Vendor finance a solution for new adviser practices

the fold legal Katie Johnston

18 November 2019
| By Chris Dastoor |
image
image
expand image

Vendor finance could be a solution for financial planners struggling to obtain finance to buy new practices, according to The Fold Legal.

As interest rates go down, changes to renumeration structures for advice business and defaults on existing borrowers had affected the banks willingness to lend funds.

This had created an issue where advisers without a track record of managing a client or the lack of required collateral meant they may not be able to secure finance.

Katie Johnston, The Fold Legal senior associate, said a potential solution was vendor financing.

“Vendor finance is where the seller funds all or a part of the purchase price,” Johnston said.

“The buyer pays a deposit on completion and then repays the balance (with interest) over an agreed period of time via regular repayments. Essentially, it is a loan between the buyer and the seller.”

Vendor finance would ensure both seller and buyer remained committed by the seller ensuring clients move to the buyer as their new advisers and the buyer servicing those clients to maintain revenue.

Sellers providing vendor finance would still require security over the buyer’s assets, undertake due diligence on the buyer over warranties and indemnities and managing the risk of recovery.

“Vendor finance can be used to fund the book purchase entirely, but buyers may want to restrict it to funding the first instalment, so the revenue earned from the purchased book can be used to service the loan,” Johnston said.

“Then once retained and ongoing revenue has been demonstrated, the buyer can often obtain traditional funding from a bank/financier to cover the balance.

“This is also optimised when the subsequent instalments are much smaller percentages of the overall purchase price.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

1 month 3 weeks ago

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

2 months ago

Interesting. Would be good to know the details of the StrategyOne deal....

2 months ago

SuperRatings has shared the median estimated return for balanced superannuation funds for the calendar year 2024, finding the year achieved “strong and consistent positiv...

2 weeks 2 days ago

Original bidder Bain Capital, which saw its first offer rejected in December, has returned with a revised bid for Insignia Financial....

1 week 2 days ago

The FAAA has secured CSLR-related documents under the FOI process, after an extended four-month wait, which show little analysis was done on how the scheme’s cost would a...

1 week ago

TOP PERFORMING FUNDS