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Leveraging Private Banking in Family Offices

Strategic borrowing can help family office clients meet their unique goals and manage risk.


Now more than ever, strategic borrowing can be a key component in a holistic financial plan. Leverage can help family offices minimize tax implications for clients by avoiding the liquidation of assets while sticking to long-term investment strategies that benefit future generations.

Many family offices find that working with a strong private banking partner, with substantial lending resources and the expertise to deploy leverage, is critical to preserving and growing wealth that spans generations. But private banking for a family office isn’t a cookie cutter exercise; it’s a nuanced service and requires deep knowledge and experience.

“A private banker is an integral member of the family office’s team,” says Regina Burlington, Senior Private Banker and Head of Global Family Office Private Banking at BNY Mellon Wealth Management. “Anticipating potential liquidity needs for family members helps ensure a family’s financing requirements are met in a timely and seamless manner.”

New forces driving credit needs for family office clients

Borrowing behavior is very different for today’s family office client. Requests for lines of credit are often driven by forces beyond the norm just a few years ago. In short, there’s an increased appetite for leverage among family office clients.

“The low-interest rate environment combined with the strong equity markets have created opportunities for families to leverage their portfolio assets, rather than making untimely liquidations,” Burlington says. “Many family offices support multiple generations. This implies increased liquidity scenarios as younger generations purchase homes, raise families and pursue personal investment opportunities and charitable causes.”

Rock bottom rates tend to trigger borrowing, of course. Opportunistic investors take advantage of the positive arbitrage between the loan’s carrying cost and the anticipated investment return. This strategy offers an increase in cash flow, making planning a lot easier, and taking some of the uncertainty and anxiety out of financial planning for the family office.

“At the same time, a family’s investment team may be reluctant to disrupt long-term investment strategies or market holdings,” according to Burlington. “In some cases, leverage can act as bridge financing to effectively move from point A to point B, enabling the family office to maximize tax planning and consider potential asset reallocations.”

“We have conversations every day with families about opportunistic borrowing needs and how they might leverage their assets. That’s not something that happened with regularity a few years ago.”

How private banking helps family offices

Some family offices like to have a third party talk to a family member about matters of finance and fiscal responsibility. Family offices work with Burlington at BNY Mellon Wealth Management to facilitate such conversations.

Discussions with younger generations can touch on the importance of not taking on too much leverage, the value of having a good credit score, the mechanics of compound investing, and why they should stay invested over the long term. Other topics might include the option of taking out a mortgage if taxes and interest expense can be deducted. In short, strategic borrowing may be used to optimize both sides of a family’s balance sheet, which can be particularly important when there are multiple generations to serve.

As families seek greater alpha over the long term to provide more capital for future generations, asset allocations may shift to private equity and other alternative investments that require capital calls. A line of credit can help to bridge these short-term liquidity needs while helping to maintain long-term investment plans and minimize tax implications.

The personal touch matters

Personal service looms large in private banking. Examples range from putting in place lines of credit, to accessing funds internationally, and everything in between. That’s all part of the job for private banking professionals.

That level of service doesn’t go unnoticed by family offices that have successful and demanding clients who encounter many investment opportunities. From that perspective, it helps to work with an experienced private banker with expertise in many different areas of lending.

“Experience shouldn’t be overlooked,” says Burlington. “Whatever experience and expertise a client needs exists within our team, and that’s our biggest value add.”

The Global Family Office group at BNY Mellon Wealth Management understands the unique and evolving challenges that families face, starting with the first liquidity event and creation of the family office and continuing through the transition of the office to future generations. Backed by the institutional resources of BNY Mellon, we are focused on delivering specialized advice and tailored solutions to help family offices and their advisors manage the complexities that exceptional wealth presents.
Visit bnymellonwealth.com to learn more.


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