The advisor sees that the client has $175,000 in regular income plus $10,000 in additional income, all of which can be documented. The client also has $50,000 in liquid assets and an excellent credit rating. His wife has an additional $15,000 in regular income and $20,000 in cash.
The couple currently has two major liabilities. The first is a 7.5%, 30-year fixed mortgage they took out in January of 2006 on their house, which has a current value of $800,000. The balance on the loan is $463,380, and they are paying $3,321 per month. They also recently took out a $15,000 auto loan at 9.0% with a monthly payment of $370.
The couple's goal is to refinance in order to free up $50,000 in cash while best managing their overall liabilities. They have a moderate tolerance for risks such as mortgage rate resets and rising interest rates. They intend to sell the house within five years and move to another state.
Once the case is set up, the advisor hits the "generate plans" button. This launches multiple actions. First, the software "pre-analyzes" the client, and then it generates the scenario. After this, it screens products for pricing and eligibility so that only the mortgages the couple qualifies for will be presented. Next, the program evaluates the scenarios, selects the best plans and presents the alternatives to the advisor.
Given the information provided for this couple, which takes into account market conditions and eligibility, the program's top three recommendations all involve variable-rate mortgages. This is not surprising given the short planning horizon. One scenario entails keeping the car loan and taking out a new $513,830 3/1 adjustable-rate mortgage at 6.375%. The second scenario pays off the car loan and rolls the balance into a $528,830 mortgage under the same terms as the first option. The third option rolls everything into a $528,380 5/6 ARM at 7.125%.
For each scenario, the program provides an extensive analysis. There are loan descriptions, suitability notes, a cash-out summary and a risk analysis. Charts with accompanying text illustrate everything from anticipated future mortgage index rates (including projected best- and worst-case scenarios) to expected payment comparisons and the potential cash-flow impact. A side-by-side comparison of the three loans can be generated. This includes illustrated total loan amounts, monthly payments, the change in payment for the first month and the average over the term of the loan. It also illustrates the expected payment, as well as the best- and worst-case scenarios at various time intervals. Of course, many of the "expected" outcomes are hypothetical and are based on the assumptions built into the scenario generator, but all of this is spelled out clearly and extensively in the accompanying explanations/disclosures.
Not all inquiries result in a new loan recommendation. In some cases, the software will determine that the clients' current liability structure is at its optimal state for the current conditions. That's not to say that things won't change in the future, however, and Liability Manager can make sure you stay on top of the situation with automatic alerts. Once you have established a case, the application can periodically check to see if a predetermined level of savings is possible. If so, it will alert you.
Advisors can help originate and service mortgages through a relationship that Financial Crossings has with Citizens Community Bank. Commissioned advisors can earn up to 37 basis points on transactions, while fee-only advisors will likely forgo that 37 basis point price for themselves and give the client the savings. The software offers advisors the ability to electronically transmit proposals to clients or to print them and mail them. Each option includes the ability to generate a customized cover letter. Loan applications submitted through the system can be tracked online.
Other capabilities are built into the program as well. For example, you can do product searches for first mortgages, for refinancing or for equity loans without the full optimization and planning process. There is a fairly extensive help section that offers a mortgage glossary, software support, post-application loan support and more. There are also robust reporting capabilities.
Since I have not reviewed any competing products, I admittedly don't have a frame of reference for comparison, but Liability Manager impresses me as a product that can add value to many client relationships. As the current mortgage crisis has amply demonstrated, Americans need as much help managing their debts as they do their assets, and Financial Crossing's product can definitely help. In fact, even those who choose not to initiate mortgages on behalf of their clients can still add value and save a lot of time by analyzing their clients' liabilities with this product rather than trying to do it themselves manually.
If you aren't sold on Liability Manager yet, here's another factor to consider: If a client goes to another financial institution such as a bank for a loan, he will be required to reveal a great deal about his personal finances. Once a bank knows about the assets that are there, it could use the information to try and take on management of the client's assets as well. So by tending to the client's liabilities, the advisor gets the added benefit of limiting one potential source of competition on the asset management side too.