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7 Ways Top Wealth Managers create Value for Clients using Loans, Credit & Leverage

Most clients request for borrowing advice and facilities only when they need it, such as when buying properties, car, having credit debts or needing business loans.

Common Borrowing Requests:

  • Property Loans
  • Car Loans
  • Credit Card Loans
  • Business Loans

These are needs-based transactions which often, the least turnaround time and lowest cost win. This creates little value for clients.

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To increase value and charge higher fees, financial institutions packaged them so that they become a one-stop service provider, creating basic value by offering more options and thus saving time for clients.

Top Wealth Managers bring these borrowings, loans, credit and leverage to a whole new level.  Saving time and cost is not their primary concern.  Below are 7 ways how top Wealth Managers create value for their clients.


No. 1 Creating Opportunities using Credit, Loans & Leverage

Fund Trends
Fund Trends

When everyone else is borrowing for basic financial needs, top wealth managers share with clients how using borrowings can create more opportunities.

Instead of using the full $1 Million of cash to buy a $1 Million apartment, they advise clients to pay only the downpayment, and use the remaining for investments.  The money also becomes their liquid funds for other opportunities or emergency needs.


When housing prices are declining and banks refuse to lend money for buying the next apartment, clients will have available cash to use for the downpayment.  Even when they are not thinking about the next purchase, the cash on hand is available for them to use.  This is especially useful for clients when they enter into retirement, most banks do not provide loan facilities to them or provide very low loan quantum.  This is because they no longer have income earning ability, which may impact future their ability to repay the loans.


No. 2 Running into Crisis

Bank Crisis
Bank Crisis

We never know when ourselves will run into a life crisis, especially a financial one.  Wealth Managers know most clients prefer not to borrow money.  But when crisis comes, and there is an urgent need to get a substantial sum of money, where do they get it from?

Many clients panic and start selling whatever they have to raise cash.  Because they are in a rush, many sell their assets at a much lower price than it is worth.

Top Wealth Managers often prepare clients for crisis so that when they need to take a loan, they don’t have to educate clients on the primary obligations and risks of borrowings.  They may already have a credit line available for immediate use.  Along the way, they can discuss if there is a need to sell some assets, which assets and they could finance the loan through the returns from their investment portfolio.


No. 3 Liquidity – Too Much or Too Little

Many clients either keep too much cash or too little cash.  Keeping too much cash means they are not being invested for potentially higher returns.  This can impact the compounded returns severely over time.

Keeping $100,000 in Cash over 10 Years and 20 Years:

Period Returns Compounded Value Amount Lost
10 Years 5% $162,889 $62,889
10 Years 8% $215,892 $115,892
20 Years 5% $265,329 $165,329
20 Years 8% $466,095 $366,095

Most clients fell into the liquidity trap of keeping too much cash.  Although the rule of thumb is to have 6 months of liquidity, this effectively wipes out a huge amount of returns over time.  The above illustration shows that keeping $100,000 over 20 years means a loss of $366,095 if the rate of return is compounded at 8% annually.


No. 4 Portfolio Credit Planning

Portfolio Allocation
Portfolio Allocation

Portfolio credit planning is an advanced portfolio solution, not known to many wealth managers.  This solution is usually not well-documented, though it is commonly practiced for large institutional funds – in the form of measuring factors on credit risks, liquidity risks and systemic risks.

Most portfolio constructions are used based on modern portfolio theory which seeks to enhance returns while reducing systemic risks through portfolio diversification.

Portfolio credit planning balances the need for efficient capital allocation and the value of credit / loans available by securitising the portfolio.

Example of Assets with Lending Value :

  • Real Estate
  • Investment Portfolio
  • Insurance Policies
  • Other Assets (Eg. Cars, Luxury Watches, Gold)

For example, a client with $1 Million of assets in real estate means that the maximum available loan depends on the bank’s lending policies, the client’s age and income profile. Older clients would only be able to tap onto a small loan as their repayment ability declines.


No. 5 Credit History

Cash on Hand
Cash on Hand

Borrow only when you need it and the bank will charge you the highest rate because of your ignorance.

Top wealth managers advise their clients to build a strong credit history so that they are able to negotiate for lower borrowing cost.

Learn More: 7 Secrets how the old rich achieve success with wealth managers

No. 6 Interest Rates Forecast

Yield Curve
Yield Curve

Finance is complex to most people – Numbers crunching, legal documents and forecasting a future we have no control over.

Top Wealth Managers frequently update and educate their clients on interest rates forecast.  There is no better way to understand the relationship between risks and returns by getting client to place a deposit in a bank at 2% annually and then borrowing at 3% annually.  As with most clients’ reply: “it doesn’t make sense to borrow one’s money.”

But if the client could borrow at 3% and invest to get 5% returns, that would open up a new chapter of conversation.


No. 7 When Leverage Stops, the Economy Stops

A Fast-Paced Singapore City
A Fast-Paced Singapore City

Deposits in banks pay interests because companies and individuals are borrowing – these generate economic activities.  When lending, borrowing, loans, credit and leverage stops, the economy stops and sinks into a long recession or deflationary era.

Top Wealth Managers advice clients when to take advantage of leverage and when to reduce leverage, way before most people do.  Learn More: How Leverage & Margin can reduce Risks


These are 7 Ways Top Wealth Managers create Value for clients using Loans, Credit & Leverage.  Read More: Different Types of Loans, Credit & Leverage Facilities

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