Like their clients, financial advisors sometimes need access to capital to expand their businesses, acquire other companies and retire. To address this need, Genworth Financial Wealth Management of Pleasant Hill, Calif., launched a lending service to give its advisors access to cash when they need it through its new Business Transition Services Program.

“We feel strongly enough about the core advisors who have really solid businesses that, if they are going to transition, we going to help them do it in a very intelligent way,” said Matt Matrisian, senior vice president and director of practice management for Genworth Financial Wealth Management. “We feel we can take on some of that risk.”

The bulk of the risk of the loans, however, will be assumed by The Bancorp Bank, a wholly-owned subsidiary of The Bancorp. Genworth is working with the bank to provide loans to advisors who are committed to working with the Genworth platform and looking for assistance in acquiring another advisory business. To be eligible for the lending program, advisors must meet certain qualifications from both Genworth Financial Wealth Management and The Bancorp Bank.

Matrisian anticipates the loan values will range from $200,000 to $1 million, representing 30% to 40% of the value of the companies being acquired. A practice with $25 million in AUM and a revenue stream of $250,000, for example, would be valued at two-times revenue or $500,000. A $200,000 loan, representing 40% of this amount, would be used as a down payment on the purchase of the practice, with the balance of the purchase price paid out by the purchaser over a period of approximately five years from that firm’s anticipated cash flow. Historically, banks have been reluctant to make loans in these deals, Matrisian says, “because there is no real tangible collateral for them to grab ahold of if the borrower isn’t able to repay those loans.”

To increase the bank’s confidence, he says, Genworth will assume a vetting role similar to the one played by the U.S. government in its Small Business Association loan program. “We are really supporting Bancorp in this process,” Matrisian says. Firms with AUMs of $125 million and up typically can arrange other financing options, such as venture capital, he added.

Advisors with an established Genworth relationship also have access to the program's educational materials and services. In-depth manuals, sample forms and agreements are available to assist with succession and transition planning. This provides advisors with an array of tools and services to build a customized plan. Consultants are available to help advisors build and evaluate practice value and develop strategies.

Genworth Financial Wealth Management, which has more than $20 billion in assets on its platform, works with more than 6,000 advisors.

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