Fully Paid Lending
Another way for your clients to earn.
With Altruist’s Fully Paid Lending program, clients can earn income on eligible stock positions they already own.
What is Fully
Paid Lending?
Fully Paid Lending (FPL), also known as Fully Paid Securities Lending (FPSL), is a common lending practice whereby individuals can receive passive income by allowing their broker – in this case, Altruist Financial LLC (“Altruist”)– to lend out stocks they have fully bought and paid for (as opposed to those purchased on margin).
Passive income.
While positions are on loan, clients accrue supplemental income daily.
Continued control.
Even with positions on loan, clients retain full ownership and are free to sell anytime.
Safe and secure.
To protect client assets, loans are collateralized at 102% of market value.
Easy earning.
Enrollment, lending, and payouts are all facilitated by Altruist, making the process easy for clients and advisors.
How does Fully Paid Lending work?
01
Identify lendable positions
Altruist’s Securities Lending team monitors client portfolios to identify lendable positions.
02
Assess demand and generate loans
If there is demand for any of your clients’ positions, the team will borrow from their account and lend all or a portion of the available position to an external broker dealer.
03
Distribute income
Once the positions are on loan, clients will accrue income. Where borrowers are willing to take a rebate to borrow the securities, clients will receive a percentage of the value of the collateral held to secure the amount of the loan. The value of any given position in the securities lending market is subject to change based upon market conditions and borrowing demand. The more demand for the position, the more potential income a client will receive.
How could Fully
Paid Lending benefit your clients?
Let’s calculate the hypothetical monthly income of a client with 10,000 shares on loan with a market price of $10 – assuming all shares are lent.
Negative Lending: If there is demand for the securities, a borrower may be willing to pay a rebate to borrow the shares. The client receives 25% of the net rebate earned by Altruist. If the net rebate is 9%, the client receives $6.38 per day.
Positive Lending: Other times, a borrower is not willing to pay a rebate (for example, because it’s easier to borrow the shares), but is willing to accept a rebate. Even if Altruist pays the borrower a rebate, it can still earn revenue from the interest earned on the cash collateral received from the borrower to secure the shares on loan. In that case, the client receives .25% of the value of the cash collateral. The client does not pay any portion of the rebate Altruist pays to the borrower.
What are the risks?
All investing involves some amount of risk.
Altruist receives cash collateral for each loan, which is secured daily until the shares are returned.
Shares on loan do not retain voting rights, are not eligible for dividend payments or Securities Investor Protection Corporation (SIPC) coverage.
We recommend consulting a tax professional regarding any income earned through the program.
Company default risk also applies. Further details can be found in the Fully Paid Stock Lending Risk Disclosures, available at altruist.com/legal. Altruist will provide a payment equal to any dividend that is paid while the security is on loan. However , that payment may be taxable at a different rate than the dividend paid by the issuer.
Frequently asked questions
Enrollment and Positions
Is there a minimum account balance requirement?
Enrollment happens during the account No, unlike other programs, Altruist has no minimum account balance to participate in Fully Paid Lending. However, clients must have a net worth of at least $100,000, or an annual income of at least $100,000 to participate in Fully Paid Lending.
How do clients enroll in the program?
Enrollment happens during the account opening process when clients acknowledge the Altruist Fully Paid Lending Agreement and Risk Disclosures (which can be found on altruist.com/legal).
What account types are eligible?
All account types are eligible except for Solo 401k and UTMA/UGMA accounts.
Can clients opt-out of the program once enrolled?
Yes, clients can opt-out of the Fully Paid Lending program at any time by contacting support@altruist.com. Advisors may opt customer accounts out of the Fully Paid Lending program by contacting support@altruist.com.
Can clients opt specific positions out of the program, even if their account is opted in?
No, opting in/out is on an account level.
Can I sell client positions that are on loan?
Yes, you may sell any position in their account even if the position is currently on loan.
How will I know which positions are on loan?
Client statements will identify positions on loan.
Frequently asked questions
Payouts
and Taxes
When will clients receive revenue to their account?
Client accounts will accrue income daily for all positions that are on loan. Any accrued revenue will be posted to the account within the first 5 business days of the following month for all positions that were on loan in the preceding month.
Are clients guaranteed revenue if they participate in the program?
There’s no guarantee that any portfolio’s eligible securities will be lent out, as there may be no demand for the securities.
Are there any special tax considerations?
When shares are lent out, clients receive cash payments in lieu of dividends; these payments (loan income) are treated as ordinary income rather than taxed at the dividend rate. Consult a tax professional for additional information.
Frequently asked questions
Treatment and Security
Are all positions eligible?
Only certain securities and certain account types are eligible to participate. At the individual security level, eligibility can vary daily and is influenced by numerous factors such as demand and market conditions.
Do any accounts get preferential treatment?
There is no preferential treatment provided for any account. Each loan is on a pro-rata basis; each Altruist account that holds a position in a security on loan receives a pro-rata allocation to be fair and equitable to all eligible Altruist accounts.
Do clients retain voting rights when securities are on loan?
When securities are on loan, clients lose their ability to exercise voting rights.
How are shares on loan protected against a default by Altruist or the receiving broker dealer?
Securities on loan are not covered by SIPC, but each loan is fully collateralized with cash or US treasuries. The collateral is sent by Altruist to a secure bank account and collateral management is administered by a third-party company. The collateral is equal to the market value of all shares on loan. If Altruist were to default on its obligations as defined in the MSLA, you would have the right to withdraw the collateral from the custodian bank.