lending is a way clients can prepare for large cash expenses while keeping their portfolios intact.

84% of consumers expect to receive loan and credit management guidance from their financial professional; however, only 4% receive it.¹ You have an opportunity to fill an important gap. Your clients come to you for financial advice — and that financial advice can include how to manage current and future debt.

Securities-backed lending (SBL) is a powerful financial tool that allows clients to borrow against the value of their non-qualified, non-retirement investment portfolio while retaining the portfolio’s integrity. As a proactive measure, SBL can offer several advantages for financial professionals and their clients.

What is securities-backed lending? 

Securities-backed lending (SBL) is a wealth management solution that can be opened anytime with no fees, so it’s ready to go when your clients need cash. It can be a smart way for you to support your clients and can be considered for a variety of large expenses, ranging from tax payments to a real estate purchase, from emergency cash to a home renovation.

Here are some key points about SBL:

1. Collateral: SBL uses assets such as stocks, bonds and other non-retirement investments as collateral. Tax-advantaged retirement accounts cannot be used for securities-based lending.
2. Credit lines: Lenders calculate credit lines based on the value and type of assets in the portfolio. Typically, they advance a percentage of the pledged assets (e.g., XX% of stocks, mutual funds and ETFs).
3. Distinct from margin loans: While similar to margin loans, SBL has an essential difference: Clients can use the credit line for various purposes except buying more securities or paying down a margin loan.

Beyond borrowing

Clients tend to think of debt as a negative when it comes to their overall financial picture, but when debt is leveraged properly it can actually be enriching. SBL can allow your clients to fulfill other financial goals without having to liquidate their available funds or assets. This gives them the flexibility to pay off existing debt or let their portfolio grow instead of having to liquidate assets to cover financial needs.

A scenario worth considering

There is a common fear of entering retirement with too much debt — or worse yet, passing away with debt. But ask your clients which of these options they would prefer:

      A. Leaving a $5 million inheritance with no debt

      B. Leaving a $10 million portfolio with $2 million of debt

Borrowing in itself is not a bad thing, as long as it provides an overall net value. SBL can help your clients do that.

Consider securities-backed lending

1. Peace of mind: Proactively opening an SBLOC provides clients with ready access to cash when needed without selling assets.
2. Tax efficiency: By avoiding liquidation of securities, clients sidestep capital gains taxes and allow their investments to continue to generate returns.
3. Cost effectiveness: SBL uses your client’s non-retirement investments as collateral, so rates tend to be lower compared to other lending options.
4. Interest rates: Even during high-interest rate environments, SBL rates remain competitive.
5. Flexible repayment: Clients can choose repayment options that suit their financial situation, including interest-only repayment options with no rigid payment schedule.
6. Asset retention: As a financial professional, you retain assets under management while supporting your clients’ needs.