Financing for Your Future – Exit Strategies with Flexibility

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Today’s independent and registered investment advisors have increased flexibility in how they monetize their ownership in the wealth management practice.  The rapid evolution of bank financing options allows for advisors to diversify their ownership in their practice at any point prior to retirement.  Partial sales – advisors selling 20%, 33%, 49%, or a percentage of their choosing - to current partners or aspiring younger partners allows the independent and registered investment advisors flexibility in their retirement glidepath. In addition, it allows for expanded engagement with employees, inspiring additional growth.

LIMITED FINANCING OPITIONALITY HISTORICALLY 

Historically, bank financing for practice sales was largely unattainable. Small Business Administration (SBA) loans started to proliferate for financial advisors in 2013; however, the SBA precludes selling advisors from conducting partial sales. In addition, selling advisors who receive SBA funding cannot remain with the practice in anycapacity after twelve months from close.  The SBA program does not promote the independence an advisor has long enjoyed in his or her career at one of the most important junctures in their profession.  The SBA program was designed as an economic start tool, not as a mature lending structure for today’s enterprising wealth management business. 

SkyView Partners provides conventional (non-SBA) commercial loans to financial advisors funded by a network of community and regional banks.  Conventional loans offer much more flexibility and control for an advisor. Namely, the ability to sell less than 100% of the practice.  

PARTIAL SALE CASE STUDY

Take the recent example of how conventional bank financing benefited Minnesota-based independent advisor Bill Bergstrom, CFP.  Mr. Bergstrom had built significant enterprise value over the course of his 30-plus year career.  At sixty years young he had no interest in retiring, yet over the last fifteen years he had brought on two salaried advisors to help, service, manage and build his flourishing practice. 

Mr. Bergstrom worked with SkyView Partners, a correspondent lender focused exclusively on the financing needs of independent and registered investment advisors. SkyView Partners helps advisors identify and structure transaction financing with the most fitting lender given each practice’s unique succession plans characteristics.  SkyView structured a partial sale as follows for Mr. Bergstrom:

  • Partial sale of 48% of his practice
  • Two advisors became equity partners, each acquiring 24% ownership in the transaction
  • Mr. Bergstrom enjoyed a significant liquidity event and remains with the practice today

“With the technology of today and client expectations, I’m working more often and harder than ever,” stated Bergstrom. “By using SkyView Partners to help me, I was able to create a much deserved equity opportunity for my team; a succession track and process to go on for inevitable retirement; a seamless transition for clients and the new equity owners - all while having an incentive for the enterprise to continue to grow for everybody.  Because I was not ready to retire, SkyView Partners allowed me to establish tracks to ownership - real equity value to my partners - without having many of the restrictions from traditional lenders.  This process created continuity for clients, clarity of new owners, and a partial liquidity event for me. I have long advised my clients to diversify their personal net worth away from concentrated positions in company stock.  The recent changes in financing options finally allowed me to do the same, without having to leave the business, which I am not ready to do at this time”

EXIT STRATEGIES AND FINANCING OPTIONALITY

Financial advisors are innately independent and averse to restrictions around how they structure their M&A transactions, especially their departure from the industry. Restrictive financing options may shed light on why 98% of independent advisors never sell their practice at retirement.  Rather, advisors slowly wind down their practice through voluntary and involuntary client attrition as they near retirement.  Clearly, this exit strategy is not in the best interest of the independent financial advisor or their clients.

The emergence of conventional commercial bank financing provides today’s independent advisor the flexibility they deserve in how they monetize their practice and create their legacy while allowing for the continuity with their clients that they desire.

Scott Wetzel, JD is Founder and Managing Partner of SkyView Partners (www.skyview.com), a correspondent lender focused exclusively on independent advisor M&A transactions.