Integrating Banking and Lending into Your Advisory Practice

IN THIS ARTICLE

• Manage Clients’ Full Financial Lives
• Step Into the “Here and Now”
• Manage Liquidity and Financial Tradeoffs
• How to Strengthen Client Relationships
• Banking and Lending as a Competitive Advantage
• The Growth Opportunity for Advisors
• Go Beyond the Portfolio
  

Bringing Advisors Into Clients’ Daily Financial Lives

The heart of wealth management lies in helping clients secure their financial futures. It’s about developing financial plans and portfolios designed with a goal to build wealth for them, their children, and their grandchildren to enjoy later.

Banking and lending, which is just as vital as a client’s wealth plan, is more about the present. It pulls advisors directly into the center of their clients’ daily financial lives. It’s in the “here and now.” The challenge is – many advisors shy away from banking and lending due to its perceived complexity and risk.

It’s true that people’s daily financial lives have become increasingly complicated, fragmented, and stressful. Long gone are the days when people sat down at the kitchen table on Saturday mornings to balance their checkbook. Life is more complicated now.

At the same time, there are more ways for people to pay – bill pay, Venmo, PayPal, and Zelle are just a few examples.

Paying for more things in more ways, especially when paying from different accounts at different firms, makes it harder for people to get their arms around their spending and cash flow.

Layer in supporting kids in their peak spending and tuition years, helping elderly parents to pay their bills and manage their money, or running a small business with an additional set of books, and things get exponentially more complicated.

Why Advisors Should Step Into the “Here and Now”

It’s no wonder why some advisors want to stay away from all of this, particularly those who have built successful practices by focusing exclusively on those financial futures. They don’t want to get sucked into the messiness, and they don’t want to risk losing their client’s investment portfolio over a disputed credit card transaction they have no control over.

Despite all of this, we believe financial advisors should step into the “here and now,” provided they work with a firm capable of handling their clients’ daily financial lives.

Advisors who embrace this opportunity will:

• Strengthen client relationships
• Help ensure their clients’ financial futures stay on track
• Grow their practices faster

Given the context of how things have changed, it’s not surprising to learn that an increasing number of people want to simplify and consolidate their financial lives with someone they trust. In fact, a McKinsey study found that 52% of respondents prefer to receive holistic advice.¹

Leading wealth management businesses have recognized this and built the products, services, digital experiences, and, increasingly, artificial intelligence capabilities needed to help clients feel organized and in control of their daily spending activity.

Helping Clients Manage Liquidity and Financial Tradeoffs

Leading firms can also help their clients manage their liquidity – the lifeblood of people’s daily financial lives.

People can create liquidity in a few different ways:

• They can, and do, hold cash. But how much cash should they hold given the opportunity cost of holding it?
• They can sell investments to free up cash, but again, they’re forgoing investment returns on that money and may be creating a tax liability.
• Or they can borrow and stay invested, but they will incur interest on the loan.

Each of these options involves tradeoffs, and they impact both sides of their balance sheet, which means these choices also impact their financial futures.

That is precisely why no one is better suited to helping clients make these choices than their financial advisor. Their advisor sees their whole financial picture, knows their financial plan, and can help them to stay on track.

How Banking and Lending Strengthen Client Relationships

Adding Value

As advisors help their clients manage their spending and liquidity, they add value to another dimension of their client’s financial lives, thereby strengthening their client relationships. And in doing so, they diversify their own “performance” beyond those of their portfolios.

Increasing Retention

Client relationships also become stickier through integrated banking solutions. The high switching costs associated with deposits and spending initially can make this portion of clients’ portfolios difficult to acquire, but they likewise make it harder to take away.

Lending especially plays a role in making assets and client relationships stickier. In addition to providing yet another liquidity solution to the client, the assets serving as collateral stay invested in the market, which helps with asset retention.

Reaching the Next Generation

These solutions can also help advisors build relationships with the next generation of investors. After all, most people’s first engagement with the financial system is through saving and spending. Embracing the broader mission of helping clients raise financially responsible children can take those relationships to a whole new level and increase the likelihood of retaining assets when they are handed down to the next generation.

Banking and Lending as a Competitive Advantage

Instead of looking at banking and lending as a potentially risky, discretionary extension of their core business, advisors should view it as a moat that can protect and retain their client relationships in an increasingly competitive marketplace.

For advisors looking to build their client base, banking and lending is essential when competing to acquire high-net-worth clients. Larger firms are especially well known for serving their clients holistically by meeting their clients’ banking and lending needs. As a result, advisors will be more successful in winning these clients if they have competitive banking and lending solutions to offer.

The Growth Opportunity for Advisors

Client development, retention, and acquisition are the ultimate growth trifecta, so it comes as no surprise that we see that advisors using banking and lending solutions are growing their AUM² and their client bases faster than their peers who have not yet adopted these solutions.

At LPL Financial:

• Advisors who have adopted banking and lending have grown their AUM 39%² faster over the last two years³
• Advisors who have adopted banking and lending have grown their client base 28% faster over the last two years⁴
• Our most successful advisors use banking and lending solutions at a higher rate

And finally, advisors may have an opportunity to expand and diversify their revenue model by generating direct revenue streams from banking and lending solutions, depending on the firm they work with.

Helping Advisors Expand Beyond the Portfolio

Here at LPL, we believe in the power of banking and lending and its ability to transform client relationships – and further drive advisor growth. We’re working to further enhance solutions, all while giving advisors flexibility in how they incorporate banking and lending into client relationships, so they can maintain the independence and autonomy that define their businesses.

Contact LPL to explore how we can help you can bring this value to your clients and expand what’s possible for your business.