Broaden your role by providing clients a securities-based line of credit

Posted by Mike Lover, VP, Key Accounts, E*TRADE Advisor Services on March 28, 2019

Successful financial advisors realize that building a thriving practice today requires more than just offering financial and investment guidance to clients. You may want clients to view you as their personal CFO: someone at the center of their wealth management team who is overseeing their entire financial situation.

This comprehensive service includes both sides of the client’s balance sheet—income and expenses, assets and liabilities. Is it time to expand your thinking beyond your current support, and include additional services that enable you to help clients manage more of their financial big picture?

Helping clients with debt management

For most clients, their big financial picture includes debt management. Many clients need guidance when it comes to using debt in the most practical and cost-efficient ways.

While excessive and irresponsible debt can lead to serious financial problems for clients, there are situations where assuming debt is both a reasonable and prudent financial strategy. Taking on a home mortgage is probably the most obvious example. Borrowing money to start a new business, take advantage of unexpected business opportunities, or pay for big-ticket items are other situations where assuming debt may be appropriate.

In your role as a personal CFO for your clients, you should be prepared to help them strategize when debt makes sense and what kind of debt is most appropriate. For example, a line of credit often can provide clients with the flexible financing they need to meet a wide range of different financial needs.

Going beyond debt consulting

You might offer clients a line of credit that enables them to borrow money for situations like these using their eligible investments as collateral. This enables them to strategically unlock the value of their portfolios and maximize their liquidity.

The E*TRADE Line of Credit by Supernova Technology, for example, is a non-purpose revolving line of credit offered by E*TRADE Savings Bank.1 It enables clients with $50,000 or more in individual and joint brokerage accounts2 to borrow up to 50% of their eligible collateral market value3 for a wide range of purposes, using securities held at E*TRADE Advisor Services as collateral for the loan.

Offering the E*TRADE Line of Credit as a financing solution for your clients could yield several benefits for your firm. Perhaps the biggest benefit is that it will further cement your position as a personal CFO who offers a complete range of financial solutions to your clients. This, in turn, can help deepen your clients’ relationships with your firm.

In addition, offering a line of credit could provide you with a key competitive advantage that helps boost your client retention rates. Clients may be less likely to switch to another advisor who doesn’t offer this kind of flexible financing tool.


Maximizing financial flexibility for clients

Your clients could also reap benefits4 by establishing an E*TRADE Line of Credit. Perhaps the biggest benefit is that they can monetize the value of their investment portfolio without having to liquidate their holdings. This enables them to keep their long-term financial strategies intact and realize appreciation due to market gains.

Clients will also enjoy flexibility when it comes to repaying funds—they can make interest-only payments each month if their cash flow is tight, or apply additional payment amounts to principal reduction. The application process via the Liberty platform is fast and easy, and clients receive a prompt answer usually within a few business days.

Interest rates on an E*TRADE Line of Credit are typically more attractively priced than many other lending options. There are no application fees, points, or closing costs, or other hidden fees or expenses, and there are no prepayment penalties—clients can close the line of credit at any time without penalty.

Borrowed funds can be used for practically any purpose, including purchasing real estate, financing a start-up business, making home improvements, paying outstanding taxes, buying big-ticket items, or covering unexpected medical bills or home repairs. However, funds can’t be used to purchase investment securities or repay margin loans—the E*TRADE Line of Credit is not a margin account.

Discuss risks and suitability with clients

It’s important to discuss the potential risks involved in securities-based lending with your clients, as well as determine whether this kind of financing tool is suitable for their particular financial need. For example, if the client’s pledged collateral declines in value, he or she may have to provide additional funds or securities to avoid a maintenance call. And if the client loses more funds than are held in the collateral account, he or she will be held liable for any deficiency.2

Broadening your role

A securities-based, revolving line of credit may represent an opportunity for you to broaden your role and help your clients manage more of their financial big picture, including their debt. It enables clients to take advantage of the borrowing power of their investments and give them the freedom to use the funds when it best suits them. As a holistic provider of financial planning support to your clients, you may find a securities-based lending tool a useful feature for your business.

Investment Products: Not FDIC Insured - No Bank Guarantee - May Lose Value.

  1. The E*TRADE Line of Credit is offered by E*TRADE Savings Bank, a federal savings bank, Member FDIC. The E*TRADE Line of Credit is subject to bank and credit approval. Eligible collateral must be maintained at E*TRADE Securities LLC or E*TRADE Savings Bank. E*TRADE Savings Bank and E*TRADE Securities LLC are separate but affiliated companies. Nothing herein should be interpreted as imposing an obligation on E*TRADE Savings Bank to lend. Proceeds from the E*TRADE Line of Credit may not be used to purchase securities or pay down margin loans and may not be deposited into an E*TRADE Securities LLC account or into a brokerage account. Rates, terms, and conditions are subject to change without notice. If any of the pledged collateral for the E*TRADE Line of Credit is held in an E*TRADE managed portfolio, failure to satisfy a maintenance call may result in the termination of any applicable advisory agreement.
  2. Clients are required to maintain a minimum level of eligible securities in their collateral account. A decrease in the market value of their collateral may require them to deposit additional cash or securities. All collateral is subject to approval and E*TRADE Savings Bank may change its collateral requirements at any time.
  3. Clients may be able to borrow up to 50% of their eligible collateral market value, at E*TRADE Savings Bank’s discretion. In some cases, due to certain risk factors like security concentration or liquidity issues, the amount clients can borrow may be less.
  4. Please note the following and determine whether a line of credit would be suitable for your client: If the client’s pledged collateral declines in value, the client may have to provide additional funds or securities to avoid a maintenance call; if the securities in the collateral account drop below the value of the amount borrowed, the client will be held liable for any deficiency; E*TRADE Savings Bank can liquidate securities pledged as collateral without notification to the client, who is not entitled to choose which securities are liquidated; adverse tax or other consequences may occur if the client’s assets are liquidated; collateral maintenance requirements can be modified at any time without prior notice to the client; clients are not entitled to an extension of time to resolve a maintenance call; and E*TRADE Savings Bank may demand full or partial repayment of funds at any time, as well as elect not to advance additional funds to the client.

The E*TRADE Line of Credit is powered by the Briteline platform of Supernova Technology™. Clients may be contacted by companies working on E*TRADE Savings Bank’s behalf to service the client’s Line of Credit, including Supernova Companies™ or Supernova Technology™.

E*TRADE is a registered trademark of E*TRADE Financial Corporation.

The E*TRADE Financial family of companies provides financial services, including trading, investing, investment advisory, and banking products and services, to retail customers.

Securities products and services offered by E*TRADE Securities LLC, Member FINRA/SIPC.

E*TRADE Savings Bank and E*TRADE Securities LLC are separate but affiliated companies.

Neither E*TRADE Financial Corporation nor any of its subsidiaries, including E*TRADE Savings Bank, is affiliated with Supernova Companies, LLC™.

Nothing herein should be interpreted as an obligation of E*TRADE Savings Bank to lend.

E*TRADE, E*TRADE Advisor Services, and Liberty are registered trademarks or trademarks of E*TRADE Financial Corporation. All other trademarks mentioned herein are the property of their respective owners. Product and service offerings are subject to change without notice.

E*TRADE Savings Bank and its affiliates (“E*TRADE”) do not warrant these products, services and publications against different interpretations or subsequent changes of laws, regulations and rulings. E*TRADE does not provide legal, accounting, or tax advice. Clients should always consult their own legal, accounting, and tax advisors.

© 2019 E*TRADE Financial Corporation. All rights reserved.

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