Financing squeeze for planners accelerates drift to institutions
The drift of non-institutionally aligned financial planners towards institutional ownership will continue as they fail to get business funding for expansion and succession planning, according to a finance advocate working with financial planners.
Lexington Advocates principal Harold Hall said that of the five banks offering finance to financial planners, two restrict such finance to their own advisory channels, while the other three have lifted requirements for financing to such an extent that only exceptional non-aligned practices are likely to receive financing.
"It has become noticeably tougher in the last six months, with the banks becoming tougher to negotiate with and planners struggling to get the loans under the structures they require," Hall said.
"Those banks which are offering financing are looking at the business process of a planning group or practice, as well as its funding, profit and loss and recurring revenue. They either have to be very good non-aligned groups or part of the institution to succeed in gaining finance.
"Getting funding has become an onerous process, and it takes about three months. Planners need to be aware that there will be twists and turns from the banks and that some of them will miss out on the funding they require."
According to Hall, those groups that require financing and struggle to gain it will need to improve their business further or consider joining an institution — but this loss of competition will not benefit the industry in the long term either.
AUTHOR
Jason Spits
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