The Savannah Bananas became a sensation by asking a question that traditional baseball had largely ignored: What do the fans actually want? They kept the heart of the game but removed much of what people disliked, including the slow pace, long pauses and feeling that spectators were almost incidental to the experience.
Financial services might benefit from the same exercise. Most clients do not want more jargon, longer presentations or investment products in search of a problem. They want to know whether they are making smart decisions, whether their advisors are communicating with one another and whether the advice they receive is truly in their best interest.
Debt is a good example. Most people dislike owing money for perfectly reasonable reasons. Interest has an irritating habit of arriving every month, even when investments decline, business slows or an opportunity fails to work out as planned. Borrowers also dislike variable rates, complicated loan documents and the possibility that a lender may demand additional collateral at precisely the wrong time.
Financial advisors have not always helped the situation. Calling a loan a “strategic liquidity solution” does not make the monthly interest charge feel any better. Neither does answering a simple question with a dense presentation, several acronyms and the dependable phrase, “It depends.”
Still, borrowing against a portfolio can be useful for the right investor. A margin loan or securities backed line of credit may provide cash for a real estate purchase, business opportunity, tax payment or other liquidity need without requiring the immediate sale of appreciated investments. This may allow more of the portfolio to remain invested and could help avoid an untimely taxable sale.
The benefits, however, must be considered alongside the risks. Interest rates can rise, investments can fall and a lender may require more collateral or repayment. In a severe decline, investments might be sold when the owner would otherwise prefer to remain patient. When leverage works, your capital continues working. When it does not, the debt continues working too, usually without taking weekends off.
The financial industry often begins the conversation by telling clients how much they are eligible to borrow. A client focused approach should begin with a different question: What are you trying to accomplish? The amount a lender is willing to provide is a borrowing limit, not a financial recommendation.
That distinction matters because the best answer may involve borrowing, selling investments, using available cash or combining several approaches. It may also involve deciding that the purchase or opportunity is not worth pursuing. A good advisor should be just as comfortable recommending no loan as recommending one.
This is also where trust is earned. Clients are understandably suspicious when an advisor begins with a product, glosses over the downside or cannot clearly explain how the advisor is compensated. They want someone willing to discuss the costs, the risks, the alternatives and what happens if the original assumptions prove wrong.
At Stonewater Financial, we believe financial advice should be organized around the client rather than the product or institution. We consider how each decision fits with the client’s investments, cash flow, taxes, business interests, estate plan and long term family goals. We also coordinate with the client’s CPA and estate attorney so major decisions are not being made independently by professionals working from different information.
As wealth grows, the issue is often not a lack of advisors. It is the lack of coordination among them. An investment decision can create tax consequences, affect liquidity and complicate an estate plan, which is why the entire picture should be considered before anyone signs on the dotted line.
The Savannah Bananas understood that a better experience begins by paying attention to the people in the seats. Stonewater takes a similar view of financial advice. We may not dance during meetings or wear yellow tuxedos, but we do believe clients deserve clear answers, honest conversations and a strategy designed around what they actually want to accomplish.
If your financial life feels more complicated than coordinated, schedule a complimentary 15 minute introductory call with Stonewater Financial. It may be time to experience what happens when your investments, planning and advisory team finally begin working together.
This material is for general informational purposes only and is not intended as individualized investment, tax or legal advice. Borrowing against securities involves interest costs and additional risks, including possible collateral calls or forced liquidation. Consult your financial, tax and legal professionals before implementing a borrowing strategy.
