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The Bancorp SBLOCs: Designed with Clients’ Portfolio Health in Mind

James Forwood, Director of Banking Solutions | Institutional Banking | 4/22/2020 2:23 PM

During times of market volatility, lending can play an important role in maximizing investment performance and maintaining healthy liquidity. However, it needs to be designed and executed as a partnership between lenders and their clients, the investors, with a focus on each client’s investment objectives rather than solely on the risk-reward formula of the lender.


For over a decade, The Bancorp has been providing Securities-Backed Lines of Credit (SBLOCs) to third-party Broker-Dealers, Turnkey Asset Management Programs, and Registered Investment Advisors. With our “Always A Partner” commitment, we designed our SBLOC program to complement wealth management strategies, maximize value, and minimize potential risks to advisors and their clients.


Some lenders will overextend credit to win new business, creating heightened risk to the underlying assets and the client’s long-term investment objectives. During periods of market turbulence, these same lenders may attempt to reduce their own risk by recommending portfolio liquidation to the client, resulting in untimely taxable gains, losses and/or other disruptive consequences to the investment strategy.1

Conversely, The Bancorp incorporates conservative advance rates, which have been shown to increase account resilience to market shocks and help clients weather market volatility.2 Our SLBOCs have high-quality collateral requirements and additional risk management procedures to preserve portfolio assets throughout the lifecycle of the loan. As a partner to our advisors and their clients, we believe that day-to-day decisions regarding portfolio makeup are best left to the owner and their licensed financial representative.

The Bancorp SBLOC program is designed to help advisors and their clients succeed in finding liquidity to meet immediate needs while preserving wealth and supporting portfolio growth. Alongside a mix of objective-based planning and portfolio diversification, SBLOCs can also enable investors to weather a downturn and rebound along with the broader markets.


1 Most lenders provide ≥95% release on cash; liquidating positions may therefore increase lendable value by removing credit risk to the lender while locking-in downside or negating future upside for the client.

2 While some banks offer loan commitments of 65% or higher on equities, The Bancorp typically advances roughly 50% on the asset class to ensure accounts can handle market shocks; portfolio diversification also plays a major role in the advance-rate calculation.

Securities-based borrowing has special risks and may not be suitable for everyone. Consult a financial advisor about any associated risks. Consult a tax advisor for tax-related matters and an attorney for legal matters. The Bancorp Bank does not provide financial, tax or legal advice.

 

The opinions, findings, or perspectives expressed in this content are those of the author and do not reflect the official policy or position of The Bancorp, Inc., its affiliates, or its or their employees.