Podcast: Common Deal Killers for RIA Lending and How to Avoid Them

Mike:

Hey there. It's Mike Langford. Welcome to the Advisory Financing Forum, a weekly podcast presented by SkyView Partners.

            This week on the show I'm joined by Jayne Christian, the President of Lending at SkyView, and Chief Credit Officer Robert Perry. By the way, one of the first things Jayne, Rob, and I get to the bottom of is exactly what is the difference between the President of Lending and a Chief Credit Officer. Do you know? Me? I had no idea so I had to ask.

            Once we tackled that existential question, we got into the really important stuff, like what are the things that can kill an RIA lending deal? Meaning, what are the things that will cause SkyView and their banking partners to politely decline lending your RIA money? Jayne and Rob offer a few red flags and common missteps to avoid.

            On the flip side, we also spent a lot of time talking about how you can make your RIA business more attractive as a borrower, and my favorite, we dispelled a few misconceptions that many RIAs and independent advisors may have about their ability to get a loan.

            Quick little preview, there's a lot more flexibility than you might imagine. So reach out to the team at SkyView today by swinging by skyview.com or call 866-567-6282.

            Okay. Before we get to the show, please make sure you subscribe to the podcast on Apple Podcasts, formally iTunes, Spotify, Stitcher, Google Play/Google Podcast, wherever you like to get your podcast jam on. And make sure you give it a like and share it with a colleague. Maybe he or she is thinking about growing their business and this episode has just the information they need to hear.

            Lastly, please send your questions or suggestions for the show to podcast@skyview.com. We would love to hear from you. What topics would you like us to cover on the show, or do you have a guest suggestion for the show? Let us know. We want to hear from you.

            Okay. Let's get to it with Jayne and Rob.

            Jayne and Rob, welcome to the show. So great to meet you finally. I've been hearing lots about you. I've seen you on the SkyView, the Meet The Team Page. But this is the first time I get to chat with both of you. So welcome to the Advisor Financing Forum Podcast.

Rob:

Thank you.

Jayne:

Thanks for having us.

Mike:

Very good. This is going to be great. So one of the things that was interesting to me, Scott teed us up and said, "Hey, you guys all should jump on a pod together." I'm like, "That's a great idea." I looked at both of your profiles, read your job titles, and I'm like, "I'm going to have to admit. I don't actually know what the difference is." So this is kind of neat. So Jayne, you are the President of Lending at SkyView Partners. And Rob, you are the Chief Creditor Officer. So maybe we can go a little bit behind the scenes. What is the difference between those two roles?

Jayne:

Yeah.

Rob:

Jayne, do you want to start there? I've got my own take on it. But I kind of want to hear your take because I don't know if we've ever truly talked about what the difference is.

Jayne:

Yeah. I'll kick it off. So I would say that my focus is more so on the process of the whole thing from when you come in the door to when we actually close the loan. And I would just say going through that whole process is really what I focus on, trying to tweak it, trying to make it work for us and for the client, and really give them a white glove service that they're looking for.

            I'd also say that my focus revolves around selecting the right lender for each applicant that comes in, making sure based on their priorities, their criteria, their underwriting, as well as their timeline that we're choosing the right bank or lender for them.

            And then I would say that Rob probably focuses more on the credit, credit analysis, and tweaking that a little bit more. Rob, would you agree with that?

Rob:

Absolutely. I view it as basically two sides of the same coin. You deal with more of the wealth management side. You're the main customer contact. Whereas I'm a little bit more hidden in the background, do a lot more math on each one of these, and kind of play the role of the bank in the background just so that we can really get ahead of any issues that may arise right away rather than go two months, three months down the road, and then somebody says, "Hey, this is actually a problem." But Jayne's the first point of contact. She's the one who really, really sells us. Absolutely. I couldn't say enough nice things about Jayne and her customer service.

Mike:

Well, that's awesome. I would hope we wouldn't air the dirty laundry.

Jayne:

I was going to say, this is being recorded, right?

Rob:

Yup, yup, yup. I'm concerned that this may be used against me in the future.

