Senior Wealth Planning Strategist
Senior Private Banker

In this Wealth Planning Update:

  • Rate increases are expected to continue, potentially impacting your wealth plan.
  • Increases in interest rates impact more than loans – your investment portfolio, liquidity needs, and wealth transfer planning may also be impacted.
  • There are various strategies to consider in a rising-interest-rate environment; we recommend speaking with your advisor to determine possible impacts and potential next steps.

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2017 is likely to be a year filled with many changes in the United States and abroad. In the U.S., with a Republican president and a Republican-controlled Congress, we may see significant shifts in policy and adjustments to the legislative agenda from the prior administration. Outside the U.S., we are likely to see continued geopolitical challenges, such as the fallout from Brexit and weakness and disruption in the Eurozone.

Over the last eight years, we have seen historically low interest rates in the U.S., but post-election and for 2017, all signs point toward potentially rising interest rates and changing fiscal policy. The Federal Reserve (Fed) raised rates on December 14, 2016, for only the second time since it cut borrowing costs to near zero in 2008. While we believe that the normalization of interest rates may be a slow and gradual process that will likely take years, and not months, the Fed has signaled that it may increase interest rates three times in 2017.1 Given these potential upcoming changes, now may be an opportune time to have a discussion with your wealth team around expectations for rising rates and fiscal policy changes and the impact these changes may have on your personal wealth plan.

The potential impact of a rising-interest-rate environment

Rising interest rates can have a direct impact on three important financial areas: investment portfolios, credit portfolios, and liquidity needs. In a rising-interest-rate environment, investment portfolios should be reevaluated and you should factor in potential associated portfolio risks, including growth in inflation and changes in market volatility. We recommend speaking with your investment professional to help ensure that your strategic asset allocation is aligned with your investment objectives and risk profile.

Likewise, it is important to consider the potential impact of rising interest rates on your existing credit portfolios and future borrowing needs. Many clients utilize leverage as a tool to help address and manage financial goals, such as optimizing cash flow, maximizing tax efficiencies, financing purchases, managing investment allocations, and realizing wealth planning goals. Clearly, the outlook for interest rates may impact how you use credit to address these goals. Also, it is important to consider your liquidity position to help you navigate the potential impacts of interest rate changes and take advantage of opportunities changing rates may present.

We encourage clients to proactively review their wealth plan and related credit needs now while rates remain low. There are a number of important themes to consider in a rising-interest-rate environment:

  • While lines of credit may remain a great option for managing short-term liquidity needs, you should prudently monitor the benefits and the costs of borrowing as rates begin to rise.
  • Over time, increased rates may impact purchasing power for big-ticket items (such as homes, boats, and airplanes) that are traditionally financed over time.
  • Your savings account may earn a little more in interest each month, although those rates are not likely to increase as quickly as interest rates in other accounts (i.e., instruments tied to the prime rate).
  • Low federal funds rates amplified the success of estate freeze techniques by allowing individuals to move assets to others with little or no gift tax. The higher threshold rate that may now apply to such techniques, like intra-family loans, sales to defective grantor trusts, Grantor Retained Annuity Trusts, and certain charitable giving strategies, may impact the effectiveness of such strategies.
  • The current environment presents an ideal time to look across your entire balance sheet and delve deeper into your credit, liquidity, and interest-rate risk-management needs.

Credit and liquidity strategies to consider in a rising-rate environment

An effective credit and liquidity strategy should be aligned with your financial goals and broader wealth plan, and the first step in evaluating this strategy is to review your personal balance sheet. Consider these three simple questions to begin a conversation with your wealth team:

  • Based on current balance sheet leverage, what is your exposure to rising interest rates?
  • Are you comfortable with the amount you are paying or may pay to service existing variable interest payments in a rising-rate environment?
  • As part of achieving financial goals, do you anticipate upcoming borrowing or liquidity needs?

Once you have answered these questions, you should have a better understanding of whether you need to make changes to your wealth plan and current borrowing strategies to be positioned to help achieve your short- and long-term goals. In taking a fresh look at the liabilities portion of your balance sheet, there are a number of strategies that you may want to consider.

Review/refinance existing borrowings:

  • Have you reviewed and do you understand the terms of your existing credit facilities?
  • Are there loans that will need to be renewed in the next two to three years? Have you explored refinancing or restructuring opportunities for those loans?

Evaluate/plan for future liquidity and borrowing needs:

  • Are you planning to buy or build a new home or vacation property, or considering other commercial real estate investments?
  • Do you anticipate needing new or additional liquidity in the near term?
  • Do you have a line of credit or source of standby liquidity for unexpected needs?

Reconfirm your risk tolerance and exposure

  • Does this changing fiscal and political environment make you reconsider the terms of your loans? Have you evaluated your exposure to rising interest rates?
  • Do you understand how a 1 percent rise in short-term rates could affect your investment portfolio and any credit facilities tied to variable rates?


Now—while rates remain at low levels—is a great time to discuss these topics with your wealth team in partnership with your outside tax professional and private banking advisor. A leverage and liquidity assessment is an important component of your holistic wealth plan, particularly in a rising-interest-rate environment.

1 The most recent increase in the federal funds rate, to approximately 0.65 percent, pales in comparison to its average of around 5.0 percent over the past 50 years. The benchmark 10-year Treasury, recently trading around 2.50 percent, is still well below its 50-year average of more than 6.50 percent. Source: FactSet, 1/19/17