Why loan advisory is important for IFAs

Advising the client to shift the loan to a cheaper provider will establish the positive value of your advice.
By Guest |  26-06-18 | 
No Image
About the Author
Morningstar invites thought leaders from the investment community to share their insights. Views expressed are personal and should not be construed as investment advice.

Do you want to show value to your prospective client even at the preliminary discussion stage itself?

Do you want to know about the highest return fund for parking your client’s contingency fund?

Do you want to know whether it makes sense for your client to take a loan to fund his child’s higher education even if he has the funds already invested?

If the answer to any of these questions is “Yes” then you need to make sure that loan advisory is an integral part of your financial advisory practise.

Most clients who come to you are likely to have availed of a home loan. A quick investigation    reveals that if the loan is more than a year old, it is likely to be far higher than the prevailing interest rate of 8.35% p.a. Advising the client to shift the loan to a cheaper provider or even to shift to a cheaper interest rate with the same loan provider even as he is evaluating your overall service offering is likely to establish the positive value of your advice.

You should also learn about the powerful offset loans made famous by SBI as SBI Max Gain, but many other lenders have similar or better products at far cheaper rates. Offset loans effectively convert a regular home loan into an overdraft home loan where you can park your temporary and permanent cash surpluses and save interest at the same rate as your home loan. At the same time these surplus amounts can be withdrawn at any time like any other normal bank account. Effectively offset home loans allow your clients to have a savings account that pays interest at the home loan rate. I cannot imagine a more appropriate investment vehicle for your client’s contingency money.

You have probably assisted your clients to invest appropriately for their children’s higher education. Your able guidance might have led the client to already have the necessary corpus required for funding her child’s education. Yet if the client is a high tax payer it might be worthwhile for her to take an education loan to fund the education and use the investment amounts to pay off the loan instalments. This can end up saving many percentage points p.a. on the investment for your clients and you can justifiably claim that as his adviser you have generated an alpha. Those of you who provide comprehensive financial planning for your clients will realise how difficult it is to get all the financial data from them. If you are providing loan advisory services, the client will necessarily have to provide his asset/liability and income/expenditure data for the loan application and you will only need additional data on goals and objectives to be able to plan comprehensively for your client.

Best of all is that even as loan advisory generates additional value for your client and eases your data gathering process. It also serves as an additional source of revenue for you.

The above three questions are only a small sub-set of questions on loans that you are probably already solving for your clients in some manner. It is best that like the other parts of your financial advisory practise you should equip yourself with professional knowledge and partner with an appropriate organisation to add this valuable facet to your financial advisory practise.

This post by Harsh Roongta, a SEBI Registered Investment Adviser, first appeared in Network FP Think Tank magazine.

Add a Comment
Please login or register to post a comment.
Mutual Fund Tools