Mike:

That's exactly. Hey listen, you can't say enough nice things about me. Keep them coming. All right. Exactly. That's great. That's fantastic.

            Okay. So I'm going to put it in my layman's terms here. So it sounds like Jayne, you are coming in contact with the borrower more frequently. They're going to interact with you. So whether that's an individual advisor or a group at an RAA firm that owns a larger firm, they're going the be dealing most directly with you. And Rob, you're behind the scenes crunching the numbers and making sure this deal actually works. Right?

Rob:

Yeah. Absolutely.

Jayne:

Yeah.

Mike:

Is there another scenario that the advisor ends up talking to Rob, interaction with you, or is it really mainly going through you, Jayne, and your team?

Jayne:

Well, I would say another thing to note is although I'm also the president, I'm also a relationship manager. So I'm kind of a double role. And a relationship manager is really that first point of contact. So we got a couple relationship managers on my team, and like Rob said, we're the first call, we're the salesmen I guess you would say in quotes, and also the service person. We're servicing them from the moment they walk in the door until we close the loan and then beyond that even. So they'll definitely start their journey with the relationship manager. And we do introduce the credit team to them after we've started the underwriting process. There's always some questions that could definitely be firmed up through a phone call between the credit team and the advisor, and I stay on those calls as well. But they are introduced to Rob, but I would still say, or the credit team in general. But I would still say the relationship manager is really driving the relationship with the applicant, and Rob and the credit team is really driving the relationship with the bank or the lender. And maybe we should explain our model a little bit too for somebody that doesn't know what SkyView does.

Mike:

Yeah. Let's do a little bit more of that. We've covered that a tiny bit on some previous episodes, but we haven't had the... As Scott always talks about, he always refers to you guys as the geniuses who make the thing work. He's the front man for the company out there, but you are the engine making everything work. So you have a lot more in depth knowledge of how this thing comes together. So yeah, maybe let's do that. Let's talk a little bit about how does SkyView work as a lender?

Jayne:

Yeah. So we mentioned a little bit about different banks and choosing the right bank for each applicant. So we actually fund through a network of lenders across the country, and so that gives us a little bit of an ability to curate the correct lender for the applicant and make sure that they're getting placed with somebody that makes sense for them and it's just a much more customized feel then. So that's where it comes into play of the president role, making sure that we're selecting the right lender for the applicant. And then Rob, dealing exclusively with the banks too and making sure that they understand the credit that he's run and that he understands their credit policy as well.

Rob:

Yup. And part of the benefit of SkyView Partners is that we've gone out, we've found these banks that are willing to do RIA lending. We've educated them a little bit about the space. It's been a process that they're still learning just as RIA or a conventional RIA lending on a large scale is a fairly new thing. So really if a customer comes to us, we do all of the underwriting in house. We've got a group of about 26 banks that fund across the country. So instead of going individually to each one of those 26 banks, they come to us, one underwriting process and then you have access to all of those funding sources.

            So really it cuts down on the amount of time, and if you go to your local bank, yeah, maybe you get partway through the process. But you may not get all the way to the end, which is funding, just because they're not comfortable in the space or they don't know enough. Yes, you may have the relationship, but it's just not something that they do.

Mike:

That's a really smart point that I had not heard before through my conversations with you and the team... Not you because you [inaudible 00:09:23]. But the team at SkyView is you are taking a lot of the initial pain in the butt process out of securing financing because anyone who's ever had to raise money for a business, whether that'd debt financing, as you're providing, or equity financing knows that it's often a road show. You're going to multiple banks. You're going to multiple investors and pitching them, trying to get that money, trying to find the right one for you, trying to find the one that says yes frankly sometimes.

            As the RAA market, as you just teed up, is new to this, not every bank lends to RAAs. So you were able to do a little bit of triage and go through and find a whole network of banks that will say yes. And now you basically take that leg work off the advisor's hands, off the RAAs hands, and allow them to just kind of come straight into you, single point of contact and get the process rolling. I love that. I love that. I hadn't thought about that before.

