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Ingredients for Growing Your Business

Helping clients manage their liabilities gives you an opportunity to build your practice.

By Adrian Nazari

A client walks into your office. The market has him down. His retirement account is not where he’d like it to be. He has a new baby and wonders where he’ll find the funds for her college education. What does the future hold?

As a financial advisor, you have the power to help this client reach his goals. In fact, with the right services in your business, you could help him find the funds he needs to increase his retirement savings and save for his daughter’s education today. You could change his whole outlook in a matter of minutes.

With today’s economy, financial advisors are seeing many clients who are worried about the market and their future. They want to save more, they want to get out from under their debt, and they want to save for their children’s education, but simply do not know how to make it happen.

Advisors want to make it happen. They work to mix just the right amount of ingredients—securities, bonds, mutual funds, 401(k)s and more—to bake the perfect cake for each client: the cake with the words “financial security” written on top.

An advisor’s performance can be measured by looking at how many liabilities he converted to assets in any given period.

But often one key ingredient is missing: liability management. While most financial advisors have long lists of ingredients to manage assets, their liability cupboards are often bare. And that means advisors today are ignoring an important part of their clients’ financial well-being.

According to recent data published by the Federal Reserve, U.S. consumers hold more than $8 trillion in liabilities. These are mostly in the form of mortgages and equity loans but also in credit cards, auto loans and other forms of debt. This debt can be a burden on any investor trying to build his portfolio. Yet managed properly, debt can positively contribute to net worth. With a careful plan, an investor can actually generate assets from debt.

The total financial advisor is one who understands and helps his client with debt as well as assets. To best manage a client’s finances, an advisor must look at both sides of the balance sheet: assets and liabilities. In doing so, he can find the cash to start funding a 529 plan for a client’s daughter and build his retirement account as well. And that’s not just good news for the investor; that’s good news for the advisor as well. Helping clients better manage the liability side of their balance sheets offers a tremendous growth opportunity for the advisor’s business.

A liability-management service
To build a liability-management service into your practice, you need to look at a client’s total liability picture. While mortgages are often the biggest liability, they are rarely the only debt in the client’s portfolio.

Once you have discussed all liabilities, take the following steps to help your client and grow your business:

First, treat liability management as equal to asset management. Make the commitment to assist clients with their debts as well as their assets. Find a strong liability-management partner to acquire the right tools. This partner can perform back office services; tap into a lot of financial institutions; walk you through the transaction process; handle the fulfillment and processing of the liability plan; and educate you on how to translate liability-management services into the growth of your business. Also, include liability-management services and tools on your website with 24/7 access and transactional capabilities for your clients.

Second, find funds for your client. Once you are set up to offer liability services, the most important step to growing your business is helping your clients reassess their debt and determine where money can be found and saved. The key is to find an Internet-based total liability-management service that helps you “find” funds for your client, that can save your client thousands of dollars each year and can provide transactional capabilities to implement the chosen plan on demand.

An internet-based, liability-management service allows an advisor to enter general information about his client and his liabilities into a web interface. The service will calculate scenarios for restructuring the debt based on the information entered and will match the best provider and product for each scenario.

The advisor is then given several options to present to the client. Each option, matched with the appropriate provider, will include a monthly cash flow and tax savings.

For example, let’s say the client who is looking to increase his retirement savings and build a college fund for his daughter has a $450,000 home with a $300,000 mortgage and $2,000 in monthly payments. The client also has a $10,000 car loan with $400 in monthly payments and a credit card with a balance of $5,000 and a $300 minimum monthly payment. By plugging this limited information into your liability-management service, you could present this client with several plans that could generate anywhere from $200 to $300 to nearly $1,000 in monthly excess cash flow and tax savings in today’s market, depending on the client’s financial profile and lifestyle. Once the client selects a plan, it can be implemented online right away, providing better cash flow, more tax savings, and funds for that retirement plan and 529 plan.

Third, reallocate “found” funds into assets. The beauty of providing total liability-management services is that the advisor helps the client find the money to fund a solid, asset accumulation or preservation plan. “Found” funds can be converted into any number of assets, such as mutual funds, 529 funds, annuities and retirement programs.

Fourth, understand the varying factors that contribute to total liability management. Mortgages are managed based on the fluctuation of rates. But rates are not the only factor when looking at the total debt picture. An advisor should manage liabilities based on different axes that impact clients at different times. For example, the advisor must consider the following factors:

  • Risk tolerance: What is the client’s willingness to take risk?
  • Life cycle: Is the client close to retirement? Does the client need access to equity? Is the client looking to buy his first house? Does the client have children who will go to college? Does the client care for elderly parents? The answers evolve through the stages of the client’s life.
  • Economic cycle: What are interest rates currently? Where are we in the cycle and will rates likely go up or down?
  • Goals: What are the client’s investment goals?
  • Cash flow needs: Are there short- and long-run life events that must be considered?

Finally, shoot for a high “L2A.” L2A, or the “liability to asset” number, is the total dollar amount that an advisor converts from liabilities into assets. An advisor’s performance can be measured by looking at how many liabilities he converted to assets in any given period. For example, how much cash did an advisor free up for his clients in one year? The cash can then be reallocated into asset-accumulation products. And the L2A number can provide a strong indication of an advisor’s worth.

Adrian Nazari is chairman and CEO of Financial Circuit ( For more information, contact Tuyen Fiack at 408-369-3528 or


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