Supernova Technology’s Loan Operations Manager, Austin Mead, recently shared trends, and insights that he has seen during tax time, as well as tips on how banks can support their clients as they navigate what solutions are available to them for paying their tax bill.
There is a growing trend of clients expecting more from their financial advisor. The share of investors looking to simplify their financial relationships by having banking and wealth management under one roof has risen from 13% in 2018 to 22% in 2021, according to consultancy McKinsey & Co. It’s increasingly important that banks take a holistic approach and have a wide range of solutions. Clients are looking for more than investment advice; they are looking for proactive tax planning, estate planning and debt planning, to name a few.
A Trending Solution for Taxes
Mead recalls the record number of service requests and new lines or draws that Supernova saw the last couple of years during tax time, particularly last year. “We saw about 50% of all draw requests being used for tax payments from April 1 to April 18.” Since 2020, each tax season has gotten busier and busier for his team. “New lines and balances were growing daily due to the reactive demand for a securities-based line of credit or SBLOC, which was mostly driven by capital gain tax obligations.”
Mead says he’s concerned about the down market but was still optimistic since Supernova data is still showing a steady increase for the first several weeks of the year — though not quite as high as last year.
Typically, in a down market, many advisers encourage their clients to hold on to their investments and ride it out verses selling them off, staying true to investing for the long-term strategy. Regardless of what strategy a client may have, if a client has liquidity needs, securities-based lending has been a trending solution banks can recommend at tax time. When talking about the measures Supernova’s partners put in place to ensure their clients avoid elevated risk, Mead says lending partners have proactive credit policies in place to hedge against their clients falling into a collateral call. Advisers are also in close communication with their clients through the adviser and client portals.
“Advisers can have educated conversations with their clients about where their portfolio stands versus the outstanding loan balance. Having insight to advance rates on certain securities plays a huge role in those conversations around rebalancing, paying down the loan, and even raising cash,” he says.
Mead says the top three most common reasons clients open or use a line during tax season is general liquidity, followed by strategic ways to avoid capital gains from the market and capital gains from real estate sales over the past few years. After the beginning of the year, there is a steady increase for line openings and/or usage through Tax Day, but he says the most active time period was April, leading up to Tax Day.
As Mead says, since the beginning of the year, there has been a steady, weekly increase in line opening and usage. It’s important banks start having conversations early with clients to ensure they are prepared for Tax Day and have access to liquidity when they need it.