Host: Rob Miles, Senior Vice President, Wells Fargo Private Bank
Guest: Brian Singsank, Senior Private Banker, Wells Fargo Private Bank
Hello, I'm Rob Miles, Senior Vice President for Wells Fargo Private Bank, and this is "Your Financial Journey" — a podcast series that explores common financial issues that we all face. I am joined today by Brian Singsank, Senior Private Banker for Wells Fargo Private Bank, to discuss why you may want to review your credit and liquidity strategies in a rising interest rate environment.
Welcome, Brian, and thanks for joining us today.
Hi, Rob. Thanks for having me.
Brian, we are entering a phase of the economic recovery where interest rates are rising. What impacts are investors likely to see in this rising interest rate environment?
We believe rising interest rates can have a direct impact on three important financial areas: investment portfolios, credit portfolios, and liquidity needs. Let's focus on credit and liquidity needs because we know that many investors utilize leverage as a tool to help them manage and reach their financial goals. And, clearly, the outlook for interest rates may impact how investors use credit to address these goals.
Brian, all very true — and we've also seen that investors use leverage to help address a variety of financial goals, such as optimizing cash flow, increasing tax efficiencies, maybe financing purchases, and managing investment allocations — and, for many, realizing their wealth planning goals. Given the changing interest rate environment, what are some themes you discuss with your clients?
Rob, we've been actively engaging with our clients to review their wealth plans and related credit and liquidity needs now, while rates remain low. There are a couple of themes that are good to keep in mind at this point in the economic cycle.
First, lines of credit remain a good choice to help manage a client's short-term liquidity needs as rates remain low by historical standards. In a changing interest rate environment, we remind our clients that they should remain vigilant and monitor the benefits and costs of borrowing if rates continue to rise.
Second, down the road, increased rates may impact our clients' purchasing power for big-ticket items (such as homes, boats, and airplanes) that are traditionally financed over longer periods of time. In discussions with our clients, we tell them that it's important to evaluate their upcoming needs now, and make sure their balance sheet and wealth plan are aligned to help meet those needs.
Brian, it all makes sense. We talk a lot about the value of holistic planning and the importance of taking a full balance sheet approach to managing wealth, so those points you mention are spot on. For our listeners, Brian, who may not have had a conversation about their use of credit and leverage with their advisors, what would you recommend they do?
I would recommend they consider three simple questions to begin that conversation with their advisors:
- Based on your current balance sheet leverage, what is your exposure to rising interest rates?
- Are you comfortable with the amount you're paying or may have to pay to service your existing variable interest payments in a rising-rate environment? If not, it's a good time to evaluate refinancing or considering fixed-rate strategies.
- As part of working toward your financial goals, do you anticipate upcoming borrowing or liquidity needs?
Once you've answered these questions, you should have a better understanding of whether you need to make changes to your wealth plan and current borrowing strategies to help meet your financial goals.
Brian, great questions for all of us to consider and start thinking about how these may apply to our own wealth plans. And for listeners, it's a great time to discuss these questions with your advisor while interest rates still remain at those low levels. We're here to work with you and your tax professional to help you take a fresh look at the liabilities portion of your balance sheet as a part of your holistic wealth plan review.
Thank you for listening. This is "Your Financial Journey."