            So commercial lending, as you mentioned, for RAAs is a relatively new concept pioneered in large part by SkyView Partners. Given that it's so new, what are some of the key things that you guys are looking for in an RAA that tell you it's a good lending opportunity?

Jayne:

Each RAA is a little different or each applicant's a little different. So financial advisors tend to be very good at their job of financial advising and working with money, but they tend to not always be business owners. So that can be something that's new to them, and that's something we like to consult with them on and help them through the process to really view their practice as a business. It's not just your relationship with your clients, although that's a key factor. Also growing your business as a whole. So that's something that we really try to focus on is are they a business? Are they a well oiled machine? Are they a diamond in the rough? How do we tszuj them up I guess to get them to where they need to be for lending?

Mike:

Getting tszujed up. I love it. That's great.

Rob:

And on the credit side or from a bank standpoint, we deal in peer numbers. I'd say the number one thing that we really like to see is always either business or personal liquidity.

Mike:

Okay.

Rob:

Just because at that point, your business is kicking off a lot of cash. Are you being disciplined and smart with that cash? We're not necessarily saying that it has to be in a bank account earning, maybe next to nothing. But access to liquidity is always something that we like to see, and especially the more, the merrier is really kind of the thing.

Mike:

That's really interesting that you point that out, and I've been talking about that recently about how important that is for businesses in general. But I think specifically in this case for the RAA is that hey look, liquidity is important, especially in times like this where all of a sudden you hit a pandemic and revenue stability isn't. There's a lot of challenges there suddenly. You might see markets come down and therefore your revenue come down. You might see clients pulling money out of the markets and going to cash and all those types of things. So as a result, hopefully you have some cash reserves there to kind of get you through, weather the storm, and hopefully your business has a healthy enough profit margin to sustain through maybe a prolonged lean period of time. So that's a really interesting concept.

            Jayne, you mentioned teaching advisors to think of their business as a business. That's one of the areas where I'm particularly keen to learn a little bit more. I mean, RAAs do come in all shapes and sizes. There are solo advisors and there are large firms managing tens of billions of dollars. Those are kind of rare, but some of them managing billions at least. How do you look at those differently? Do you have the same criteria for each, or when you see a solo come in, do you think about them a little bit differently than a larger shop, a different kind of criteria?

Jayne:

Yeah. No, that's a good question. And it's really hard on the enteral call to determine whether we think it's a viable applicant. That is something that you might get a gut feeling, but it's very hard to have that discussion and say, "Yes, this person's ready. He's giving me these numbers," or, "He or she has given me these numbers, and they're going to be a great applicant," or, "No, they haven't." We really do need to work with the numbers a little bit more, and that's when I lean on credit quite a bit. And they'll run those numbers and let me know how it looks.

            But one thing that we do like to do is if they come to us for an acquisition and they're buying a rather large book, we like to see that they've got a process in place for how they're going to service these clients and how they're going to bring the clients over to their platform. Is it going to require signatures, multiple signatures or just one signature? Are they going to have a team helping them? Is that custodian sending a team to help them? So those are the questions that we dive into when they come over and start talking us through that. And are they going to hire someone to [inaudible 00:14:41] with us?

            So sometimes somebody will come and say, "Well, I want to buy this book." And I'll say, "Well, you're one of a million people that want to buy this book, but are you ready and are you equipped to handle this?" And even having that discussion and talking through projections really will adjust their mindset to more of a business owner and not just a salesman or a financial advisor. It really does flip their mindset quite a bit.

Mike:

That's really interesting because even outside of the RIA space. Many companies don't do well after an M&A in part because they haven't thought about what's the company going to look like after the deal is done. How are you going to blend the teams? How are you going to onboard the clients who were in another structure into this new structure and things like that? So that's really interesting that you spend a lot of time not only thinking about that but coaching the advisor or the team of advisors through that process.

