Farmland

SkyView’s quantitative and qualitative process evaluates several factors for RIA loans. Prospective borrowers may elect to apply for wealth management lending via a Small Business Association (SBA) loan or a conventional commercial loan; each structure has its respective pros and cons.

SkyView’s underwriting process requires information from the purchasing/borrowing advisor and the selling advisor for RIA financing.

Preparing for Bank Financing

Bank loans for financial advisor financing for M&A have not been available until fairly recently; as a result, a significant number of RIAs seeking lending have never entered the commercial loan application process. Unlike other financial services firms, RIA lenders seek comprehensive relationships with their clients understanding the value of your checking, savings, mortgage, or other banking business to your bank partner may result in the most symbiotic partnership for RIA loans.

Borrowers in other industries with greater access to financing understand the nuances of which RIA lender to approach and how to approach them. SkyView has relationships with a network of RIA lenders across the nation; we know how each lender wants to see RIA acquisition financing structured.

Advisors who are well versed in the RIA lending options available to today’s buyers not only ingratiate themselves to wealth management lenders, but they also may find increased receptivity from prospective sellers. Understanding each component of how RIA lenders will view your application for financing; will best prepare you to secure RIA acquisition financing.

Character Assessment

The character of the borrower is an extremely important underwriting factor for RIA loans; as a result, the underwriting process will examine credit, civil and criminal court records, and U5 declarations. Prior RIA acquisition financing conducted by each applicant and their payment history on previous RIA loans is critical.

Cash Flow Assessment

Commonly, financial advisory practices have very limited tangible assets to secure RIA loans; consequently, RIA lenders focus on the revenue from both the practice applying for financial advisor financing (buyer) and the RIA being acquired to collateralize the loan for external RIA acquisitions. More specifically, RIA lenders want to determine if the post-acquisition RIA entity has sufficient cash flow – debt service coverage - to support the RIA acquisition financing requested.

Internal successions must rely on the cash flow of one practice to obtain an RIA loan. Oftentimes, RIA acquisition financing requests for internal successions have more muted cash flow available for servicing the RIA loan. SkyView’s credit team works with RIA lenders to recognize the value of internal succession plans to secure RIA loans.

RIA Loan to Value (LTV) Assessment

Every RIA lender in SkyView’s network requires a valuation on both the buyer's and seller’s practices in an external acquisition. RIA lenders are interested in the enterprise value of “newco” – the practice that will be created as a result of the acquisition or succession. With external RIA acquisition financing, borrowers will benefit from combining the enterprise value of both buyer and seller for RIA lenders to derive RIA loan to value calculations. Internal succession RIA loan to value benefits only from the seller’s practice; as a result, internal successions oftentimes yield lower – less attractive – RIA loan to value ratios. SkyView’s Credit Team specializes in RIA lending; we are well equipped to communicate the value of internal succession plans to RIA lenders to secure loans for financial advisors.

Sunset

Practice Assessment

Underwriters want to determine transition risk for the acquisition, succession, or merger for each RIA acquisition financing applicant.

Factors that impact financial advisor financing include:

  • Transition timeline for selling advisor
  • Client facing personnel retention from seller’s practice
  • Advisory versus commission-based fees
  • Tenure of the acquiring advisor
  • Requisite personnel for acquiring advisor to service new clients
  • Age of retiring advisor
  • Average age of the clients in the seller’s practice
  • Diversification of client base
  • Average tenure of the clients in the seller’s practice
  • Beneficiary planning initiatives for the seller’s practice
  • Portfolio diversification and investment philosophy of the buyer

Validating Documentation

SkyView underwrites each application for investment advisor loans. After completion of SkyView RIA acquisition financing, each RIA lender conducts their own underwriting. Obtaining an RIA loan requires documentation to validate the RIA loan application. Documentation required includes:

  • 3 years' personal tax returns
  • 3 years' business tax returns
  • Personal financial statement
  • Revenue validation
  • Third party valuation
  • AUM validation

At SkyView, our expertise in wealth management lending and RIA acquisition financing and banking can assist you through the process. Contact a member of our Credit Team at underwriting@skyview.com or (866)567-6282.

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