The succession fund helping advisers enjoy la dolce vita
The Australian Wealth Advisors Group (AWAG) and Teaminvest Private Group (TIP) have teamed up to offer a succession lending fund to help advice principals navigate succession planning and enjoy their retirement.
On 13 November, AWAG announced it has launched a succession fund with TIP to address the problem of succession planning.
Money Management previously discussed how advice firms are failing to enact suitable succession plans, with 40 per cent of firms lacking a nominated successor.
One of the reasons for this is the difficulty junior staff face in securing financing from banks to take over the practice.
John Birt, chief executive of Radar Results, told Money Management in August that younger advisers may be reluctant to take on the risk of a large loan or the additional demand to run a business.
“Owners think their staff want to or can buy, but they might not have the funds to do it. Or if the staff do have the funds, it may be too risky of an investment. It’s one thing when the owner wants to sell down, but the people on the other end must want to take on that responsibility.”
To offer a solution, the Succession Lending Fund will provide financing for financial planners, accountants and insurance brokers to enact succession.
Speaking to Money Management, Lee Iafrate, AWAG executive chairman, said succession planning is a market opportunity which will support firms with equity transition, growth initiatives and talent retention.
“We expect the product will resonate strongly with the industry and there will be a lot of interest, especially as adviser principals are typically in their 60s.
“Juniors having access to capital is the biggest hindrance to succession planning currently and the principals are not wishing to provide vendor financing because it doesn’t achieve their objective of selling down to key staff and taking capital off the table. They want to retire, to play golf and to go travelling to Italy.
“It is very, very difficult for juniors to access capital or have a lot of equity in property to buy 10–15 per cent of the practices they work in. It’s a big issue.”
As a result, AWAG and TIP have launched the fund which is looking to raise and lend $15 million initially. This will be capped at $35 million on the first fundraise and then the two firms will reassess based on demand.
The size of the loan will be determined based on the size and revenue of the individual firm, with firms assessed based on reputation and experience, the marketability of assets securing the loan and ability to repay based on cash flow, profits and financial stability.
“Our sweet spot is businesses with $3–4 million in revenue or under, those suburban financial planning practices which make up the bulk in Australia,” Iafrate said.
“We expect principals will come to us and say they want financing to sell to their junior staff. This will lock the juniors into the practice, maintain continuity, enable succession planning and enable services provided to clients to be unchanged.
“We are lending into a market that is low risk as the bulk of these firms will have been in operation for many years so are very stable businesses with a secure earnings stream.”
Speaking to Money Management earlier this year, Olivia Ellis, head of accounting and financial services at Macquarie Business Banking, said younger advisers shouldn’t necessarily underestimate their capacity to participate in succession plans.
“Junior staff may underestimate their ability to participate in succession plans, despite viable funding options being available earlier than they may anticipate. It’s worth business owners making potential future leaders aware of options that may be available to them,” she said.
AUTHOR
Laura Dew
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