The market for advisor practices was set to be a record year in 2020 based on closing 2019 out on a high note, with valuations and deal terms as good as they have ever been. Fast forward three months and COVID-19 has eroded all these gains and left many advisors reeling and re-evaluating. As an advisor thinking of phasing out over the next few months or years, you are probably thinking, “Great, now what?”

If you asked us five years ago about financing the acquisition of an advisory practice in the financial services industry, there would not have been much to talk about. Until recently, almost all deals were done using a combination of buyer’s funds and seller financing. Bank financing was not a viable option for most deals because lenders generally struggled with the collateral on the loan – an advisor’s most valuable asset in their business is the client relationship and cash flow those relationships produce. Before the market drop in September 2008, some advisor buyers were able to leverage home-equity lines of credit or large business lines of credit, but most had to use personal funds to finance their deal, which priced many otherwise qualified successors out of the market. Until recently, the typical deal for advisors with less than $5,000,000 in annual revenue involved 20-40% cash down from a buyer, with the balance seller-financed over 4 to 5 years at 5-7% interest. That is changing, and the results seem to be good for everyone involved in the deals.