The Credit Conversations Advisors Should Be Having With Clients

Written By: Peter Stanton |  Advisor Credit Exchange

In the age of the holistic advisor, more and more wealth management professionals are pivoting and making the transition to include banking and lending services in their overall offering. Given the current market environment and the fact that many clients are worried about a potential recession, the timing perhaps couldn’t be better.

During these times of uncertainty where cash is king, many clients want to know they have liquidity options to help them meet any unexpected needs that may arise in the near future. However, the thought of selling stocks in a down market is never a comfortable position to be in. This is where credit conversations – prudent credit conversations - can enable advisors to discuss options for liquidity that don’t include selling low and buying high. 

Despite the importance of credit management with overall financial planning, a recent Spectrem Group study reveals that 84% of clients are looking for financing solutions from their advisor, yet only 4% say advisors are meeting this need. But now many leading advisors in the industry are moving in this direction. According to research from Cerulli & Associates, the share of RIA advisors who offer their clients banking services (such as mortgages, securities-backed lending, and cash management) doubled from 2014 to 2020. [LINK:]

Being Prepared

Credit options can offer clients access to liquidity without disrupting their investment portfolio and financial plan. They can consider leveraging investments and/or property to help address current needs, rather than being forced to sell any assets at a loss. Some advisors have other credit options available where pledging assets (investments or real property) is not required.

Even if their needs aren’t pressing, these conversations can give clients peace of mind amid the current expectations for a slowdown in the economy against a backdrop of rising interest rates. They want to be sure they won’t be caught short and having liquidity options on the table can offer reassurance. 

For an advisor to be a true “lending advisor,” it is important to provide guidance and offer a variety of credit options for clients. The primary options typically available include securities-backed lines of credit loans, lines of credit backed by real property, or unsecured “Signature” loans. Having these conversations ahead of time, including discussing several options, means clients never end up having to sell investments hastily in order to cover the unexpected.

The safest option is for clients to have a credit facility in place that can be leveraged at a moment's notice, when needed. Setting up, for example, a securities-backed line of credit can happen in a matter of days with no cost until the line of credit is used.

The Bigger Picture

In addition to protection and financial planning resources, wealth management professionals with access to credit solutions are at an advantage compared to those still offering only the more traditional asset-centric services. This is enabling them to be more proactive in doing what advisors do best -- offering advice, counsel and guidance to clients on how to achieve their financial goals. These advisors are better equipped to address a client’s entire financial picture, which includes much more than investments held in a portfolio.

For example, home financing is likely to be the largest credit need for most clients – and perhaps even their largest financial need. And the wrong mortgage at a great rate is, put simply, a bad choice. An advisor who knows a client’s financial profile and has access to credit solutions can help educate on the fact that “it ain't just rate.” There are other key dimensions to a loan product that the advisor can weigh in on, such as risk tolerance, what the entire context of the mortgage is in the overall financial plan, how long the person needs to live in the home for the mortgage to make financial sense and more. 

This same type of advice can be applied to all credit facilities, in addition to mortgages. Loan options can help advisors support a variety of client financial goals, including cash flow, education, home purchase/refinance, business investment, tax obligations and other large-ticket needs. As we close out National Credit Education Month in March, advisors should embrace the idea that credit plays a major role in a financial life.

In 2023, advisors should have access to credit solutions that empower them to offer holistic advice to clients. Advisors who focus solely on asset management risk losing clients to others who can manage their portfolio and provide guidance on and access to credit solutions – especially in today’s turbulent times.

Peter Stanton is CEO of Advisor Credit Exchange, which is a technology-empowered network that brings together lenders and wealth managers, enabling investment firms and advisors to deliver financing solutions to build their clients' net worth and meet their financial goals.

Related: What a “Whiplash Market” Implies for the Balance of the Year