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The financial side of promoting younger planners in indie practices

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Phased succession plans that stagger the amount of equity changing hands can help usher in the next generation of financial advisors, PPC Loan Managing Partner Dustin Mangone says in an episode of Financial Planning’s Invest Podcast.

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The price of acquiring 100% of firms that have reached valuations of $5 million, $10 million and above is “one of the big hurdles and big topics today,” according to Mangone. The Woodlands, Texas-based company serves as a conventional lender to independent advisors and RIAs seeking to make acquisitions, go independent, switch broker-dealers or create succession plans.

In the interview, Mangone explains the rising sources of capital in wealth management and the differences between a conventional loan and other financing like an SBA loan or a private equity infusion. PPC aims to be “a consistent source” of financing to indie advisors over the long term with a conventional structure Mangone describes as more flexible than the alternatives.

Dustin Mangone is a managing partner with The Woodlands, Texas-based PPC Loan.

The phased succession transactions include ideas like starting a new partner at a 10% stake in the practice or, in the future, when a 20% equity holder picks up the remaining 80%. Regardless, the point is “allowing that next generation to acquire equity” in a way that minimizes the risk to all parties, Mangone says.

“It’s likely going to be difficult for advisors who have never had equity, never had ownership, to buy 100% of the firm,” he says. “That could be hugely beneficial because you don’t have such a major change within the operations of the firm, but you do get the younger advisors who have the opportunity to acquire equity, pay down debt and start to grow their wealth so that they are better positioned to make a much larger purchase down the road.”