Distinguishing What Is Possible from What Makes Sense

Discernment in Wealth Financing

When managing substantial wealth, the ability to obtain financing does not necessarily mean that using it makes sense.

Our clients and prospects often hold assets of considerable value: residential or commercial real estate, works of art, yachts, private jets, classic cars or stakes in businesses. These assets can represent a significant share of their wealth while tying up substantial amounts of capital.

The first question may therefore seem obvious: how much can we borrow against this asset?

To my mind, however, that is not the right place to start. I would rather ask: how much capital does it make sense to release, at what cost, with what risk, for what use and, above all, for what purpose within the client’s broader wealth strategy? That is where discernment begins.

The Ability to Finance Is Not a Reason to Do So

Many assets can provide the basis for financing or refinancing. In real estate, the principle is well established. A property that has appreciated over time and carries relatively little debt may allow substantial liquidity to be released through refinancing.

But the value of an asset and its capacity to serve as collateral tell us nothing yet about whether the transaction itself makes sense. A financing may be perfectly feasible and still be unnecessary when viewed in the context of the client’s overall wealth, too expensive, or introduce a risk that did not previously exist. The objective is therefore not to maximise borrowing capacity, but to understand whether taking on debt genuinely improves the client’s overall wealth position.

Debt or Sale: A Wealth Decision Before a Banking Decision

When liquidity is required, financing is never the only option. The starting point is often to compare two alternatives: retain the asset and refinance it, or sell all or part of it.

The interest rate is only one element of that decision. We also need to consider the true cost of financing, the potential tax consequences of a sale or refinancing, the income and cash flows generated by the asset, its liquidity, its potential for appreciation, the client’s investment horizon and their ability to service the debt.

We also need to understand what happens if the assumptions become less favourable. What if the value of the asset falls? What if interest rates remain high for longer than expected? What if the anticipated income is lower than forecast? Or if the capital released needs to remain invested for longer?

The technical feasibility of a financing is not, in itself, a wealth decision.

Releasing Capital Is Not Enough

When refinancing does make sense, it can allow part of the value accumulated in an asset to be released without having to sell it. This is the principle of equity release.

But releasing capital does not create value in itself. Everything depends on what happens to that capital next. The liquidity may be used to finance a new entrepreneurial project, acquire another asset, diversify an overly concentrated wealth structure, build a liquidity reserve or invest in financial markets.

The use of the capital released therefore becomes an integral part of the decision. If the cost and risks of the financing outweigh what the capital can reasonably be expected to achieve, the transaction makes little sense. If, on the other hand, the capital can be redeployed in a way that is coherent with the client’s objectives, time horizon and risk profile, financing becomes a genuine wealth management tool.

A financing question rarely exists in isolation. Structuring it properly requires an understanding of the client’s wealth as a whole: assets, liabilities, income, cash flows, entrepreneurial holdings, future needs and objectives.

That consolidated view is essential. It prevents a decision that appears sensible when considered at the level of a single asset from becoming incoherent once placed within the broader wealth picture.

This is also where the relationship between financing and investment management becomes particularly important. When refinancing releases capital, our work does not end when the loan is drawn down. We still need to consider what that liquidity should become: how much should remain available, how much should be invested, at what level of risk, with what expected return, over what horizon, and how it should interact with the rest of the client’s wealth. Financing and investment management then cease to be separate subjects and become part of the same thinking about how capital should be allocated.

The Right Level of Debt Is Not the Maximum Level

In any financing transaction, it is natural to look at the maximum loan-to-value ratio a financial institution is prepared to accept.

But a bank’s lending limit should never automatically become the client’s objective. A bank may be willing to lend more than the client actually needs. The question is therefore to determine a level of debt that preserves an adequate margin of safety, remains sustainable under less favourable scenarios and allows the capital released to serve a clear purpose within the broader wealth strategy.

This is probably what I find most compelling about this activity.

We can start with a property, a work of art, a yacht, a private jet or another valuable asset and identify several possible financing solutions. But my role is not simply to find the bank willing to lend the largest amount.

It is to understand why the client wants to mobilise the asset, examine the alternatives, assess the cost and risks of the transaction, test its resilience under different scenarios and determine what the capital released can genuinely contribute to the client’s wealth.

Sometimes the answer will be to refinance. Sometimes it will be to refinance less than the asset would allow. And sometimes the best decision will simply be not to borrow at all.

To me, it is this ability to distinguish what is possible from what makes sense that gives wealth financing advice its real purpose.