Podcast: Why You Should Get an Independent Valuation and Understand Your Firm's KPIs

Terry Mullen, CEO of Truelytics, joins Scott Wetzel, CEO of SkyView, to share their insight on why an independent valuation is important for a wealth management practice.

In addition, they discuss:

  • Valuations amidst the current market environment,
  • The future of valuations, and
  • The key indicators that determine what a practice is worth.

To listen to the episode simply click play on the audio stream below or listen and subscribe on your favorite podcast platform. You can find The Advisor Financing Forum on Apple PodcastsSpotify, and Stitcher.

Transcript

Mike:

Welcome to the Advisor Financing Forum, a weekly podcast presented by Skyview Partners. My name is Mike Langford, and this week, Scott Wetzel and I are joined by Terry Mullin, the CEO of Truelytics. Truelytics is the industry standard for valuations and performance benchmarking for the modern financial advisory firm. They also offer the industry's only comprehensive advisor transition management platform. So as you can imagine, Skyview Partners and Truelytics, well, they go together like peanut butter and chocolate, or cinnamon and vanilla if you have a nut allergy. You are going to love this episode of the show because Scott and Terry are bringing the thunder with their insights. Before we get started, make sure you subscribe to the podcast on Apple Podcast, Spotify, Stitcher, or Google. Also, if you have a question or a suggestion for a guest or a topic for the show, please reach out to podcast@skyview.com, or reach out via your favorite social media platform. Skyview is active on LinkedIn, Twitter, Facebook, and Instagram. The team would love to hear from you. Okay, let's get to it with Scott and Terry. Well, Scott and Terry, it's like worlds colliding, two of my favorite CEOs. Great to have you guys on the show.

Scott:

Thanks for having us.

Terry:

We appreciate you having us on.

Mike:

Yeah, it's going to be great. So, one of the things that is really exciting about having the two of you together, and then when I think of Skyview and Truelytics as companies, that you're a complementary solution set for RIAs and independent advisors. In many ways, Skyview and Truelytics are helping RIAs and independent advisors achieve the same goals. You're both helping firms and advisors navigate points of transition or growth for their businesses or careers. What are some of the key trends as you look at the industry now that highlight the need for your tag team approach?

Terry:

Where to start? Scott, do you want to take that one?

Scott:

You know, thanks for giving me the non-softball question, Terry. I appreciate that very much. But obviously, current world events made things more interesting and forced every organization to address what's going on and approach clients in a different manner and present different solutions. But we continue to find robust demand amongst the advisory community to sell a part or all of their practice. And every day we're just trying to make that experience more efficient. And that's where Truelytics says come in as a crucial partner.

Terry:

Yeah, I think the world has, I'll say, changed, and everybody's trying to deal with it, with what's going on out there. And people are coming to grips with the fact that they still have to run their business however that is. And so they're getting used to doing it here. But they're also looking to, in many cases, find the right partner to sell their business to because they want to step back and retire after 30, 40 years. They need people to help them do that, they need funding if they're looking to buy businesses. And more importantly from Truelytics standpoint, is trying to help people understand their business. The vast majority of independent advisors out there who run their own business, really don't understand the metrics. And I've said this on your podcast before, you can't manage what you can't measure. And we help people measure that with benchmarking and key performance indicators. But we also give them valuations, and that's something that is needed when they're going to talk to someone like Scott at Skyview.

Mike:

So let's talk about valuation as one of those obviously incredibly important measurements, right? One of the services that Truelytics provides to advisors and firms is valuation. Why is a valuation important for a firm in general?

Terry:

I'll tell you that a valuation, originally we purchased IP that was a valuation calculator, it was an incredibly accurate valuation calculator. And people love it. But you really only need a valuation when you need it. You need it if you're going to get a loan. You need it if you're getting audited from the IRS. You need it if you're getting divorced to find out how much your business is worth to value. You need it if you're going to sell. You need it if you're going to bring in a partner or value a a partnership. But it's not something that you need to have every day. But it is something that you should understand and have an understanding of what it's worth. Because I think you've mentioned it in the past, it's the ultimate KPI, what your business is worth. And for the vast majority of people, they would have no clue what their business is worth. They might have an idea that someone sold their business for X times revenue of whatever, but they don't understand that. And quite frankly, there are a lot of non-financial factors that go into what a business is worth.