            Let's take a quick break to talk about how important capital is to a newly formed business. Whether that business just got its start, like when a wire house advisor breaks away to start his or her own RIA firm, or one advisor is buying another advisors book of business to create a newly merged firm. The new business is going to need capital to grow and support operations. You may need to hire new team members or invest in new technology solutions or marketing and sales. Not sure how much capital you'll need. Talk to the folks on Jayne's team at SkyView. They've worked with a lot of advisors in RIA firms. They can help you plan through the entire process and help ensure that you and your business are ready for your next phase of growth.

            Swing by skyview.com today or call 866-567-6282 or if email is how you roll, shoot a note to info@skyview.com and someone will get right back to you.

            Okay. Let's back to Jayne and Rob.

Jayne:

Yeah. I'd say consultation is one of our key things, and probably one of our strengths in the industry is that we have the ability to consult with them. And a lot of us have come from wealth management so we know their role a little bit better than some other lenders might not have the same background that we have. So we know their role and we've got the ability to put ourselves in their shoes and help them through the process.

Mike:

That's so important. In my experience having some experience in wealth management is so helpful. Anyone I've ever met who's brand new to this space, it'll take them at least a year just to start understanding the acronym soup that is in our business and understanding that there are several different flavors of financial advisor and here's how they make money and here's how they're structured and here's how they're licensed. It's a really complex business that is not easy for the layperson to understand when they come to. So it's really smart that the SkyView team, almost everybody came through the wealth management space into SkyView as it was formed.

Jayne:

Yeah.

Mike:

Quick question that Scott teed this up when he introduced the three of us, but as I thought about it, yeah, I really want to know the answer to this question. What are some red flags for you and the lending team? So are there certain attributes of an RAA when they come in looking for a loan that tell you, "Stay away from this. Back off slowly. Leave these guys alone."

Jayne:

Yeah. I think that Rob, you probably have more, but the ones I pick up on are deception. I think if we find out, and that goes back to character. There's a lot of business or banks talk about character quite often, and the good thing is we've got broker checks. So we have the ability to actually review character on a lot of applicants. So we can kind of see these things. But if we find something on there that wasn't disclosed, those can be a little bit of a red flag if somebody says no to a question and we check their broker check and they actually have. Could be just a misclick and they clicked the wrong one. But it's one of those things that you kind of just shoot up a red flag and you think, "Okay. Remember to talk about this. Remember to ask why this happened." So I'd say that's probably the number one thing as an RM, relationship manager, that I would look at.

            Rob, I'm sure you have some more stuff on the credit side.

Rob:

I'm going to second yours entirely. As part of our underwriting process, we do uncover a lot of information. Some information you may not think is public but it really is. Then we like to kind of dig and find out as much as possible between ourselves and the banks just so that they have a full picture. We don't want to put something out there that is either patently false or something that got missed that causes an issue later on.

            The biggest thing right now is with PPP and the EIDL loans. The disclosure of that is not always forthcoming. But it's something that the more information that we have, if we have it up front, we can very, very easily either exploit it away or really say, "Hey, this isn't as big as a deal."

            For me, red flags are always going to be disclosures, but that doesn't necessarily stop you from seeking financing. It's a matter of scale and magnitude as well as just a few standard things, bankruptcies. Now if they were 20 years ago, not that big of a deal. If they were last year, that might be a bigger deal.

Mike:

Right.

Jayne:

Or multiple.

Rob:

Yes.

Jayne:

And I would say as long as you disclose it, a lot of times it can be something that we can work through. But it's when you don't tell us that causes the problem.

Mike:

That makes sense. Yeah. Like you said, it goes back to your trying to hide something. You're being a little deceptive. You're trying to not be fully transparent in who you are because it's important. Look, somebody's giving you money and there's an expectation that that money gets paid back, and you have not only a responsibility to SkyView but you have a responsibility to the bank that's making the loan to make sure that they get their money back. It affects the entire system.

Rob:

Absolutely, and it's something that we like to match up. Each customer that comes in, we like to match them up with a bank that is not only there for their current transaction but is going to be a partner long term. Now starting that partnership off giving maybe not full information is not a good way to start building that relationship.

