The Liabilities of Wealthy Investors



For a variety of reasons, wealthy investors who could pay off all of their financial liabilities choose not to do so.

Spectrem’s study Asset Allocation, Portfolios and Primary Providers examines the average rate and amount of liabilities maintained by wealthy investors. This includes mortgages, automobile loans and credit card debt, which many of the investors studied could pay off.

Advisors can inquire with their investors what level of liability they wish to maintain, and should discuss the negotiation that occurs when considering liabilities as a block against greater investment allocations.

Among the Ultra High Net Worth investors with a net worth between $5 million and $25 million, 26 percent maintain a first mortgage, but that differs based on the age of the UHNW investor. Fifty-five percent of those investors from the Millennial and Gen X generations maintain a first mortgage, compared to just 18 percent of World War II investors. It may be surprising that 18 percent of the oldest generation of wealthy investors still are paying off a first mortgage.

The average loan amount on those outstanding mortgages is $307,000.

Ten percent of those investors also have a mortgage on their second or vacation home, and the  average loan amount is $176,000.

Similar percentages of UHNW investors maintain outstanding automobile loans and have credit card debt. Sixteen percent have unpaid credit card balances equaling $38,000 on average, and 17 percent have automobile loans to the tune of $45,000 on average.

It is interesting to note that the Spectrem study shows UHNW investors who are advisor dependent are more likely to have outstanding financial liabilities. Among Advisor-Dependent investors, those who ask their advisor to make almost all the investment decisions, 30 percent have first mortgages and 22 percent have outstanding automobile loans. In both cases, that is significantly higher than the average for UHNW investors.

Advisors can discuss these liabilities with their wealthy investors to determine if there is a better use of their funds rather than maintaining the loans.



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