When a client has a large expense, consider securities-backed lending

10/09/2024 — Key takeaways:

• Securities-backed lending, or SBL, can be an attractive alternative to a HELOC, a personal loan or selling assets.
• SBL allows clients to borrow against the value of their portfolio while keeping the portfolio intact and working for them.
• As a financial professional, you can help clients access the cash they need while keeping assets under management.

When a client faces a large expense—whether a sudden need or a long-planned purchase—there are several funding options that they’re likely to consider. These include a home equity line of credit (HELOC), a personal loan, or perhaps liquidating some non-retirement assets such as stocks or bonds. 

That client might not be aware of another option: securities-backed lending (SBL). SBL works by using the client’s non-retirement portfolio as collateral for a line of credit. While your clients might not know about SBL specifically A CEG Insights (formerly The Spectrem Group) study found that 62% of those surveyed said they prefer for all their financial planning needs to be met by a single provider.¹ So considering the option of SBL to solve for a client’s large expense could be an expansion of your practice.

Potential benefits of SBL

Clients borrowing against the value of their portfolio instead of liquidating assets has advantages for both of you: your client avoids the risk of incurring capital gains tax, and you keep the client’s assets under management.

Another appealing benefit of SBL from your client’s point of view is that holding onto their assets means they can continue to receive benefits such as dividends, interest and appreciation. And if they’re eager to leave a legacy to their heirs, preserving the portfolio can be a more thoughtful long-term plan.

Perhaps the most compelling reason that SBL could be a suitable solution is that interest rates tend to be lower than those of a traditional loan—and the cost of funding via SBL usually compares favorably vs. a HELOC, too. Unlike a traditional term loan, most types of securities-backed lines of credit don’t have a stated maturity or fixed repayment schedule, giving clients more flexibility to manage the line of credit as they wish. 

What SBL can be used for

SBL 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. But it should be noted that a securities-backed line of credit cannot be used to purchase additional securities. 

Final thoughts

Offering SBL can be an opportunity to enhance both your practice and your client relationships. Presenting a securities-backed lending solution might solve your client’s need today, and doing so could help deepen your relationship with that client over the long term. Nationwide offers an SBL solution called Smart CreditSM, which you can learn about here.