Mike:

Yeah, yeah. I think that's true in every area of life, right?

Rob:

Yup.

Mike:

Don't try to [inaudible 00:21:34] hides them. So maybe this is a little bit different or maybe this is the same question. But let's say a firm is through the primary stages. You've kind of evaluated, "Okay. Everything looks good." They're moving along in the approval process. What might kill an RIA lending deal? Are there behaviors or things that you would see through the underwriting process maybe to get a little further along that would stop it? I had talked to a CEO of a lender years ago, and he said, "Look, we look at everything. We look at not only the business but we go into their personal bank and transaction history." And believe it or not, one of the things that their deal stoppers is if they see any transactions at casinos or online betting, they're like, "Look, man." While it's legal, it's a deal killer for them. They don't want to be giving money to people who may have a chronic gambling problems.

            Are there any things that kill a deal late stage?

Rob:

Yeah. From the banking side, I completely understand the casino or online gambling. That typically is a very large red flag. Not only is it [inaudible 00:22:39] but just across the board. Sorry. If you like to gamble, that's totally fine. Just try and do it [crosstalk 00:22:45]-

Mike:

Do it with your money.

Rob:

... within reason. But no, we as part of our underwriting process, we do look at both the business itself as well as the personal side. Our big thing we like looking at global cashflow. We do that because we don't want to necessarily limit by looking at both sides. We don't want to necessarily limit the advisor's ability to pay themselves out of their business side. You're putting in the work. You're putting in the time. You should get those benefits of that.

            One thing that we do look at that might kill a deal part way through is really personal liabilities. Are you overloaded on debt? Are you being smart about that? We're not saying you can't go out and get rental properties or go buy that new boat and finance part of it. It's a matter of just are you able to support that? And the less that you have, the better borrower you're going to be. Just across the board that's typically the case.

Jayne:

Yup. I would say also something that can slow down RIA acquisition financing would be towards the end the seller. That's usually the last step there is just to make sure the seller's onboard the whole time. A lot of applicants will come to us and just want to see how much they can get financed. So they may not be as far along in the process as the seller. So we sometimes have to have those discussions. So the sooner we can be introduced to the seller the better. We can sometimes be that third party talking through what the loan will look like, how much you can get up front, what does that mean for the seller, and just being in touch with them because we do need some seller documents as well. Being a cashflow lender, we look primarily at historical data.

            So we want historical data on both the buyer and the seller if we're doing acquisition financing. So we will need to be in touch with the seller, whether that's through the buyer and they want to be the one kind of spearheading that or oftentimes we're introduced directly to the seller and explaining who we are and why we need the documents.

Mike:

I'm glad you brought that up, the seller being involved because in many cases, as we've talked about on this podcast before, it's going to be a partial sell. It's not going to be a clean cut, I acquired your business, and as soon as the ink is dry on this paper, you're out. See you later, seller. There's going to be some level of involvement of the seller in the business, at least for some period of time. Maybe it's a year, maybe it's two years. Who knows.

            So it's a really smart that the seller, their credit's looked at well, that they're stable. One thing that I was thinking of as you were describing that is I didn't even think about this until just now is that litigious behavior in the past. Do people have a habit of getting into legal fights in their history? Is that something you look at? If somebody enters into business contracts and finds themselves in court repeatedly, that might be a problem.

Rob:

Absolutely. There is actually one that we looked at. Absolutely great business, but the problem was that the seller had gone through three or four legal proceedings in the last about five years and that gets a little scary. Really any sort of legal issue, whether you're in the right or the wrong, is always going to give the bank some pause just because they don't know how it's going to play out unless it's completely settled and done. It's just an unknown that they don't always feel comfortable with.

