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Until recently, there have been very few educational
and analysis tools to help advisors understand the mechanics and risks of
leveraging, so they can implement the strategy where appropriate in a
professional manner to reduce the risks to their clients and themselves.
The most valuable tool that advisors can provide to
their clients to reduce their business risk associated with leveraging is a
personalized projection of leveraging for the client’s unique situation. The printout option for client signatures provides proof of complete disclosure.
Talbot’s Leverage Professional
is a simple bilingual software program for analyzing the net benefits of borrowing
to invest. It evaluates leveraging using interest-only loans, term loans that
are paid off over time, and RRSP catch-up loans.
The software helps professional
advisors better understand how and when conservative leverage makes sense, how
it can increase business when used responsibly (including RRSP catch-up loans),
and how to reduce the business risks of leveraging. It will:
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Automatically calculate the minimum "better than" return for leveraging to benefit the investor
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Quantify how RRSP Catch-Up loans can benefit
investors when returns are half of the cost of borrowing
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Show how conservative leverage can increase baby
boomers’ retirement funds when equity returns are less than two-thirds of
the interest expense
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Contrast the increased magnification of
interest-only loans vs. term loans
Minimize business risk by ensuring clients receive
full disclosure for a range of projected returns.
The software allows advisors to increase their
business by adding tangible value to their clients through the professional and
responsible implementation of conservative leverage.
In addition to the benefits to investors outlined
above, Talbot's Leverage Professional allows advisors to produce personalized
projections of the potential benefit (or loss) for a range of returns. This
helps dispel the myth that returns must exceed the cost of borrowing for
leveraging to make sense. A personalized projection for an investor’s unique
situation is much more valuable than a theoretical illustration that doesn’t
apply to them.
Providing leveraged clients with a personalized
projection of the projected benefit (or loss) over a range of returns ensures
that clients understand that the strategy can help or hurt them. The disclaimer
on the printouts clarifies that the numbers are projections only, and that
actual results will vary, perhaps significantly.
To professionally educate clients and prove full
disclosure, several financial planning firms have made it a policy that every
leveraged client receives a a personalized projection from Talbot's Leverage
Professional, and a copy of Talbot’s Summary of Dispelling the Myths of
Borrowing to Invest.
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