By Mark Barnicutt on December 8, 2021
Many people often incorrectly assume that affluent families don’t need to borrow money because they have money. Although on the surface, this may be true, the reality is that affluent families will periodically borrow money for various reasons, mostly tied to investment and/or business reasons.
As a result, truly holistic advisors will assist families managing their full balance sheet, which includes both assets and liabilities. I believe this to be a strategically important area for affluent families because, given their wealth, they’re similar to mini-wealth management businesses, and as all prudently run businesses – including family offices – look to optimize both sides of their balance sheet.
The Lending Challenge For Affluent Families:
The challenge for many affluent families, though, is that the lending business has become highly commoditized over the past couple of decades, and so it’s often difficult for affluent families to obtain lending advice that incorporates their unique needs as an affluent family, is objective and integrates both their assets and liabilities.
Although many accountants will provide this level of advice to affluent families, far too few wealth advisors focus on this area. As a result, this is where we believe that a properly structured virtual family office can assist families to ensure that they’re achieving optimal lending solutions given their unique set of goals and tolerance for risk.
How Can Wealth Advisors Help Affluent Families:
An experienced wealth advisor should be able to assist families optimize their lending solutions by focusing on the following four areas:
- Selecting A Suitable Lending Institution(s):
Given the complex financial structures and needs of affluent families, local bank branches are often not a suitable lending solution for affluent families. Instead, such families need to work with more sophisticated lenders who understand their financial structures (i.e., holding companies, family trusts, operating companies, etc.), their various sources of income as it’s not always employment income and be prepared to tailor their lending products and service offerings to the needs of these types of families. Although such lenders do exist in Canada, they’re not always easy to find, which is why affluent families often need a referral to such lenders from a qualified and experienced wealth advisor.
- Structuring The Lending Solution:
Affluent families typically desire tailored lending solutions that respect the uniqueness of their family financial structures (i.e., holding companies, family trusts, etc.), the composition of their family assets – which can include both public & private investments as well as real estate, combined with the variability of their cash flows.
For instance, the ‘location’ of borrowings for affluent families is very key. Specifically, with the appropriate advice from their accountants, family borrowings may not always make sense to be conducted personally but instead make better sense within non-personal structures such as holding companies or family trusts. Additionally, affluent families often seek lending solutions that are customized with respect to repayment terms, encompassing both revolving lines of credit and fixed term loans.
- Securing The Lending Solution:
Depending upon the size of the loan request, most lending institutions will seek some form of guarantee and/or collateral as assurance of repayment. Given the variety of assets typically held on an affluent family’s balance sheet (i.e., public & private investments as well as real estate), a wealth advisor should be able to assist families in ensuring that what’s being requested from a given lending institution is both fair and reasonable given the circumstances.
- Loan Pricing:
Affluent families may not always know if the loan pricing that they’re being offered is a competitive rate. For this reason, an experienced wealth advisor can assist with this by either negotiating improved pricing or having pre-established pricing with select lending institutions that offer competitive rates.
By working with an advisor who can assist clients in optimizing their lending solutions, affluent family clients will have the comfort that they’ve optimized their balance sheets from both a risk and cash flow perspective.
It’s for this reason that HighView provides this type of lending solution facilitation to our Virtual Family Office clients.