Mike:

So, what sets the Truelytics valuation apart from other services in the market?

Scott:

And one thing, though, Mike, I'll address the question from our standpoint as well, if you don't mind.

Mike:

Sure yeah, absolutely, go ahead.

Scott:

Well, from our standpoint, all of our banks require a third-party valuation. It's absolutely requisite for obtaining financing and from an approved valuation provider. And although Skyview, we're agnostic as to what purchase price buyer and seller end up deciding on entirely, that valuation is extremely important from a bank standpoint because they will utilize that for their loan-to-value calculation, which there's two ratios that they're looking most closely at. It's debt service coverage, basically do you have enough free cash flow each month to take on additional obligation. And also, what is the loan-to-value or LTV on this transaction. So the valuation is extremely important from a bank financing standpoint.

Terry:

Yeah, and what sets the Truelytics valuation... Again, there are many, many companies that can do valuations. And there are some really great companies out there that do it. And they may charge a lot more and maybe go a lot more in depth. But at the core of it, our valuation software, if you're part of an enterprise that has a license with us, in many cases it's free. And if it's not provided by the enterprise that you're with, it's less than $1100 to get a very accurate valuation. If you then need to get it to be certified if you will then it will be a couple hundred dollars more. And that is only because the time it takes to make sure that it's not just self-reported, that the numbers are accurate. But at the end of the day, a valuation is based on the free cash flow as Scott just said. How much is that business generating and how much is it going to be generating in the future? And then that's whether you put a multiple on it or you do a discounted cash flow method, we provide four different valuations. And it again will be very accurate based on the information that they provide.

Mike:

Scott, what is the benefit for you and the team at Skyview of having an independent provider like Truelytics create the valuation over, say, an advisor's broker/dealer-provided valuation?

Scott:

Well, first of all, they don't get upset with us then when they get the valuation they don't like. [inaudible 00:07:42]. We can just blame Terry and have them call them. Unfortunately, I know that LPL and some of the broker/dealers do provide valuations and they do provide a great valuation for those practices. But unfortunately, our banks are unwilling to accept them because they do not believe that they represent a third-party valuation because it's being produced by their own broker/dealer. So it still needs to flow through a Truelytics to get really bank approval on that valuation.

Mike:

So how is a valuation used in the underwriting process? I know you hit on this a little bit. But is it similar to the way that a mortgage lender uses a home appraisal?

Scott:

You know, when it gets to credit questions and how it's actually utilized, I've got a lot of smart guys that could probably answer that question better than I can. I'm kidding. No, it's very similar in a sense that the loan-to-value calculation, like I said, is a pillar of what banks look at. And that's kind of just a cursory look at an applicant and at one of our credit memorandums. That is one of, I believe, five data points that if it does not fall under a certain amount for LTV and above a certain amount for debt service cashflow, the bank won't even dig in.

Mike:

So let's talk about some other business metrics and benchmarks. Terry, you teed this concept up. In a recent episode of the Advisor Financing Forum podcast, Katie [Bruder 00:09:11] was on with me. And she mentioned how important it is for the Skyview team to look under the hood of an RIA or advisor's business to really get to understand everything that's going on there. What other metrics or benchmarks are important in the lending process?

