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Securities lending remains an attractive option for investor clients

By on May 5, 2022 0

Even in a rising interest rate environment, clients beyond the wealthiest can access securities-based lines of credit to meet their goals while preserving their assets..

Many wealthy individuals have reached a level of security from which they have various options for making large purchases. Equity-based lines of credit can offer these individuals the freedom to access funds quickly and easily — for planned or unplanned expenses — while preserving their long-term investment strategy.

It is true that today’s financial environment is simply unpredictable, as we are seeing rising interest rates for the first time in decades, with some economists even forecasting the possibility of a recession. Yet, for some well-qualified borrowers, equity lines of credit remain viable and even prudent options for accessing cash while preserving capital.

A reminder about securities loans

Securities loans are consumer financial instruments secured by an existing investment portfolio. For clients who have accumulated sufficient assets, this solution offers a way to obtain immediate liquidity without disrupting their investment strategy.

Securities lending allows clients to retain control of the assets pledged as collateral and avoid having to liquidate securities at an inopportune time. They also offer the ability to use eligible business, trust, personal, or third-party accounts to obtain funding.

Clients and advisors can choose to access equity-based funds because this option is:

  • Competitive, with rates that may be lower than traditional loan solutions.
  • Soft, under its terms, with funds that can be used for a wide variety of purposes.
  • Liquidproviding quick access to funds via ACH or wire transfer.
  • Simplified, offering fast credit approval (often within days instead of weeks or months).
  • Fiscally advantageousthus avoiding having to sell securities likely to lead to capital gains tax liability.

Balancing securities lending with market developments

These days, many investors are taking a more cautious approach. After all, together with their advisor, they have a strategy in place to weather the volatility of the past few years and whatever the future may hold. As the market goes up and down, they may wish to avoid being forced to sell securities when funds are needed quickly.

Borrowers may be taking a break because interest rates are rising for the first time in years. But since qualified borrowers for title loans typically have high net worth as well as exceptional credit ratings, they usually qualify for very attractive rates. This will not change, compared to other borrowing options, even if rates go up.

Title loan options also offer several other attractive features. Often these instruments have no installation or maintenance costs. Funds are usually available very quickly, often within days. And of course, they offer the possibility of avoiding the triggering event of a sale of securities.

There are a few caveats. Due to the inherent volatility of the market, if the value of a client’s assets declines significantly, a lender may require borrowers to deposit additional cash or liquidate a portion of the portfolio to cover the difference. To avoid facing this situation, some advisers recommend that borrowers not exploit the maximum loan value of their portfolio at any given time, except for very short-term needs.

Not just for the super rich

Borrowers for these types of lines of credit include high net worth individuals and small business owners looking for flexible options to manage today’s financial needs while protecting their wealth and maintaining their goal of business appreciation. capital.

The spotlight on title-based lending is sometimes on ultra-wealthy borrowers who can leverage their investments to buy a yacht or a private jet — uses that may make sense to them. But the instrument can also offer a sensible option for a much wider group of investors who want to make an all-cash offer on the property, finance renovations, buy business inventory, invest in a franchise or cover expenses. important studies.

For others, a title loan can provide emergency cash without being hit by capital gains tax at an already difficult time. And it can provide an option to maintain existing cash reserves in the face of rising interest rates, while providing the increased flexibility these borrowers have come to expect.

Choose a lender wisely

Independent brokers often lack the built-in resources of a large monetary central bank while facing the constraints that come with it. Still, independent brokers have the option of offering a white label securities-based lending product. Partnering with a bank that extends the capabilities of advisors for their clients can allow them to do much more based on their relationship of trust.

One company that appreciates this approach is Matson Money, a registered investment adviser that manages more than $9 billion for more than 30,000 individual clients across the United States through its relationships with more than 500 independent financial advisers.

Matson Money works with Western Alliance Bank, Member FDIC, as part of its key strategy to provide all the services their customers need. This approach is particularly in demand among digital native investors, millennials and Gen Zers, who are accustomed to managing all of their financial needs in one place, from the comfort of their phones.

According to Founder and CEO Mark Matson, “Western Alliance Securities-Based Lending offers independent financial advisors working with Matson Money the ability to provide key private banking solutions to their clients, providing a valuable competitive advantage.”

About the Author

Daniel Babayan is Managing Director of Western Alliance Bank’s Securities Lending Group. A 30-year veteran of the banking industry with extensive expertise in the securities lending industry, he leads the team that provides equity-backed lines of credit designed for clients of independent broker-dealers and registered investment advisers. Contact him at 602-389-3531 or [email protected]

*All credit offers are subject to credit approval, satisfactory legal documentation and regulatory compliance.
*Consult your tax advisor