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Financing the Deal

Financing the Deal

For financial advisors looking to sell their practice, one of the most challenging issues in getting the price that you desire comes down to financing the deal.  Historically traditional bank lenders have been reluctant to put up the funds necessary to help close these types of deals since the practice’s value lies in its cash flow and the strength of its client relationships versus the collateral of accounts payable, real estate and other tangible assets present in other types of business loans.

Borrowing to buy a financial practice may always be a difficult process, but the winds of change are blowing. Over the past couple of years banks have developed plans to provide the financing needed for succession planning.

As the average age of principals continues to grow, firms are moving to keep these valuable assets from walking out the door to other custodians, RIA’s, and Broker/Dealers as succession plans are carried out and businesses are transitioned to younger advisors.

Succession planning is on the minds of many advisors.  Cerulli Associates, which tracks the financial advisory industry, estimates that nearly half of all advisors are currently over the age of 50.  It is predicted that many advisors will be in for a shock when it comes time to sell.  Finding a suitable buyer may prove to be difficult for many advisors, and finding a buyer that will be capable of financially closing a deal may be near impossible. 

For advisor’s putting together their plans to transition their practices, here are a few things in regards to deal financing to consider:


  1. Practice management is important – The manner in which a practice is managed can be a determining factor whether a lender will be interested in participating in a deal.  Single advisor centered practices in which the advisor-owner draws most of the profits out of the business are much less likely to be of interest for lenders that are evaluating the deals.
  2. If your clients are ready to retire or already retired, you may have a problem – Banks are looking for robust practices, and a client base of younger investors that are looking for asset growth.  If the majority of the clients in the practice are the same age as the principal advisor, banks will likely turn a blind eye as the clients are in a distribution mode shrinking the assets under management on an annual basis.
  3. Sellers are well positioned to select the financing partner – When evaluating deals banks want to look at tax returns for up to four to five previous years.  This provides the lender with an idea of how the practice will perform in both up and down markets.
  4. Broker/Dealers or Custodians may be the first place to look for financing – Broker/dealers and custodians have a vested interest in keeping assets on their books.  Providing financing for deals involving their existing advisor relationships is a small price for them to pay to preserve their balance sheets.


It is crucial for selling advisors to have a plan in regards to the financing of the deal.  Failure to plan appropriately for this aspect of the sale can drastically impact the result and lead to an unsatisfactory result.



Phillip Flakes is Co-Founder and CEO of Succession Link

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