Mike:

Yeah, yeah. I always think about it. A lot of my experiences on the angel investing and venture capital side with a lot of fintech startups, and those investors will often tell you, "Look, I don't want my money going in to immediately pay off a lawsuit or to pay off some of your other debts." So use of proceeds is important. Now with lending, some of the use of proceeds is so the advisor can take some money off the table or whatever. Totally acceptable. But as you're saying, you want to make sure the business is solid. You want to make sure that the money, if it isn't going to be taken off the table, that the business is going to be able to support that. But you definitely don't want the money just to be coming in and leaving out in a lawsuit, and the business is at risk. Or you don't want it going out to pay off a crap ton of debt and the advisor just has a tendency to constantly get into debt problems, and they're going to be in debt problems three years from now.

            So really, really interesting that you guys are looking at that, and I think that's smart.

Rob:

I'd say the, and Jayne said it, the biggest thing in late stage underwriting or right when we're about to close a deal is that seller. Sometimes they get cold feet. I understand that. Sometimes they were just saying, "Yeah, if you can get me $2 million for this practice. Yeah, sure. I'll sell." Then when it's actually there, they may reconsider that. Really bringing that seller in, getting them onboard, and really bringing us in. And we absolutely love to talk with sellers just from the standpoint of we can explain a lot of this. Direct communication is key. Just we know really what to say at this point. We've seen pretty much it all that we want to talk with them directly so that we can walk through the process. "Hey, this is what you're signing up for, but this is what you're getting." There's always a benefit and a trade off for the seller that's part of getting money up front and getting that immediate liquidity.

Mike:

So I have an interesting question. I would imagine there is some compliance or regulatory stuff behind this, and maybe you guys aren't the best one to ask. But I'm just curious. Are there age constraints that come into play? So again, many RIAs are operating as solo advisors. They're the solo advisors, solo employee of the business. One man or woman shop. But some of them are getting up there in age. And you're making a commercial loan that may need to be paid off over 10 years, and so if an advisor rolls in and they're 72 years old let's say, the business maybe very good at the moment. But you also have to forecast how stable that business is going to be for the term of the loan, correct?

Rob:

Yup.

Jayne:

Yes.

Mike:

But I would imagine there's some lending laws that prohibit discrimination of age. How does that get balanced?

Rob:

So really the balancing factor in that is all of our loans do require life insurance to be at least a portion if not all of the loan, and that's just because in the example that you said, it's one man shop for now. What happens if they go out and get hit by a bus tomorrow?

Mike:

Right.

Rob:

That's something that we want to account for. So we just have life insurance on that. And those proceeds go to pay off the loan. It's a benefit to the advisor because basically that transfers into their estate free and clear. They don't have to hand off this loan to the person that that would go to. Really it creates a clean break. But in all honesty, we are seeing most of our buyers aren't necessarily in the 60 to 70 range. I'd say they're in the 40 to 50 range. We're starting to see a lot of turnover in age groups really.

Jayne:

I agree. I'd say if a 72 year old applicant does come in, we definitely want to make sure that there's some sort of continuity or succession plan. We want to see that anyways, but it would be more important for somebody that's older and has more of a likelihood to retire. But that being said, financial advising is one of the few that as long as you still have your wits about you, your job can be secure and you can still do great financial advising. So it is one of the unique industries that I would say there are a lot of older financial advisors still out there.

Mike:

Yeah, yeah. See, I talk to them all the time. Yeah. They've been crushing it, and many of them have been doing it for decades and they've evolved with the industry and kind of made it into what it is today. So a lot of props to our older advisors in the audience.

Jayne:

Yes.

Mike:

Speaking of time in the business, I know that in other commercial lending situations oftentimes there is a minimum years that the business has to have been in operations in order for it to qualify for a commercial loan. Do you have a cut off? Is it five years, 10 years or something that you like to see before you're willing to make a loan? Because I would imagine business history matters in the lending process.

Jayne:

Yes, definitely. We like to see seven years of industry history. So we want to see if they've been doing financial advising. Maybe they've managed a hedge fund. Something in the financial services industry that makes sense. As far as how long the business itself has been in place, three years is the amount of time that we want historical data in order for us to be running the most accurate numbers that we can with a cashflow lending, like I touched on earlier. We do like that historical data.