Scott:

You know, we collect a lot of data. And a lot of that data is also synchronized with the valuation. Because from Skyview's standpoint, why we're of value to our bank partners, is that we're collecting a lot of fundamental data about the practice such as demographic risk, what's the average age of the client, where do the clients fall within each age group. We're looking at investment risk, how are they actually investing client portfolios, a lot of different fundamental factors that our banks have less experience looking at and that we're able to help them decipher what separates a good practice from one that's not run as well. And then if it is accepted or approved by our fundamental underwriting team then it proceeds to more conventional underwriting, where we're looking at debt service and LTV and every other ratio that I don't fully understand nor want to ever in my career, that our credit team is digging into every contract and every tax return and every P&L statement for the last three to five years.

Terry:

That's a good point that if you look at two business, they could be very similar from the outside. They have similar assets, similar number of clients. But when you dig in, you might find that one's average client age is 45 and the other one is 70. You might find that one has a concentration of five or six families that make up 40 or 50% of the business and the other one doesn't. One might be 70% institutional, where they're working with charities or whatever. That's fine, but those business are different. If you do all institutional business, those things tend to come for an RFP on a very frequent basis and there's the risk that you might lose that. Or if one or two of those families decide to move or they pass away and you don't have a relationship with the next generation. So looking under the hood and going deeper than just what your GDC or your revenue was is critical, not just to get a valuation, but to understand your business. It may have been great to get to where you are today by doing it with fewer people. To grow your business, if you can get to $100 million with 10 people, that's awesome. But that's not necessarily the best ideal business to sell because there's a lot more risk associated with that revenue stream than it would be if it was 200 families.

Mike:

Smart. So Terry, you and the team have invested a ton of time in understanding which benchmarks or KPIs are most critical to the success of a modern financial advisory's firm. You just hit on some of those elements there, and Scott did as well. Can you share some of why the True Performance scorecard tracks, or what the True Performance scorecard tracks and how firms are using them today?

Terry:

Sure. It tracks both, as I said, the financial stuff, the revenue stuff, etc., and how it is allocated by product area or whatnot. But it also tracks all the non-financial factors as well. I mentioned a couple, but I'll give you a few more. If you are heavily reliant on referrals, that's a great way to grow your business, but it's not as valuable to somebody that might be buying your business. So that might be a ding in your business if you have too much of a concentration in a few clients. If you don't have enough advisors in your advisory firm based on the number of clients you have, there's an ideal number of clients that one relationship manager advisor can service. Then if you're under that, then that means that's not as attractive. It doesn't mean that your business is bad, and it doesn't necessarily mean it's not going to be valued high. But at the end of the day, the valuation is a point in time metric, and it is not necessarily what someone is going to buy your business for.

Just as an example, I know two people recently who put their homes for sale. And both of them sold within 48 hours at between $50,000 and $150,000 more than what they were asking, which was also more than what it was valued at. Now, why? Well, because there was demand. There's demand in suburbs of Philadelphia right now. So you could get a valuation, that's not necessarily what it's going to be worth or what somebody's going to pay for it. And then the last thing about valuations, particularly when you're talking about transactions, is what is the structure that the deal is. Because those things can not be looked at solely, you have to understand that there's the price then there's the terms of the deal. And sophisticated buyers are going to make sure that they're getting the return that they want. For Scott's purposes, the valuation is based on today for all the things that they're looking for, debt service coverage, etc. But valuation is not necessarily what your business is going to transact for.

Mike:

What's really interesting to me when I think about Truelytics and it kind of goes under the radar is the killer app of it, if you will, the killer feature, is the fact that it looks at an advisor's or a firm's peer group. It's looking at comps, and you go back to that real estate analogy. You don't just buy a house in a vacuum. You look at how it compares to other homes in the neighborhood of similar size and quality. How do you factor in those types of comps, Scott, when you think about lending to a firm? Are you looking at, okay, we've seen other ones that look like this and how does this one compare?

Scott:

You know, we love all of our children and credits the same. So there's always some things we like about particular practices and some things that we favor a little bit less. But overall need to score in the different categories of fundamental and conventional underwriting to be approved by Skyview before we place it on our lender marketplace and it ever leaves our walls.

