A Look at a Tax Savvy Solution for Addressing Liquidity Needs
In a recent interview with Supernova’s Loan Operations Manager, Austin Mead, he shared trends and insights that he has seen during tax time as well as tips on how you can support your clients as they navigate what solutions are available to them for paying their tax bill.
Clients Are Looking for Holistic Advice
There is a growing trend of clients expecting more from their financial advisors. According to McKinsey, the share of investors looking to simplify their financial relationships by having banking and wealth management under one roof has risen from 13% in 2018 to 22% in 2021. It’s increasingly important to take a holistic approach and have a wide range of solutions. Clients are looking for more than investment advice, they are looking for proactive tax planning, estate planning, and debt planning to name a few.
A TRENDING SOLUTION FOR TAXES
The conversation started off with Mead recalling the record number of service requests and new lines/draws that Supernova saw in the last couple of years during tax time, particularly last year. “We saw about 50% of all draw requests being used for tax payments from 4/1 - 4/18.” He went on to share that since 2020 each tax season has been getting busier and busier for his team. “New lines and balances were growing daily due to the reactive demand for a securities-based line of credit or SBLOC, which was mostly driven by capital gain tax obligations.” Mead then went on to share concerns about the down market but was still optimistic since Supernova data is still showing a steady increase for the first 4 weeks of the year though not quite as high as last year.
Typically, in a down market, many advisors encourage their clients to hold on to their investments and ride them out versus selling them off, staying true to the investing for the long-term strategy. Regardless of what strategy a client may have, if a client has liquidity needs, securities-based lending has been a trending solution to recommend at tax time. When talking about the measures Supernova’s partners put in place to ensure their clients avoid elevated risk, he shared that each lending partner has proactive credit policies in place to hedge against their clients falling into a collateral call. Advisors are also in close communication with their clients through the advisor and client portals. “Our unique tools allow for advisors to have educated conversations with their clients about where their portfolio stands vs. the outstanding loan balance. Having the insight to advance rates on certain securities plays a huge role in those conversations around rebalancing, paying down the loan, and even raising cash.”
When asked what the top three most common reasons for people opening a line or using a line during tax season, his response was that general liquidity is number one, followed by strategic ways to avoid capital gains from the market and capital gains from our booming real-estate market the past few years. When asked when the most active time was leading up to Tax Day for line openings and/or usage, his response was that shortly after the beginning of the year, there is a steady increase through Tax Day, but the most active time period was April leading up to Tax Day.
TIMING IS EVERYTHING
As Austin mentioned in the interview, since the beginning of the year, each week, there has been a steady increase in line opening and usage. It’s important to start having conversations early with clients to ensure they are prepared for Tax Day and have access to liquidity when they need it.
To learn more about securities-based lending, contact us today!
A shortened version of this article was published on BankDirector.com.
 Baghai, P., D’Amico , A., Zucker, J., Salvo, A., & Golyk, V. (2022, February 16). US wealth management: A growth agenda for the coming decade. www.Mckinsey.com. Retrieved January 17, 2023, from https://www.mckinsey.com/industries/financial-services/our-insights/us-wealth-management-a-growth-agenda-for-the-coming-decade