Schwab Advisor Services has rolled out a fully digital lending service giving advisors fast access to a portfolio-collateralized line of credit for their clients. Working from within the advisor platform with pre-populated forms, advisors can, in some cases, secure the credit for their clients within hours, instead of weeks.
Schwab executives announced the program during Schwab’s annual IMPACT conference last November, and the service was rolled out over the summer.
The ‘Pledged Asset Line,’ accessed via the Schwab Advisor Center platform, is one step in a broader strategy of using Schwab’s affiliated bank to provide more services for advisors’ wealthiest clients, said SAS Managing Director of Client Experience Jalina Kerr.
“We've been hearing loud and clear from our advisors that they would like us to be able to support them, not just on the credit side, but the deposit side too,” Kerr said. “So, we are exploring different things that we could do to make sure the optionality around cash—and cash yields especially, which are certainly top of line for advisors and their clients right now—is something we can deliver.”
Through Schwab Bank, advisors are currently able to set up linked checking and savings accounts for clients, as well as mortgages and home equity lines of credit through a partnership with Rocket Mortgage. Other services, including sweeps on uninvested, interest-earning cash and money fund and CD purchasing, are available within SAS brokerage accounts.
Advisors were previously able to access securities-based lines of credit through the bank, but the process was, according to some advisors, cumbersome and time-consuming. The new online platform reduces the time it takes to secure the credit from weeks to, at most, a few days, and in some cases as little as a few hours, depending on the size and complexity of the loan.
“What was taking three to five weeks can now be done inside of a week,” said Dan Fasciano, director at GW&K Investment Management, a Boston-based investment firm with close to $49 billion in assets under management. Fasciano estimated that around three-quarters of the $4.5 billion managed under his firm's private wealth business are custodied by Schwab.
“It’s all secure email and pre-completed forms and just, done digitally, the process is now so low friction,” he said. “For clients needing that kind of liquidity, it’s a game-changer.”
Soft-launched in July, the PAL service became available to all advisors in August. Kerr said a bank-side resource has also been developed to provide concierge-style service for ultra-high-net-worth advisory clients in need of other bank products.
The new tool is part of a bid to increase engagement with the wealthiest clients of affiliated advisory firms, she said—and not just the largest firms.
“When we set out to look at the ultra-high-net-worth population of advisory clients, we figured they would be predominantly stationed in the larger advisor space, over a billion-plus,” she said. “Not the case. We have over 50% of advisors with ultra-high-net-worth clients that sit in the sub-billion space. I think that helped us understand this is an opportunity for advisors of all sizes. Accordingly, the offers we're building are meant to help them with clients of those sizes, not just focusing on an advisor of a certain size.”
In addition to facilitated lending services, Schwab is working to build out other services for UHNW clients that advisors are asking for, such as white-labeled credit cards and other bespoke products. Kerr said Schwab currently offers credit cards for qualifying UHNW investors through American Express, but she declined to speculate regarding who might be engaged to design, build and deliver the new offering.
“A huge priority for Schwab as a whole is deploying resources and products that can support those ultra-high-net-worth clients of RIAs,” she said. “We want to make sure that we're meeting the needs of advisors while also certainly respecting the fact that the RIA is the fiduciary in these situations and should be choosing cash solutions that work best for their clients. So, we want to utilize the bank in regard to that.”
Under the digitized lending service, there is a minimum $100,000 credit line and interest rates are indexed to the Fed's overnight loan rate, currently at 5.3%, plus a spread tied to the size of the loan. Schwab intends to limit credit to 70% of underlying collateral to hedge market-related risk, depending on the types of security included. While most portfolio assets can back the loans, long-term illiquid funds are generally avoided, as are certain assets managed by third parties, Kerr said.
Simple applications might be approved in a matter of hours, but more complex situations can require up to five days. The digital platform is set up to guide the selection of collateral assets, customize proposals and easily access the credit. Advisors can view the progress of various proposals and loans at every stage from creation to closure on a single platform.
“It just creates a more end-to-end view for both the advisor and their client as they’re going through it,” said Kerr. “They’ve got a one-stop-shop now to see all of this and have visibility into the balance of the account, how much draw-down they’ve used and what the client is getting relative to the interest rate.
“Our goal is to be beating the competition relative to price,” she added.
While securities-based loans are widely available through a range of traditional and tech-driven service providers, only Goldman Sachs appears to be advertising a solution that can be completed on a comparable timeline.
“There is a reason why lending offices exist,” said Alois Pirker, founder of wealthtech advisory firm Pirker Partners. “They’re taking things like risk into consideration. If you want to extend any business processes out through a digital interface working at much faster speeds, it needs to be handled very carefully and you have to have really good underlying data. That is a non-negotiable.
“I'm sure Schwab has thought through that, how to get on top of the potential risk because of course on one side you don't see the assets go out of your firm, so you keep them enlisted, which is good for Schwab and good for the client if the market's developed the right way,” he said. “But, of course if the market goes sour, they might not only lose money on the lending, but also might lose a client that gets disgruntled. So, it’s a double-edged sword, but I can see why it's a perfect time to do it if done well.”
SAS and Schwab Bank will highlight a host of additional updates to banking services for advisory clients during this week’s IMPACT conference in Philadelphia, according to Kerr.
“We've invested a lot of space on the floor for the bank to demonstrate the enhancements they've made, so there’s going to be an increased footprint there, and we've certainly done a lot of work to up-level our offerings for advisors relative to technology,” she said. “The things that we've focused on the most are relative to high volume activities that advisors are engaging in.
“We've redesigned all our money movement capabilities, including a lot of work to shore up the risk that is associated with money movement and the ever-creative fraudsters out there, and we've done a lot of work there to weave in a thoughtful experience that allows the advisor to engage the end client so that we're again securing those assets.
“That's job No. 1 for us,” Kerr said.