Mike:

So let's talk a little bit about M&A and succession planning. We're at a really interesting time for the advisory industry right now. Many advisors are on the back nine of their careers and maybe exploring succession. And many others are looking to grow through M&A. And Terry, you teed it up, the demand concept, I believe we're seeing there's 50 buyers for every one seller out there. What does the market look like for M&A at the moment?

Terry:

You know what? This is one of those perplexing things. Everybody I've been talking to has been saying that there are way more buyers in the market looking to buy than there are sellers. And that is somewhat counterintuitive given the fact that the average age of advisors is approaching 60, if it hasn't gone above 60. For the last 10 years, it's been in that 57 to 59, 60 range. And for whatever reason, we're not seeing the numbers of transactions, and maybe even if you look to succession planning, because not everybody is going to necessarily transact an asset sale or what have you. Because there are a lot of solo practitioners that will bring in a junior partner and transition it over time. But they still need to have some sort of arrangement. I think the biggest thing is that a lot of people don't ever want to retire. This is one of the few industries where you can continue to work into your 70s and 80s if you're cognitively there and you want to. And it doesn't mean that you're working five days a week. You can pare back to four days and then three days. And maybe your client base shrinks from you had 300 clients five years ago now you have 200, then you have 100 in a couple years because you only want to work with a few. But you don't ever have to really get out. Now that's the good news.

The bad news is that because they don't necessarily ever want to retire or sell, they haven't planned for the unplanned event. And I'll tell you, if there's one glaring major problem in this industry it is that it is completely unprepared for that emergency event. God forbid somebody gets COVID, the average age, Mike, as you have said on prior podcasts, advisors are right in the sweet spot of the people that are most impacted by this that we're currently dealing with. If they do, what happens? Their clients, if they don't have a plan, have to go find someone else to be their advisor. So I think that clearly there is M&A activity. But there's not nearly as much as I think we would've expected given the fact that the average age is closer to 60 than it is to 40.

Scott:

And Mike, I'd say that our transactions have migrated away from a complete sale. And the last 12 months, 68% of our closings were a partial sale. And I'm extremely empathetic because I don't have any hobbies. I've got work, my kids are grown, they have no interest in me. I am very empathetic to our advisors that want to keep doing what they're doing. But 68% of them did decide they wanted to sell a portion of their practice, whether that be 25%, 49%, or 75% to a junior advisor or an advisor completely outside of their practice. So they can keep working as many hours as they'd like or not going forward and still appreciate a liquidity event when their practice still has a very high valuation relative to trying to sell it in your late 70s when presumptively the average age of your client is not optimal for a buyer. So we have witnessed a lot of those transactions, especially recently as investor service requirements have escalated with the pandemic and market turmoil. We've had a lot of senior advisors say well, it's finally time to take on that new junior equity partner and make that person or persons part of the capital structure.

Mike:

Have you ever watched a movie for the second, third, or fourth time, and a scene that was just kind of part of the movie suddenly seems way more significant or interesting? Well, one of the cool benefits of producing podcasts with really smart people like Scott and Terry is during the post-production process, I get to run through each episode a couple of times. And just like a movie, sometimes something pops out as really significant. Later in the show, Scott shares a story of an aha moment that arose when an RIA based in the Bay Area expressed a desire to experience a liquidity event for his business of the same fashion as the clients he serves in Silicon Valley. They got Scott and the team thinking. And now, Skyview offers a financing solution specifically designed to allow RIAs and independent advisors to experience liquidity events through a commercial loan program. It's really innovative. If you'd like to explore your own liquidity event or chat with a Skyview team about other financing needs, swing by skyview.com and click the get started button. Or, give them a ring at 866-567-6282. Or, if you prefer email, they've got you covered. Just shoot a note to info@skyview.com and someone will get right back to you. Okay, back to Scott and Terry.

