Hands giving and receiving money (Photo: Shutterstock)

DeVoe & Co. has launched CapitalWorks, a new service that the consulting firm and investment bank said Thursday was developed to address the rising demand for capital among RIAs for M&As and internal succession planning.

The company has “informally consulted with RIAs on this for a few years now,” Brad Grubb, its managing director, told ThinkAdvisor. Clients have engaged the firm for succession planning and have asked “if we knew of firms that would assist their younger, G2 advisors secure funding to acquire a percentage of the owner’s shares,” he said, adding: “In the past, we’ve provided this service informally but realized that there was a growing demand for” the level of service provided by CapitalWorks.

Of the growing number of M&As, DeVoe & Co. pointed in its announcement to findings in the second-quarter Nuveen/DeVoe RIA Deal Book, which reported the industry experienced record M&A activity in the first half of 2019 (65 transactions) and was on track to experience a sixth straight record year of M&A.

“Advisors are reaching out to us in increasing numbers to learn about lending and capital solutions for their businesses,” David DeVoe, managing director of DeVoe & Co., said in the announcement. “Some don’t know where to start; others are becoming overwhelmed by the number of new options. DeVoe CapitalWorks was designed to quickly assess their needs and then introduce them to one or more providers.”

DeVoe & Co. research indicated that 54% of RIAs planned to acquire another company within two years. In addition, the vast majority of firms (92%) were planning internal succession, DeVoe & Co. said, citing the findings of an unspecified custodian’s recent benchmarking study. In some cases, RIAs are working on an acquisition and internal succession planning and therefore may have multiple needs for capital, it said.

“The loan volume in the RIA space has skyrocketed over the last several years,” according to Michael McGinley, an executive vice president at Wilmington, North Carolina-based Live Oak Bank, a capital provider on the CapitalWorks platform. “However, we are just scratching the surface and anticipate accelerating momentum in the future,” he said in a statement.

Another early supporter of the new CapitalWorks platform is lender Oak Street Funding in Indianapolis. “Awareness about lending and capital solutions specific to RIAs is still low,” according to Rick Dennen, its president and CEO. Having a DeVoe & Co. consultant “discuss the landscape of lending and capital solutions, and make an introduction when the need fits is a great model and win-win for all involved,” he said in a statement.

As the demand for capital has risen, the number of choices has grown along with it, DeVoe & Co. pointed out. Current options include conventional loans, Small Business Adminstration loans, private equity, revenue share agreements, passive capital and patient capital, it said. Although the “proliferation of loans and capital options is great for the RIA space,” it said the trend “can be overwhelming to an individual advisor.”

With CapitalWorks, the firm is looking to help advisors “understand their financing options, assess which one is best for them, and receive an introduction to a provider that best fits their situation,” it said.

Initial responses to CapitalWorks have been “extremely positive” among advisors so far, Grubb told ThinkAdvisor. “It takes a lot of time and effort to sort through the various options, which can be overwhelming,” he said, adding: “They are grateful that we’ve done the research so they don’t have to and they trust that we’re guiding them to an option that works for the needs they have.”

Explaining in more detail how the service works, he said: “Let’s say I’m an RIA and I want to use it. When RIA principals inquire, we initially ask them to complete a short questionnaire covering some of the basics on their firm, needs for capital and any relevant issues. Once received, we schedule a 30-minute consultation.”

The company created a “24-point decision tree to create a discussion guide to better understand the capabilities of lending providers and match advisors” to them, he said. “Our next step is to craft a summary report on the RIA that details their needs and capital requirements,” he explained, noting DeVoe & Co. provides that report to the RIA principal and to potential capital providers. “The result is an RIA principal who has a much better understanding of their lending requirements and is matched to a provider with greater knowledge of a potential client.”