The best shift I have seen in the financial advisory industry is that we are moving away from selling products to providing advice. Value does not only come from the services your firm provides; rather, the ability to identify outside solutions that are connected to the work you are doing can be equally, if not more valuable, to a client. It can enhance the trust in a relationship because a client has the knowledge you are bringing a solution to them without any monetary benefit to you or your firm. A great example of this is the ability to identify and solve a banking problem through the use of an investment portfolio. Here a few scenarios where you can find a value connection between banking and investments:
1. Pledge Asset Line
Let’s use the example of a High New Worth (HNW) client who has a substantial cash need to fund a project on which she is working. She has most of her net worth in both investment accounts with our firm and a few different real estate investments she handles on her own. A few of the real estate deals are not going to wrap up in time for her to fund her project; additionally, her cash need is coming during the throes of a stock bear market. She does not want to have to sell her liquid investments in a tough market nor does she want to have to worry about paying tax on any capital gains that would be triggered from those securities sales.
Each of these considerations make her a great candidate for a Pledged Asset Line. Essentially, our firm can set up an account that borrows against her investments. This provides her with two benefits:
1. The ability to get the cash she needs in a relatively short time frame
2. The ability to forego selling her investments at an inopportune time
This type of solution can be a great fit for people who are having timing issues with their cash flow. It can allow you to wait out tough markets or create a bridge loan for those that know they have cash coming their way but not as soon as they need it.
2. Administrative Trustee Services
In working with clients, I have noticed that the larger the estate, the larger the concern about how fast the next generation may spend it. A lot of parents trust their children implicitly, but they have a valid concern about the ability to make sound financial decisions on a huge estate at a young age (where “young” seems to be defined as any age below 50). Parents want their children to be able to access their wealth, but it would be comforting to have some sort of “check and balance” in place.
This is where an administrative trustee can be a great fit. An administrative trustee is typically an unbiased third party that can step in and assist with the handling of your assets after you pass away. Firstly, this team can help with the tax filing and recordkeeping that comes along with trusts that are set up after your death. More importantly, the trustee can assist in coordinating with your heirs to handle when your assets should or should not be distributed. They can be the source that approves a $50k distribution that helps your daughter start a business or the buffer that stops a $50k distribution for your son’s trip to Vegas. Many times, you can set this up so that the trustee does not step in until after your death which can be a cost-efficient way to put this in place early on and give you confidence about your estate plan.
3. Mortgages and HELOCs
You have probably heard or experienced that having more money at your bank will increase the number of benefits for which you may qualify. This may come in the form of higher interest rates on savings accounts or lower fees on banking services. However, even though many people have most of their net worth in their investment accounts, they do not look to see how they can leverage similar benefits through their custodian.
If your custodian has a banking arm, you may want to ask your advisor if there could be a banking benefit because of the assets you have with the custodian. If you’re contemplating a big purchase, you may be able to leverage a mortgage rate discount or at least get a second opinion on a mortgage offer you are considering at your current bank.
As advisors, we use the term “comprehensive wealth management” a fair amount, but hopefully the above examples show what that can actually mean in practice. It is about connecting the dots between your different wealth areas to maximize your opportunities. As always, please call your advisor at McCabe to see if any of these solutions might be a good fit for you.
George McCabe, CPA
Financial Advisor
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.