            However, on the flip side, I will say that Rob and I actually closed a loan for somebody that was W2 prior to the beginning of this year, and we were able to finance his loan based on W2 income and the fact that a lot of his clients had already transitioned over and based on projections going forward. So that was a unique case. But I will say that we do have the ability to do that in some instances.

Rob:

Yup. And it's going to be based on the merit of the deal itself. We do have the knowledge and the background to basically take those and even if your business hasn't been in operation for two or three years, as long as you were in the industry and earning either a wage of a 1099 from that, we're able to kind of work back those numbers. That we assume that that's your book that you've been managing, and you went and started this new business in say 2019. We're able to account for that and basically say, "Hey, you brought over X amount of your clients. That's what your book is now." So we can create that historical track record. We always use historical to predict future cashflow ability or future repayment ability on this loan.

Jayne:

Yeah.

Rob:

So it doesn't have to be a company from the 1800s that's been around forever. But it's something that we have to account for, and at that point, we're going to be asking a lot more questions. "Hey, how are you running this? What are your expenses going to look like in the future? What's your growth plan?" Just to get a better idea around how this is changed from prior.

Jayne:

Yeah. And being in the industry and understanding wealth management, we understand that it's all relationship based. So as long as you've had this relationship for a while and they're able to move over into the new company, that's what we want to see. We want to see that you were able to transition these clients, and that they are your clients and your revenue and that you have that relationship with them.

Mike:

I was just literally about to say something similar there, Jayne. That is the value of SkyView and you and the team specializing in serving RIAs and independent financial advisors is because you know the business. So you know that hey listen, this isn't just a new business owner who opened up shop six months ago. No, this person has been doing this for a while. They're living a wire house environment maybe and starting their own RIA or they were at another RIA and are breaking off, taking their clients with them. And yes, the business is new, but this person's business, this advisor's business has been around for a while because those clients, those relationships as you mentioned are there. They're sticky. That gives you enough confidence to potentially do a deal even though the business is still relatively young as a new entity.

Rob:

Absolutely.

Mike:

Really cool. So let's get beyond the financials. As we think about wrapping this up, I always think maybe there's some other things that you might be thinking about that might be interesting or valuable for the advisor to think about as they approach borrowing money for their RIA. How about things like client mix or whatever? What are some of the things beyond financials you look at? Is it investment process, their digital marketing presence? Are they using modern marketing techniques to bring in clients to stay in touch with their clients? What are some other things you look at?

Jayne:

Yeah. So a lot of that stuff is ideal, but I'll say that not always necessary. So the digital marketing presence, I had a financial advisor who had a very simple, plain website, but the numbers were great. So he didn't necessarily need that website. Seems like they had a different connection and a different way of connecting with these clients. So as much as it's a good thing to have that just with the age that we're in right now, it's not always necessary. But I will say that we do look at client mix in regards to the loan to value and valuation. So we'll look at them, but we do want a third party valuation. And the third party evaluation usually does rely a little bit on the client mix because obviously we want to know if they're in the accumulation phase or the distribution phase. Those are two very different clients, and revenue for the next seven years, the term of our loan, is going to be completely different based on which phase they're in.

Mike:

Makes sense.

Jayne:

In regards to the investment process, we do employ CFA to review the investment process. And he just looks at it and makes sure that there's nothing completely wonky, and he's making sure that maybe the applicant doesn't have 75 year olds who live on a farm and don't know a ton about investments in a bunch of limited partnerships and alternative investments. Just making sure that it makes sense. And if they do and they are in that, what is the reasoning behind it? So not necessarily checking up on you but just making sure that everything appears to be running smoothly on the investment process. And the more defined process, the more sophisticated the practice and again, the more that that practice will probably view itself as a business. So that's a plus as well.

Rob:

From the underwriting side, we do look at the client mix. We want to make sure that... I think we were looking at one that had over 50% of revenue and AMU was held by clients that were over 85. And that was something that gives me a little bit of heartburn because I'm saying, "Do you have that next generation? Is that money just going to walk out the door?" It's something that we're not looking at it purely as right now. We also want to look at it in the future for the next seven to 10 years.

