AE Wealth Management has launched a securities-based lending solution for advisors on its platform, expanding its service offering beyond traditional investment management to help address clients' liquidity needs.
The Kansas-based registered investment advisor and TAMP provider with more than $50 billion in AUM said its new SBL offering is available to individuals, trusts, and organizations, carrying no fees or prepayment penalties, giving clients the flexibility to draw or repay funds according to their changing needs.
In a Wednesday asnnouncement, the firm positioned the securities-based lending solution – which allows clients to borrow against eligible investment assets including stocks, bonds, ETFs, and mutual funds – as a way to help address short-term cash flow needs around business investments, real estate purchases, and education funding.
"Our securities-based lending provides advisors with another flexible and personalized planning resource to deliver liquidity without disrupting their long-term investment strategies," said Shannon Larson, president of AE Wealth Management.
Larson joined AE Wealth Management in February after six years at Osaic, and brings more than 25 years of industry experience to the role, including previous senior positions at LPL Financial and Cetera Financial Group. The firm has set an ambitious goal of growing to $250 billion in assets under management by 2035 – without taking on private equity or outside investment.
Securities-based lending allows a client to use the market value of their investment portfolio as collateral for a revolving or lump-sum loan. The proceeds can fund business investments, real estate purchases, education costs, or short-term cash flow gaps – virtually any purpose other than purchasing additional securities on margin.
The appeal for advisors is considerable. Clients avoid triggering capital gains taxes from selling appreciated positions, maintain their existing asset allocation, and retain market exposure while accessing liquidity. For the advisor, it can also deepen the client relationship by bringing both sides of the balance sheet into view.
Kevin Thornton, head of sales at AE Wealth Management, said the firm views the product as an extension of the planning process.
"When used appropriately, securities-based lending can help advisors address liquidity needs in a way that complements a client's broader wealth strategy," Thornton said. "By incorporating this capability into our offering, we're giving advisors another resource to help clients pursue opportunities with greater confidence and flexibility."
AE Wealth – which has roughly 500 advisors, all independent 1099 contractors – counts approximately $25 billion of its AUM in managed strategies including model-based and direct indexing portfolios. It has also positioned its comprehensive wealth planning capabilities as a key differentiator from wirehouse and W-2 models.
The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have both issued investor alerts on securities-backed lines of credit (SBLOCs), warning that what appears to be a low-cost, flexible liquidity tool carries meaningful risks that are sometimes downplayed.
FINRA's guidance for investors on SBLOCs notes that lenders can change which securities are eligible as collateral without notice, potentially reducing a client's borrowing capacity overnight. The SEC's Office of Investor Education and Advocacy separately cautioned in 2015 that market volatility can amplify potential losses and, in a forced-sale scenario, could significantly disrupt a client's long-term investment plan.
In 2016, Massachusetts Secretary of the Commonwealth William Galvin charged Morgan Stanley with "dishonest and unethical conduct" after the bank allegedly ran high-pressured internal sales contests in Massachusetts and Rhode Island where brokers could earn cash bonuses for generating securities-based loans. The contests, though officially prohibited by Morgan Stanley, reportedly tripled the pace of loan origination and added $24 million in new loan balances, according to Galvin's office.
Such cases are less likely to happen in a post-Reg BI environment, where client interests are more protected. That applies particularly as well to RIA-affiliated advisors who operate under a fiduciary standard.
AE Wealth's decision to add SBL is consistent with a broader trend of independent platforms and broker-dealers building out the full suite of services once available mainly at wirehouses.
According to industry reporting, independent firms – including Osaic, which was formerly known as Advisor Group, and LPL – have launched similar programs powered by third-party lending platforms as they compete for advisors who want the client service breadth of a large institution with the structure of an independent model.
"We are continually focused on delivering innovative solutions to help advisors better serve their clients' evolving needs," Larson said.
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