Altruist’s Fully Paid Lending program provides clients the opportunity to earn income on eligible stock positions they already own.
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).
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.
All investing involves some amount of risk, however, 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. Company default risk also applies. Additionally, we recommend consulting a tax professional regarding any income earned through the program. 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.
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.
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).
All account types are eligible except for Solo 401k and UTMA/UGMA accounts.
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.
No, opting in/out is on an account level.
Yes, you may sell any position in their account even if the position is currently on loan.
Client statements will identify positions on loan.
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.
There’s no guarantee that any portfolio’s eligible securities will be lent out, as there may be no demand for the securities.
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.
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.
When securities are on loan, clients lose their ability to exercise voting rights.
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.
