Goldman loan program to help LPL advisors tap HNW clients

LPL Financial advisors just got a new tool for their clients under a securities-based lending program — once again pairing the largest independent broker-dealer with investment banking giant Goldman Sachs.

The offering will particularly help advisors servicing high-net-worth accounts, experts say. Goldman Sachs Private Bank Select will allow clients easy liquidity, Whitney Magruder, a managing director of Goldman’s Private Bank, said this week. Advisors, he adds, will get greater oversight than with other bank loans.

The firm’s 15,200 advisors will receive no commissions for the Goldman loans, according to LPL. The loans also carry the risk of interest fees piling up over time or a plunge in the value of the securities used as collateral.

However, GS Select will alert both advisors and clients if they’re getting close to a maintenance call, Magruder says. Advisors also have a platform to check anytime on the status of the loan. The firms have a 20-year relationship highlighted by Goldman acting as a lead underwriter in LPL’s $470 million IPO in 2010.

So-called non-purpose loans help clients keep their money invested and aid firms in keeping assets on their platform. The lending program is “an effort to increase the share of wallet” among HNW clients, says Greg McBride, the chief financial analyst at personal finance website Bankrate.com.

“It’s that high-net-worth consumer that is really the holy grail of financial services,” McBride says. “They invest more money, they borrow more money and they have the lowest risk of defaults.”

GS Select launched in July under a strategic relationship with Fidelity Clearing & Custody Solutions, which has resulted in similar programs at roughly 40 other BDs and independent firms. Clients may borrow between $75,000 and $25 million against their accounts at the one-month Libor rate, plus a spread.

Libor rates, March 2018

The loans charge no other fees, and tying the loans to securities rather than a long application process speeds them up from a timeline of several weeks to one of a few days or less, Magruder says. The ability to refer clients to the platform instead of an outside bank has proven to be advisors’ favorite aspect of the loans, he says.

When outside banks get involved, “that generally means the client goes someplace else, and the advisor has very little insight into what’s happening,” Magruder says. “It’s a very transparent process, so they know what’s happening with the loan as opposed to being in the dark.”

The arrangement also permits advisors to work through hypotheticals from their desktops, LPL super office of supervisory jurisdiction manager Rich Dragotta points out. Dragotta founded the Paramus, New Jersey-based INC Advisors, and his OSJ consists of more than 100 advisors with $5 billion in client assets.

LPL also offers securities-backed loans through The Bancorp and TriState Capital Bank. Goldman brings name brand appeal for clients, though, while allowing them to keep their invested assets in the firm’s custody and avoiding any potential capital gains, Dragotta says.

“It’s a solution for those high-net-worth folks who need a cushion,” he says. “It’s a nice line of credit. Long term, you’re focused on growing your assets. Short term, you’re focused on liquidity. And that’s where the two cross.”

HNW clients do command the most borrowing power, though, so it always helps to check for alternative loan types or providers that may have better rates, McBride of Bankrate.com cautions. Even so, GS Select offers advisors a useful new capability, he says.

“Today’s $5 million client could be the $25 million client of tomorrow,” McBride says. “They want to retain that business and grow that relationship.”

For reprint and licensing requests for this article, click here.
High net worth Independent BDs Independent advisors Tax planning Tax avoidance Client strategies LPL Financial Goldman Sachs Fidelity Clearing & Custody Solutions
MORE FROM FINANCIAL PLANNING