Advisors with LPL Financial can now offer clients securities-backed loans through Goldman Sachs Private Bank’s GS Select program.
At the start of the program last summer, Goldman Sachs said it was eyeing private wealth management firms unaffiliated with banks. The addition of LPL’s more than 15,000 advisors means the private bank has netted one of the largest networks of wealth managers in the country. The independent broker/dealer is now among 40 independent advisory firms and b/ds in the program, the bank said Tuesday.
Whitney Magruder, a managing director at Goldman Sachs Private Bank who leads the GS Select business, said most of the firms using the program have come via the bank’s partnership with Fidelity Investments’ clearing and custody business. LPL does its own custody and clearing so the private bank worked directly with the IBD. GS Select will be available to all of LPL’s advisors immediately.
On the economics of the relationship, Magruder said Goldman Sachs bears the risks of the loans and while there are no revenue-sharing activities when the bank works directly with RIAs, there is flexibility with the b/ds.
While he could not share specific details of the arrangement with LPL or others using the lending program, Magruder said the drivers to offer securities-backed lending to clients is less about the economics and more about enabling financial advisors to offer clients the loans.
By participating in GS Select, LPL advisors have another service to offer clients, as wealth managers increasingly offer more holistic advice beyond managing clients’ investments.
Clients too can borrow between $75,000 and $25 million against the value of their securities—including stocks, bonds, mutual funds or exchange traded funds—and the loans can be used for any purpose, such as a home renovation, to cover tax obligations or for traveling. Unlike other securities-backed lending solutions, GS Select’s technology enables speedier loan processing that, from start to finish, takes less than 24 hours. There is little-to-no paperwork involved.
In addition, the loans themselves and the assets a client borrowed against are fully transparent to the advisor, who manages the loan, incorporates it into a client’s plan and reviews it with him or her. At other institutions, advisors who refer clients to a private bank or elsewhere to get a securities-backed loan can lose touch with that debt and find it challenging to advise and inform a client on it, Magruder said.
There are stipulations clients need to meet to be eligible to borrow against their investments. They must have at least $150,000 in non-retirement assets, sufficient collateral to cover the amount borrowed, good credit and be a U.S. resident. If the value of a borrower’s underlying securities fall below the value of their loan, the bank is authorized to liquidate their holdings. The borrowed money also cannot be used to purchase more securities.
Loans through GS Select are originated by GS Bank and the collateralized securities are still held by borrowers at the partner firms.
Interest in wealth management has grown at Goldman Sachs, though other banks historically are better known for their trading and investment banking. CEO Lloyd Blankfein recently said at the Credit Suisse Financial Services Forum that the bank’s private wealth management unit expects to grow its advisor workforce by 30 percent before 2020. In 2017, the unit brought in $3.1 billion in revenue from just over 700 advisors.