Terry:

Yeah, I think that is such a smart move for people to do now. Because a, they're getting it at a higher value than if they let it trickle down. And they're preparing for, God forbid, something happens where their clients are protected. And I would hope that all advisors think about their clients. And I know that they do when they tell me that they would sell to a firm that had a better fit for their clients at a lower price than the best highest price. However, the same person that says that often hasn't done the planning in the even that they're not able to have put that structure in place where they brought on someone already.

Scott:

Well, interesting fact about our... So that 68% that are partial sales where the more tenured advisors are staying on with the firm, those firms the sale price was on average a lower multiple than a complete sale. And that makes a lot of sense if you're the seller and you've got to walk across the hallway and see the same person every day and they don't feel great about what the sale price was. You want everybody to be a lot happier.

So for junior advisors, we strongly recommend you start having those conversations today to ensure number one, that you are going to be part of that capital structure as soon as possible because every advisor as a junior advisor out there today that is not an owner of the practice is hoping and thinking that when that senior advisor retires they will be able to buy the practice. But we rarely see any contracts that give them any right of first refusal or any guarantee that that will occur. So if you're a junior advisor, from a pricing standpoint and from a security standpoint we highly recommend you have that conversation with a senior advisor. In most cases, they're just not aware that liquidity through bank financing exists because until Live Oak initiated funding in 2013, there was no bank financing and there has only been about a billion dollars funded in this industry total. So it's still a very nascent lending vertical relative to dental, veterinarians, any other cashflow model.

Mike:

Terry, you and Truelytics spend a lot of time helping advisors with their succession planning and as you kind of hinted at emergency continuity planning. How does the solution help advisors with that?

Terry:

Yeah, so True Continuity is designed to be what I'll call a locker. It's not designed to be the agreement. The agreement that Scott has or an advisor has with another advisor for a buy/sell or an emergency if God forbid I do get hit by a bus, that would actually be captured inside of True Continuity. But think of it, in many of the cases where if it's somebody that's in the office you probably have a better plan, and maybe you do have one that's sitting in a file somewhere, but there are a lot of advisors that are one-person shops with an assistant or two and they have an agreement with somebody that's in another town with the same broker/dealer if they're a broker/dealer firm that they're going to take over in the event of an emergency. Well, the person in that other town, they don't necessarily even maybe have a key to the office or know the address of the office. They certainly don't know who's the landlord and all the staff. So it's a locker that's unlocked securely in the event of an unplanned emergency that stores all of the documents. It has the valuation. It has who are all the key contacts, whether they're professional contacts with the attorneys that you work with or the accounting firms that you work with or if it's your technology partners. All of that, broker/dealer, custodian contacts, everything, one place you can go in.

And the whole goal is to retain as many assets and clients as possible. Because the industry statistics tell us that when there's an unplanned event and there's no plan in place, there is no succession plan, even if it was informal, 50% of the assets will leave in the first 60 to 90 days. So the value of that business erodes immediately. And this is designed to take care of that. And the agreement that you have, whatever that financial agreement is is up to you. It's also really important, and Scott and I have had these conversations, I'd love his thoughts on it, but if you're a lender and they don't have something like this, you may have, whatever the covenants are or whatever the bank is able to claw back and make sure that the loan gets paid back. But if those assets go, there's nothing there to attach to. So it's really important and it's a part of... Several of our clients have programs where they act as the emergency backstop in the event. It's very, very inexpensive insurance, if you will. And they utilize not only the valuation services, but they also mandate that you have to have true continuity as part of it.

Mike:

Yeah, Scott, I imagine that if an advisor or RIA is taking out a loan, you'd want to see some sort of plan in place for emergencies. What if the advisor passes away or is disabled a year into the term of the loan? You'd want to make sure that there's some stuff there to secure the loan, correct?

Scott:

Yeah, and that's accurate. One of the things, all of our banks require a life insurance policy for the full loan amount. But also, we need to have a succession plan in place for that practice if there's that event or some other event that is suboptimal for the advisor and for the practice to retain financing.

Mike:

Smart. Terry, one of the things I wanted to bring up, and I know this is still in the early stages, but you and the team at Truelytics are working on an M&A/succession marketplace that might be tied in with recruiting. Can you share a little bit about what you're working on there?

