Leveling the Playing Field for Advisors

For any industry, there are barriers to entry to not only get started, but to also grow a business. In the financial advisory industry, one major barrier to entry and to growth has long been access to capital.  Traditional lenders rely on tangible collateral to secure loans and the value of financial advisory practices offers no tangible collateral like real estate or inventory. Instead, their value lies in the goodwill they build with clients and the free cash-flow or profits of the business. Even though more lenders have come into the market in recent years, most traditional banks aren’t comfortable making loans based on goodwill and cash-flow alone.

Another point where access to capital creates a barrier to entry is within a practice when the practice is looking to transition through an internal sale from one generation to the next. Often, growth-minded junior advisors would have to rely on bonuses or personal capital to secure equity in an advisory practice. For many advisors early in their career, they often don’t have enough personal capital or aren’t comfortable tying up their liquidity to purchase equity in a practice or firm. This left many senior advisors with no choice but to seek an external sale with an outside buyer once ready to retire instead of selling internally to key employees.

Luckily, many lenders like PPC LOAN have evolved and learned to not only see the value in a financial advisory practice, but to structure loans that would allow firms of any size to gain access to capital. As a result, the M&A market has expanded beyond the large aggregator firms. Lenders have also developed financing options that let the NextGen Advisors and other staff buy into a practice with little to no personal capital. As a result, many firms are enjoying greater continuity and even seeing better growth rates as they help cultivate an ownership mentality among younger staff. As a result, alternative lenders have helped level the playing field, and created a path for growth for firms of every size and structure.

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