            I do love seeing somebody with a nice digital marketing presence. That's going to be key in RIAs of the future as they appeal to younger and younger generations. But having that sales process, being able to bring people in the door is always nice. It's fairly easier. It feels fairly easy to keep assets as they are, to keep those growing to replace anything they may lose or to keep your business growing. That's the difficult part. But we like to see that people are able to do that. It doesn't have to be on a massive scale, but if you're even keeping even keel 0% growth, you're getting benefits from either market growth or hopefully new current client assets. So we do want to look at that. But ultimately, that's not the biggest determining factor of being able to seek RIA financing.

Mike:

Yeah. Yeah. So this has been really interesting, and I hope that we've given RIAs that are seeking out lending, whether that's just to expand their business or to kind of refinance their business or to acquire another RIA for a more individual advisor's book of business, some food for thought here and maybe a little more clarity too. I think that was the goal for this episode here because... Because most advisors, whether they're individuals or in a team approach, have never applied for financing, I'm sure it's a bit of a black box and is a little bit of anxiety. I know that sometimes it maybe a scenario where, "Should I even bother seeking financing? Would I ever even be approved," and all that type of stuff. So I hope that listeners have kind of calmed that bit of anxiety and make the approach. And don't go hiding stuff. Just come in, be honest, transparent, and let the team work with you.

Jayne:

Yeah, exactly. And I'd say if you do come to us and you are anxious, like you said, you're not the first. Everyone is a little bit unsure, and that's what we're here for. We're here to help. We're here to consult, and we're here to help you grow your business.

Mike:

That's fantastic. Well, Jayne, Rob, I've really enjoyed first of all finally getting to meet the two of you. Although, Jayne, you're hidden in the closet somewhere.

Jayne:

Very professional.

Mike:

That's funny. No. It's great. We teased Aaron Hasler at the beginning of this pod where we were talking about his home office setup. So I'm sure your closet looks at least as nice as Aaron's-

Rob:

It is drywall and everything. It's a slight step up from the dungeon that Aaron's in.

Mike:

Very, very cool. I've truly enjoyed this conversation. I think the audience got a lot out of it. Well, thank you both for joining me today.

Rob:

Yes, thank you, Mike.

Jayne:

Thank you so much for having us.

Mike:

Thank you very much for listening to this episode of the Advisor Financing Forum Podcast.

            Hey, quick question. What was your favorite part of the episode? For me, I found it really interesting that a new breakaway advisor forming an RAA could secure a loan through SkyView very early on in his or her business process. I thought you'd have to have a business that had been in business for many, many years. But they made the distinction of, "Hey listen, that advisor has been in business. Whether he or she was a W2 or not doesn't really matter so long as the business is going to continue. The clients are coming with him or her, and the revenue generated by those clients and their assets is coming with them as well." Really interesting stuff.

            Do me a favor, drop us a note at podcast@skyview.com or ping the team on your preferred social media platform. SkyView is active on LinkedIn, Twitter, Facebook, and Instagram. Let us know what you found interesting in this episode or other episodes or let us know what you'd like to hear coming up. We want to hear from you. This show is for you. So we want to know what you want to hear about or who you want to hear from. Really, really cool stuff. All right. Send that stuff in.

            Also, huge thanks to Jayne and Rob for joining me, especially Jayne. She went above and beyond the call of duty for this podcast. She was actually in her bedroom closet with her phone on the floor with all sorts of clothes and pillows padded around her to muffle the construction news going on in and around her house. So that is huge commitment, and frankly, pretty emblematic of what I've seen and what I think you've heard from the team at SkyView on this podcast week in and week out. You can really feel that they genuinely care about the advisors and the firms they serve.

            So if you are ready to begin exploring RIA lending solutions for your business, make sure you reach out to the team at skyview.com or call 866-567-6282. They are looking forward to hearing from you.

            Okay. Lastly, before I let you go, you know the drill. Please stay safe and healthy. Wear your mask. Keep your distance, and please be nice to each other. We will see you next time on the Advisor Financing Forum Podcast. See you. Bye.