Wall Street’s brokerages are pushing securities-based lending in their wealth management divisions to stunning effect. Individual investors are being billed both investment management fees and interest on the same assets, while exposing themselves to additional retirement risks. If you’ve ever wondered where the hell all these “all-cash” bids for real estate were coming from, now you know.
My new piece at Fortune Magazine has just gone live, I think the implications here are significant for everyone should something go wrong:
Lindsay (we’ll call her Lindsay to protect her identity) took a job in the securities-based lending department at Morgan Stanley right after college graduation. She had dozens of colleagues in her group when she first started and now she’s got hundreds, nearly all of them entry-level workers looking to get their foot in the industry.
They are there to support the brokers—ahem, financial advisors—as they turn as many of their clients’ investment portfolios into loan collateral as possible. Processing paperwork and assisting the firm’s wealth-managers-turned-loan-officers is their business—and business is booming.
Securities-based lending, also known as non-purpose lending, is Wall Street’s hottest business. From UBS to Bank of America Merrill Lynch to JPMorgan, high net worth investors are being enticed to take out loans against their brokerage accounts at a blistering pace.