Terry:

Yeah. So, we have four modules. Two of them are very similar, True Recruit and True Match. But think of them, depending on whether you are recruiting someone to your RIA or your broker/dealer, there's a whole lot of information that you need in order to see if it's a fit and to make, in many cases, some sort of financial transition offer. And today that is all done via maybe it's a fillable pdf or it's a Word document or an Excel spreadsheet that goes to finance for them, it's all done manually and in many cases very disjointedly and it's expensive process. We have a platform that's completely customizable for them that can be used. And then for people who are looking for successors within a broker/dealer, we're able to create marketplace. There are some public marketplaces out there today. I don't know how active they are. But there are certainly places that people can go.

We create private marketplaces for enterprises where they can transact among the firms that are affiliated with them. But we also have a public... We will be launching in the next couple of weeks a public marketplace. And the difference is that it's all around data and analytics. Because we have a lot of information that's publicly available and then they enhance it if they've gone through the Truelytics platform, and we have about 8,000 firms that have come in through the platform. We have incredible data and benchmarks based on peer groups to help them analyze that business and find out if it's a good fit, very easily find out that I shouldn't even be talking to a firm because they only do portfolio management and use TAMPS and I don't, or I use ETFs and whatever. But it uses data and analytics to help analyze it, and it's a marketplace that will be available to identify buyers, sellers, successors, people looking for successees, etc.

Mike:

That's really smart. Well, Scott, along that line, selling a business, who should they call first and what's kind of the early stage process they should go through if an advisor's considering?

Scott:

Well, historically, the advisor will say, "Well, let me go figure out what my practice is worth and get a valuation," which does make a lot of sense. But we encourage advisors to actually reach out from a seller's standpoint to our team to run the cashflow analysis on how much financing they would qualify for just based off of their balance sheet. Best example I can give you is what gave us the idea, we had an advisor in the Midwest and she came to us about selling her practice. And she said, "Well, I'm thinking about selling for $2.5 million is what I'd like to receive. And I'm just wondering how much bank financing I would qualify for a loan." And we said, "That's a really smart question." We ran the cashflow analysis and we came up that just with her practice, she qualified for $2.6, and then at one point she was able to find a buyer with a strong balance sheet as well, and she actually received $3 million for her practice when she started the process looking to receive $2.5. So it's extremely helpful because the average EBOC that we see in these practices is about 48%. So if the advisor is going to depart the practice entirely, that salary, that revenue that was allocated to the advisor can provide for a lot of debt service and can provide for a lot of bank financing.

Mike:

And for the advisor who may be listening to this who's unfamiliar with the term EBOC, that's earnings before owner's compensation, correct?

Scott:

It is.

Mike:

You know, it's been really interesting in listening to both of you throughout this podcast is there is a power in having not only the fact that you specialize in service a very distinct marketplace, the RIA, independent financial advisors, and the like, but there's this power in scale. And it's funny, I just talked about this another podcast last week, there's something that comes about when you have done this a lot for a lot of look-a-like people, a lot of look-a-like businesses. And you just mentioned it a few seconds ago there, Scott, that you learn a lot, you find out what's acceptable from the banks, the case of Truelytics, you learn a lot, you find out what works for advisory businesses. How long did it take you guys to really realize the magnitude of that power, that kind of the scale power of your solution and the impact it was having on the advisors and RIAs?

