Succession Financing Advances at TD Ameritrade, Schwab

Succession Financing Advances at TD Ameritrade, Schwab

Two major custodians say they’re closer to launching programs that would solve the financing questions that emerge when advisors want to sell their practices.

TD Ameritrade is in the midst of setting up a network of lenders to fund such deals, while Charles Schwab says its Schwab Bank expects to make several loans in the next six months.

The financing of succession plans is of growing interest in the custodian market. With the average age of advisors in the 50s, many are considering how they might sell their businesses; junior partners may seek to buy the senior partners out, if they can obtain loans to do so.

Custodians who assist in the matchmaking process often can retain the assets, although the role they play may be circumscribed. Earlier this year TD Ameritrade was considering whether to finance such deals itself but has opted instead for a different approach.

 Thomas Nally, president of TD Ameritrade Institutional, says the firm has put together a network of about a dozen lenders that would offer such loans. “We’re working through a couple of pilot loans right now where advisors who are looking for succession financing or acquisition financing can do so though this channel,” he says.

A formal launch is planned for the fall. Nally declined to identify the lenders in the network but said TD Bank, the firm’s largest shareholder, may participate. TD Ameritrade itself will not, Nally says. “We want to make sure we’re sitting on the same side of the table as the advisors,” he says.

Planning for succession is weighing more heavily on advisors’ minds. In a survey a year ago, TD Ameritrade found that the number of advisors who had a succession plan had risen 19 percentage points, Nally says. In Schwab’s RIA benchmarking survey released this week, one out of seven advisors said they had succession planning or strategic planning as their top initiative for the year, up from one out of 10 in 2010.

The Schwab Bank financing plan is aimed at helping mature registered investment advisors, those with $400 million or more in AUM and with three or more senior principals. About a dozen firms have “strong” interest in the program, spokeswoman Jennifer Davis says.

“Succession planning is of great importance to our clients, and one of the challenges can be a lack of capital among junior advisors to buy into the firm.  The intent of the program is to facilitate an internal transition,” she says in an e-mail. “As with any business loan, criteria and evaluation of candidates for the program are based on the strength of their overall business.”





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