Wealth Management’s $90 Billion Appetite
SkyView Partners says the market for loans to wealth managers is set to boom.
Wealth managers have collectively sought over $1 billion in financing though SkyView Partners since its founding less than two years ago, an eye-catching total given the market was effectively nonexistent before 2013.
But SkyView, the Minneapolis-based company that matches broker-dealers and RIAs with a network of banks willing to give them traditional loans for succession plans, mergers, and acquisitions, says this is just the beginning.
The $1 billion in loan sourcing, or financing borrowers sought from lenders, could represent barely 1% of the total market over the next decade, according to SkyView. The company projects the market for loans will grow to between $70 and $90 billion over the next 10 years, it told RIA Intel.
SkyView has helped finance over 70 transactions and more than $175 million of debt, only a fraction of the $1 billion borrowers sought. That wasn’t for lack of want by SkyView. The company is constrained by its own capacity and pending loan demand is expected to roll into the next three years, according to SkyView.
The loans funded so far through SkyView’s network of 23 banks and the demand are enough to warrant a public projection, Scott Wetzel, managing partner and CEO of SkyView, said. Maintaining a focus only on wealth management firms will enable SkyView to scale with demand, according to Wetzel.
“We can underwrite and fund a transaction in under thirty days; however, we recommend that advisors engage us long before they are set to close. At SkyView, we ascertain what each advisor’s long-term M&A goals are and introduce them to the bank best suited for their needs far in advance of any transaction,” Wetzel said in a statement.
Most lenders to wealth management firms are regional or community banks that are much smaller than others like JPMorgan Chase or Bank of America. For that reason, they often expect to have closer relationships with customers, which can work to the benefit of a borrower.
A bank that already does business with an RIA might be more willing to lend it money, largely because it is familiar with the wealth manager’s finances. Otherwise, a lender is going to ask more questions.
“They wonder why you’re coming to them for a loan and not asking your current bank. That is old-school banking,” Wetzel told RIA Intelin November.
The average financial advisor is 52 years old and 40% are expected to retire in the next 10 years. During that period, many will look to sell their businesses, fueling demand for traditional loans, Wetzel said.
A broad unwillingness to sell has created some perverse circumstances in the industry, according to observers. Owners and advisors are holding onto their businesses too long and missing a window of opportunity to sell for a better price. It’s created wider gaps in valuations between buyers and sellers that have troubled sales, especially for internal buyers who might struggle to afford a buyout.
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