There are positive reasons for wealthy investors to maintain some liabilities, especially when it comes to real estate holdings. But it is still revealing to find out that those investors maintain credit card debt, and do not immediately pay off automobile loans.
Spectrem’s study Asset Allocation, Portfolios and Primary Providers examines the average rate and amount of liabilities maintained by wealthy investors. The investors studied could, in most cases, easily pay off the loans and debts but choose not to, for a variety of reasons.
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 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.
©2019 Spectrem Group