Scott:

Really from our vantage, we saw a tremendous amount of demand from the advisory community for bank financing. We approached the market in a way that the current industry participants as banks had not and added distribution with 28 field wholesalers. And as we progressed as a lender, we recognized that the process was less efficient, so we have created new entities to work in conjunction with our financing team to enable us to scale our financing and investment banking and listing business and overall make it a more palatable experience for sellers. Because our assumption was that sellers were coming to market having an adverse experience and pulling away and deciding well, no, I guess I don't want to sell, I'll just dwindle this down over time, rather that independent and registered investment advisors should appreciate the same liquidity event that wire house advisors appreciate almost 100% of the time when they retire that are bought out Merrill or whomever, and also at much less attractive tax rates with ordinary income versus capital gains. So as we continue to provide more efficiency in the process, and Truelytics is crucial because they are the backbone of our organization in making it an efficient organization, we believe that the size of the market will grow over time and more advisors will appreciate a liquidity event of partial or a whole sale at the end of their career or near the end of their career.

Terry:

You know, it's funny, Scott, you mentioned efficiency and I'll come back to that. But one of the things that you were talking about, and I don't know that you mentioned it specifically because we've been talking about M&A, but the ability for a firm in the wealth management space today to borrow money against that business because it is generating significant free cashflow for purposes of other things. They might want to open another office, they might want to hire a couple of new people, they might want to buy a vacation home, whatever. But up until very recently, and I think you get the credit for it, is the ability to tap into that. If you have a really good business that's generating significant free cashflow and you can service the debt, I'm almost positive you guys have banks that lend money almost like a home equity loan or what I know other industry's business owners are able to take out cash in a much more tax efficient way, pay it back because they have plenty of free cashflow to do that, and utilize that money for whatever purposes, to grow their business to be bigger, to expand it, or to put it into something else.

Scott:

Yeah, and as per usual, our best ideas come from our clients. We were meeting with an RIA in the Bay Area, about $4 billion under management, and he goes, "It's frustrating, I built a huge enterprise value here and my other friends in Silicon Valley have experienced nice liquidity events that have provided them the opportunity to buy into this real estate market, and why doesn't that exist in our industry? If I wanted to cash out for 10, 20, 30% of my enterprise value, why is that not available? Does that not meet your credit criterion?" And the answer was, "That's a great question. Let's build that." So we built it out and [inaudible 00:36:58] look at it as working capital. But in that scenario, really an advisor can cash out for up to about a third of enterprise value and there's no transfer of ownership. So from a tax standpoint, it's very agreeable. And then just pay back that note over time, and really, I'd say eat their own cooking because they've been telling their own clients to diversify away from company stock their entire career. And this we're finally providing advisors the opportunity to do the same thing with their own network.

Terry:

Yep. And you mentioned it, in the wires, they were able to do that, And maybe even in the independent space a little bit by moving from Merrill Lynch to Morgan Stanley, you get a big upfront check which is that cashflow that they get, the cash in their pocket through a forgivable loan. It's probably not as tax efficient or whatnot. But in the independent space if you're a registered investment advisor, you didn't have that ability unless you were giving up equity, and now you can. But getting to efficiency, part of what Truelytics is able to bring is efficiency at scale.

And if you're a firm that has 5,000 affiliated advisors, we can, with two pieces of information, give them benchmarks on what firms like theirs would look like in our database based on real firms. And then if they go through the 20 minute intake form or 30 minute intake form, get an incredibly accurate valuation on four different methodologies, 50-plus key performance indicators, and benchmarks against similar sized firms. So they can see how they stack up against firms that look like them as opposed to firms that are way under them or over them, which unfortunately in this industry, most of the benchmarking surveys that are out there, which are really great and insightful, they're based on in some cases as few as 300 firms or 1200 firms. We have almost 8,000 firms that we're able to generate really, really good benchmarks on. So if you were to tell me that your firm had $247 million of AUM, I could get really pretty accurate on what your EBIDA number would be, how many clients you would have. Because there are dozens and dozens and dozens of firms that we have that have been $200 and $300 million of AUM. So we can do it at scale and we can help these firms with practice management, with making the onboarding of new advisors much, much more seamless process.

Mike:

That's fantastic. So as we get to closing this out here, I thought it might be fun to have each of you offer one little piece of advice for RIAs and independent advisors, kind of for the moment we're in, if you will. So Scott, I imagine securing capital might be a good idea because rates are low and so forth. But what other kind of piece of advice might you give an advisor or RIA firm now looking out at the rest of 2020 and into 2021?

