One of the best parts of my job working across Wealth Management and Private Banking at Investec is that I see just how resourceful many of our clients are when it comes to major life events.
This resourcefulness is often a response to their unique needs. When they’ve spent a career in leadership roles, or building businesses for themselves, it’s second-nature. It’s the same approach they then take to investing. These are people who don’t leave cash sitting around for a rainy day, they’re actively putting their money to best use, either building their wealth or preserving it for the long-term.
But when the unexpected happens, this resourcefulness is put to the test. It could be something they didn’t see coming: a higher-than-expected tax bill, for example. Or it could be an opportunity that they won’t let themselves miss, like the chance to reinvest into a business or to make a property purchase. Either way, it’s a time when our clients need liquidity.
Often clients' immediate thought process is to sell down their investment portfolio. However, that could potentially trigger a Capital Gains Tax liability or it might just be the wrong time to sell down their investments. So what are the alternatives?
Many clients are using a portfolio loan, also known as a ‘lombard loan’, to borrow against their discretionary or advisory investment portfolio rather than selling it down.
This lets our clients take advantage of new opportunities as they present themselves, allowing them to stay in the market. With interest rates among the lowest in living memory, many clients view borrowing against their portfolio as a compelling option. It’s also a loan that can be quickly arranged, with the proceeds paid into an account of the borrower’s choosing.
Speak to a Private Banker about your needs
Let me bring this to life. I have a client who is a highly successful entrepreneur and who has a long standing relationship with Investec Wealth & Investment (IW&I). A few years ago, he was facing a large tax bill.
Now, our client certainly had sufficient funds in his IW&I account to pay this bill. However, by liquidating the portfolio, he would have faced a Capital Gains Tax liability, not to mention the missed opportunity from being out of the market. So instead, we provided a loan secured against his discretionary managed portfolio.
The original plan was to repay that loan from a business dividend the client expected later in the year. But we discussed his options and the client decided that, with interest rates low, he would be better placed to invest the dividend into his portfolio, rather than paying back the loan.
It’s a compelling solution for a client who knows there’s no substitute for time in the market. While taxes are a fact of life for all our clients, it takes real resourcefulness to find ways to meet these obligations, while still reaching their investment goals.