A recent interview with Sam Stubbert of Succession Lending shed some light on the changing landscape of mergers, acquisitions, and succession planning for independent and registered investment advisors. With the average age of financial advisors at 51 and 38% expected to retire within the next 10 years, a change was needed to help serious buyers find funding options without having to shoulder an excessive amount of personal financial risk. As a result Succession Lending has entered the scene and introduced Finance 3.0 for advisors.

To get a better understanding of Finance 3.0, let’s take a look back at what advisor M&A funding options have historically been.

“In the past, if an advisor wanted to sell say a $3M practice, they had to find an advisor with 20% down in liquid assets which would be about $600,000. The seller would then have to operate as the bank and provide a three to 5-year seller’s note,” explained Stubbart. “There were no lending options for advisors looking to buy because banks did not understand how advisors were operating or how they generated revenue. As a result, a lot of advisors who were ready to retire did not and in-fact were dying at their desks.”

Finance 2.0 started when Live Oak Bank began to offer advisors Small Business Administration (SBA) loans about five years ago. They quickly became to the go-to funding solution because the seller no longer had to operate as the bank. However, the buyer had to take on substantial personal risk to secure the transaction and provide a personal guarantee which was typically their home. Locking in on a rate was also tricky because there were over 150 documents to complete and the deal could take up to five months to close.

“We saw an opportunity to help financial advisors by educating banks about how financial advisors operate their business,” explained Stubbart. “As a result, Succession Lending now has twelve banks in our network with conventional lending options for financial advisors including US Bank.”

In January, Succession Lending introduced Finance 3.0 for advisors. As a result, advisors serious about buying a book of business can secure a bank loan with a seven to 10-year term and a fixed or adjustable rate. With less paperwork and no requirement for a personal guarantee such as a lien on the buyer’s home, the entire loan can be 100% financed and closed within 30 days.

With the introduction of Succession Lending’s Finance 3.0 option many advisors with Finance 1.0 seller’s notes and Finance 2.0 SBA loans are refinancing. “We are also seeing what I like to refer to as ‘The Big Thaw,’” said Stubbart. “Advisors looking to retire can now entertain viable options for selling their business and buyers can make things happen. It’s 100% a seller’s market!”

While there is still a lot to navigate when it comes to mergers, acquisitions, and succession planning, Succession Lending has forged a new and much easier path for deals to get done. “We rely on Financial Advocates to assist advisors looking to either buy or sell a practice because they are experts at conducting successor advisor searches and matchmaking. They will also help advisors put in place a formalized succession plan with short-term and long-term transition goals. Their expertise compliments our funding solutions to make it easier for advisors to achieve success,” said Stubbart.

Financial Advocates helps advisors strategize for the next adventure, which may be a leisurely retirement or a new venture. No matter what your vision of the future, it’s best to start planning now.

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