Leo Anzoleaga, Certified Mortgage Planning Specialist & Senior VP of Residential Lending, Luminate Bank. NMLS ID #251882.
Financial advisors frequently center wealth-building conversations on assets such as investments, property and retirement savings. They track and present returns to offer tangible proof of progress. Clients also define success by the assets they accumulate. However, this asset-focused lens creates dangerous blind spots.
When you overlook liabilities, you expose portfolios and undermine even the strongest investment strategies. To build true wealth, you need to do more than grow assets; you must plan holistically, integrating liability management with asset strategies. This approach better enables clients to weather unforeseen financial challenges and stay on track toward long-term goals.
Why Liabilities Matter
Not all debt is equal, but every liability impacts financial outcomes. Advisors who recognize this distinction and proactively help clients manage liabilities transform them into tools that support wealth accumulation.
For most families, their mortgage is the most significant liability, accounting for roughly 70% of total household debt in the U.S. For younger households, other liabilities such as student loans and credit card debt create a considerable long-term burden that directly limits their ability to save, invest and purchase homes.
Holistic planning treats liabilities as a central component of the wealth-building strategy, not as secondary considerations. And the risk of neglecting them grows quickly. For example, when clients unknowingly refinance debt at the wrong time, structure a mortgage poorly or fail to manage student loan repayments, they may have to liquidate investments prematurely. This disruption breaks compounding and erodes long-term portfolio growth. In severe cases, unmanaged debt can lead to bankruptcy, property loss or the kind of financial instability that undermines even the strongest advisory strategies.
The Cost Of Ignoring Liabilities For Advisors
Unmanaged liabilities create significant consequences for both the client and the advisor. Poorly structured debt limits clients’ flexibility, reduces their liquidity and heightens their vulnerability during economic downturns. A family may look stable on paper but can suddenly experience cash flow strain if they fail to integrate liabilities into their broader financial plan.
When an advisor ignores liabilities, it can result in lost assets under management (AUM) and, potentially more importantly, diminish trust. A financial advisor’s most valuable asset isn’t technical expertise, years of experience or even the ability to generate strong returns; it’s trust. Trust differentiates one advisor from the next, secures client loyalty through choppy markets and helps ensure clients follow through on strategies designed for their success. By overlooking this critical dimension, advisors expose clients to unnecessary risk and weaken the very trust that sustains their practice.
Integrating Liability Planning Into Practice
Effective liability planning goes beyond acknowledging debt. Advisors should implement a structured, repeatable process and weave it into every client engagement. To deliver a truly holistic experience, advisors must treat liabilities with the same level of care as assets. Here are three practical strategies to integrate liabilities into the advisory process:
1. A Holistic Balance Sheet Review
Build a complete picture of your client’s financial life by including consumer debt, mortgages, business loans and estate exposures, not just investment accounts. Catalog, categorize and evaluate liabilities for potential impact on liquidity, tax efficiency and risk tolerance.
2. Debt Optimization For Long-Term Growth
Debt isn’t the enemy, but debt without a strategy is. Work with clients to identify which liabilities to restructure, thereby freeing up cash flow, preserving investment growth and avoiding forced liquidations. Refinancing a mortgage at the right time or consolidating high-interest debt can create significant differences in compounding outcomes. In some cases, you can use debt to accelerate wealth generation by tying it to income-generating or appreciating assets.
3. Continuous Monitoring
Treat liability planning as an ongoing process, not a one-time checklist item. Rebalance and update liabilities regularly as interest rates shift, client goals evolve and new obligations arise. By continuously monitoring liabilities, you keep them aligned with the broader financial plan and guard against unnecessary erosion of wealth.
The Competitive Advantage For Advisors
In an increasingly crowded market, liability planning can help set advisors apart. Advisors who integrate it into their practice protect and grow AUM, deepen client trust and position themselves as comprehensive, forward-thinking planners. By addressing both sides of the balance sheet, advisors can better foster lasting loyalty, strengthen referral networks and make sure client outcomes are safeguarded. Liability planning is not optional; it’s essential. Advisors who embrace it today better future-proof their practice, strengthen their roles as indispensable partners and leverage expert third parties to manage portfolio liabilities with confidence and precision.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?
