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Finding the right partner to fund RIA growth

Finding the right partner for your RIA business is an important way to grow

5 min read


SB QandA header image 4-2018

Oak Street Funding

Rick Dennen

As registered investment advisors (RIAs) search for ways to expand their businesses, finding financing can be a challenge. Many banks require physical collateral, yet RIAs have alternatives such as cash-flow loans through specialty lenders. Here we talk with Oak Street Funding® CEO Rick Dennen about recent trends in the RIA industry and how firms can fund growth.


What trends are you seeing right now in the registered investment advisor (RIA) industry causing firms to search for financing?

When I consider the RIA industry right now, I see three major trends. First, there is capital coming into this industry. With aging baby boomers well on their way to retirement, many ownership transactions will occur with consolidators, such as private equity shops or key employees. Second, RIA firms want expansion opportunities beyond organic growth. Acquisitions or the purchase of assets under management (AUM) can provide them with the major strategic advantages of being larger and having more resources. Finally, some financial advisors need working capital to leave large integrated brokerages, or wirehouses. Regardless of the recent changes in broker protocol, we still see a demand for financing.


What should RIAs consider when evaluating a merger or acquisition?

A successful merger or acquisition comes down to finding the right people and the right cultural fit. As RIAs define their ideal merger or acquisition opportunity, it is important for them to consider location, size, profitability, AUM health, staffing and diversity in client base. However, the compatibility of the people, the vision and company culture should always be top of mind. After performing due diligence, a merger or acquisition may look great on paper, but if the personalities and business philosophies do not mesh, the odds of a successful transition are greatly diminished.


What are some of the challenges RIAs have in securing financing for mergers or acquisitions?

Typically, business owners, if they have little or no experience in raising capital, regard local banks as their first potential funding source. This often results in disappointment. Unfortunately, many banks are uncomfortable making loans using intangible assets as collateral rather than physical collateral, such as real estate or inventory. One viable alternative is to explore cash-flow based lending through a specialty lender. For example, we are able to quantify a firm’s intangible assets because we consider the future cash flow that’s embedded in AUM as the primary “collateral” for loans up to $20 million, without requiring personal asset liens or including their non-owner spouse on the note.


What are some of the advantages of debt versus equity financing to fund your business growth? What are some of the drawbacks?

Equity financing consists of funding a business by selling shares of the company to investors who become “partners.” Sometimes these new partners can make it difficult for an RIA to run their business as they see fit.

When using debt, which is always cheaper than equity, RIAs don’t lose any control of their companies or get pushed in a direction they don’t want to go. As long as the loan is repaid on time, owners know their exact borrowing costs and can continue to run the firm the way they want.

Using debt to finance a firm can also have disadvantages. The biggest is that the RIA is expected to repay what they owe if something happens to the business. As is the case with a Small Business Administration (SBA) lender, this often means tapping personal assets.

For the best results, RIAs should partner with their lenders to responsibly fund business growth. At Oak Street we don’t sell our loans after origination; we partner with the borrower for the long term. We also have the ability to modify a loan if necessary to meet the demands of changing businesses, which can also reduce risk. 


How are new laws and regulations affecting the industry and where do you see it going in the next five years?

Two big disrupters impacting the RIA industry today relate to broker protocol and the SEC’s proposed Regulation Best Interest rule. Ultimately, broker protocol is no longer being honored by some wirehouses. This makes it difficult for financial advisors to leave their firms without fear of recourse – even if it is in the best interest of their clients.

The SEC’s Best Interest proposal, which is less restrictive than the Department of Labor’s Fiduciary Rule, distinguishes between advisors and broker-dealers, and could provide RIAs with an advantage.  While it is still under review and pending an SEC vote, it remains to be seen how this rule will ultimately impact the wealth management industry going forward.


Rick Dennen, Oak Street Funding’s founder, president and chief executive officer, has a strong record of starting and managing large businesses. Dennen led Oak Street Funding from a business concept in 2003 to a top lender that has originated over $500 million in business loans. Before founding Oak Street, Dennen was a partner of a venture capital firm, while serving as the CFO and Board Member for one of the fund’s investment companies. He was also a Senior Manager at a Big Four accounting firm. A certified public accountant, Dennen earned a B.S. degree in Accounting from Indiana University and an M.B.A. from Indiana University’s Kelley School of Business.


Oak Street Funding is an expert in specialty financing. Oak Street partners with insurance businesses, registered investment advisors (RIAs), certified public accountants (CPAs) and restaurant franchisees under the First Franchise Capital brand, as well as third-party servicing for commercial, specialty financing portfolios. Since 2003, we have been successful nationwide in fulfilling the unique capital needs for these cash flow-based industries while providing extraordinary service to our borrowers.