Scott:

Great question, I appreciate it. Because we've always noticed that in other industries, if you're in commercial real estate, you know every banker in the industry and you know the banks and you know how they like to fund. And at Skyview, we're always encouraging our advisors to hug a bank or find a bank. Let's get you set up with a bank to start doing... If it's your operating account, if it's a home mortgage, whatever it might be, develop a relationship with one of our community banks that we can find the bank that best suits your needs and your M&A strategy. Because as you develop that relationship, bankers are not unlike anybody else, they like doing business with people they know and like, and especially when it comes to extended credit. So we open a lot of accounts for advisors who have become frustrated with the B of As, Merrills of the world. And they don't have an acquisition tomorrow, but they might next year. And the bank can then look in and see, okay, we can look into their operating accounts and see that yep, this is a very real entity. Because at the end of the day, the biggest fear that banks have is that the organization really doesn't exist. Therefore you have site visits for each loan. So as a result, I'd say that regardless of what your plans are with M&A, if it's tomorrow or next year, develop a relationship today.

Mike:

Makes sense. How about yourself, Terry? Obviously given the increased risk to the advisor population we talked about a little bit before, I imagine you're thinking [inaudible 00:41:38] continuity plan, but any other suggestions or is that the big one?

Terry:

Well, I think for the big RIAs that are north of $200 million, I would imagine most of them have a formal plan. They could still leverage our True Continuity because it's online, it's not sitting in somebody's file case. I know that they have the plan, but it's not as actionable as we have. But for those that are looking to grow inorganically and buy businesses, clearly there's the opportunity to find businesses that are like theirs at scale across the country. But the vast majority of advisors, not only are the 60, but they're under 100 or under even $75 million of AUM that are looking for a solution to their problem. And I will tell you, the biggest trend that I expect that we will see going forward is independent advisors who are willing to go back to becoming employees or W2 in the last several years of their career because they can much more easily sunset by selling their business today to a established RIA, get a pretty good payout, with all the services and have access to multitudes of products, and then as you sunset, have a formal plan, whether that's one... Merrill Lynch, I think you mentioned earlier probably has one. I'm not necessarily suggesting people go back to Merrill Lynch, but there are plenty of firms out there that would have a retirement path for people who are independent today.

And they will not be giving up that independence that they so desire. What I know is that the vast majority of those people that went independent 20 years ago or 10 years ago did not do it because they wanted to take on all the headaches of being a business owner. They wanted to have access to more products and freedom and a higher payout. And that is available today if you're a one or two-man shop running your business and don't have a successor. There are plenty of places today that are looking to bring someone like that on.

Mike:

That's wonderful. Well, I think that's a great way to take us out. Really appreciate the time from both of you today. Scott, Terry, always a pleasure to be with you individually, and having you guys together, well, that was a super treat. Appreciate it. Thanks guys.

Terry:

Thanks.

Scott:

Yeah, Mike, thank you.

Terry:

Take care.

Mike:

All right, see you. Thank you very much for joining Scott, Terry, and me today. If you happen to subscribe to the podcast, you get a gold star, job well done. Huge thanks to Scott and Terry as well. I learn something new every single time I talk to each of them. And having the two of them on a podcast at the same time, it's kind of like Neo plugging into the Matrix. The information just starts flowing. Great stuff. I hope you enjoyed it as much as I did. Okay, before I let you go, if you have questions or suggestions for the show, please send them to podcast@skyview.com or ping Skyview on the socials. And if you would like to explore financing options for liquidity, M&A, a partial sale, or expanding your business, make sure you swing by Skyview.com or call 866-567-6282. Lastly, before you take out these air pods, please make sure you stay safe. Wear your mask, social distance, and of course, be nice to each other, okay? We've got this, but only if we stick together. We'll see you next time on the Advisor Financing Forum. See you. Bye.

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