Observable Client Behaviors (OCBs)

Strategic Credit Solutions

Family Office or RIA Wealth Advisors are in a unique position.  They are, by definition, in a position of great trust.  According to work published by the CFA Institute, the families surveyed said that the most important attribute they look for in choosing a Wealth Advisor is that they be can trusted to act in the client's best interests.

To fulfill this expectation of trust these advisors must be knowable regarding the many areas important to the overall financial health of the client and their family.  Multi-generational financial planning, tax planning, investment management, insurance management, family governance, risk management, banking advice, and Strategic Credit advice, are all important components of every HNW or UHNW family's financial solution. Wealth Advisors will ofter partner with other professionals whose specific area of expertise enhances the client's ultimate financial solution in all these areas.

With the trust client families afford their advisors, often comes the opportunity to observe the inner workings of family decision making and their resultant behaviors.  Advisors are in a unique position to observe behaviors that have financial impact of the current and, many times, the future generations of their client families.

With regard to the behaviors HNW or UHNW families exhibit, they can generally be classified into two groups.  Those behaviors where the advisor is asked to aid in the decision making regarding the best way to fulfill the clients' planned actions or those situations where the advisor is simply directed to make capital funds available to fulfill actions the client has already taken.

Often times the the financial solution related to many of actions discovered from these "Observable Client Behaviors (OCBs)" can be aided by the use of a Strategic Credit facility.  The word strategic in the term Strategic Credit relates to the reason or purpose the HNW or UHNW client would use leverage and the credit facility usually differs in term, rate, collateral and repayment from that with which the the client might be familiar.  It is not the typical loan or line of credit that most all banks make readily available to these clients.

As part of a financial solution Strategic Credit might be used:
1. instead of the typical loan or line of credit with which the client might be familiar or,
2. the use of portfolio cash or a portfolio liquidation to raise cash. 

"Strategic Credit” will always provide the client with the opportunity to realize “Quantifiable Economic Benefit (QEB)." This economic benefit can be measured and generally be classified in one of two ways; those solutions where Strategic Credit can offer cost savings over the more traditional mass market credit available or those solutions where, by the use of Strategic Credit, the client's cash that would be otherwise utilized in the planned action can be or remain invested over the term of the Strategic Credit’s outstanding.

Becoming familiar with these OCBs can put wealth advisors in a unique position of offering and demonstrating the QEB that a tailored Strategic Credit Solution can provide. Below is a chart outlining a few of these OCBs. I think the client behaviors will ring true with each of you. You have likely been asked for help and given advice around each of these situations.

As this blog progresses, I will post Strategic Credit Solutions that can be used when these OCBs arise and describe how each solution has the potential to provide the client with QEB.

A Few Observable Client Behaviors Examples

Purchase of a Residence or other Major Asset; e.g., Planes, Yacht, Equip	Asks for help to find the “best” purchase money mortgage  in the market
Refinancing the Debt on their Primary or Second Home	Asks for help to find the best refinancing alternative that may include “cashing out some of their equity”
Making a Private Equity Investment	Asks for cash withdrawal from their investment accounts (which often times leads to need to “re-balance” the accounts to replenish the cash allocation)
Funding the Capital Needs of Family Members or Family Investments Entities	Asks for multiple cash withdrawals from their investment accounts (which often times leads to need to “re-balance” the accounts) or you are asked to arrange  multiple market rate loans to family members or family entities
Has Obtained Non-Mortgage  Debt in the Past	You learn about debt that originated possibly before becoming a your client or from a local banking connection
Operates a Commercial Business that has Debt Financing Needs	You learn that the business borrows commercially to fund its operations
Uses GRAT’s to Pass Estate Value to Future Generations	Has had GRATs fail because the per share value declines from its height during the GRAT term before termination to less that its contribution value  or has simply been able to pass less value on in a successful GRAT because of  the assets’ market value declines from it zenith during the term
Now Owns or is Contemplating the Purchase of High $ Life Insurance	Is funding or plans to fund future premiums through “gifting” or family "loans" to an Irrevocable Life Insurance Trust

Don't hesitate in calling or emailing me if you like to discuss the topic further.  

Mark S. Johnson
Strategic Credit Solutions
404.909.5167
mark.johnson@strategiccreditsolutions.com