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Marc Spilker enters the RIA world with a mound of cash, a giant Fidelity testimonial and a kick-ass reputation as Goldman Sachs and private equity gunslinger

Leading a Merchant Investment Management venture loaded with ex-Dynasty, ex-Focus stars, his company plans to start out making bigger, quicker loans, then selling RIAs a wider range of services

Monday, July 1, 2019 – 6:09 PM by Lisa Shidler
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Marc Spilker's sterling reputation gives Merchant instant credibility as it enters the RIA market.

Brooke's Note: It's a chicken-and-egg game in RIA M&A when it comes to finance. RIA specialty financiers were slow to form because RIA M&A kept refusing to materialize. RIAs might counter by saying they did few deals because getting capital efficiently was all but impossible. But Merchant Capital at least offers the possibility that the mutual thaw is accelerating. It promises to bring a level of gentleman banking to the game that matches the size and quality of loans RIAs need to scale up. But established banks disagree that Merchant is quite the disruptive force it suggests. One bad loan won't send banks running for the hills -- something, they suggest, is just what would happen to this newcomer. It's too early to tell but no less than Marc Spilker is putting his name on it and no less than Fidelity is already anointing the bankette as a "game-changer." That says a lot. 

In an unusual show of partiality, Fidelity Clearing & Custody Solutions put out a press release touting the great benefits of doing business with a third-party start-up that is promising to take $200 million mostly from an insurance company and pump it into RIAs.

The Boston-based custodian issued the release on June 10 anointing Merchant Investment Management (MIM) as the "game-changing" place for $1-billion-plus AUM RIAs seeking quick loans.

David Canter, Fidelity
David Canter: 'Lending solutions like this one are a game-changer.'

“Lending solutions like this one are a game-changer for firms looking to make strategic acquisitions to create long-term, sustainable value,” says David Canter, head of the RIA segment at Fidelity Clearing & Custody Solutions.

That said, the Fidelity's exuded confidence in Merchant likely also traces to an X-factor, sources say, that underpins the new venture -- namely executive chairman, Marc Spilker, says a competitor who asked not to be named. See: A former Goldman exec who wakes up at 4:30 a.m. to work out explains why it isn't a struggle

Before Merchant, Spilker spent 20 years at Goldman Sachs and was president of Apollo Global Management, which had $280 billion in private equity, credit and real assets funds under management as of Dec. 31, 2018.

What Merchant is implicitly trying to do is bring high-class banking to high-end RIAs that want to borrow lots of money with little hassle based on their solid track records and steady cash flow. It makes the experience feel more like lender and borrower are seated on same side of the table as the advisor, Spilker says.

Dave Mazrik
David Mrazik is the managing partner; his last stop was MarketCounsel

“We’ll do all of the things that traditional lenders do. But we think we can run it in a more collaborative way.”

Merchant promises to fix is the huge gap in choices for the 700 RIAs that have at least $1 billion in AUM. Right now, Canter says, those firms have two difficult choices to make.

They can accept private equity but with the big downside of ceding control. Or, they can go to Live Oak or other Small Business Administration (SBA) lenders with notoriously onerous paperwork demands and borrowing limits.

An RIA M&A boom is magnifying the span of the gap because RIAs need bigger and more frequent loans with less red tape to stay competitive. 

"It takes capital to create scale—and with the average deal size increasing three-fold in the past five years, access to that capital can sometimes be a roadblock," Canter says in the release.

Quick Draw

Observers says Merchant (whose bankers didn't disagree) will also require plenty of paperwork to ascertain the quality of required RIA personal guarantees. Merchant, however, is likely to decide within a couple days of receiving the data; a bank can take a cumbersome 30 days or more. 

Mark McKinley, Live Oak
Mike McGinley: 'Private lenders may lose funding if a deal goes bad.'

The New York-based firm will offer loans that will be used for RIAs looking to complete M&A deals, usually of the smaller "tuck-in" variety, Canter says.

The best part is RIAs will do something that resembles more of a handshake deal for its speed (faster) and paperwork (fewer sheaves) demands, he adds.

But executives at competing Live Oak Bank in Wilmington, N.C., say there is a quality difference between having a whole banking system backing yoiu and having a pile of fickle institutional capital looking for a premium return on "safe" capital.

They caution that RIAs face their own set of risks by borrowing from non-banks. One bad loan by Merchant could cause it to go out of business leaving it high and dry, they claim. See: Fidelity's M&A program reload looks 'game-changing' after it partners with a middleman to get Uncle Sam to guarantee RIA deals

“Private lenders may lose funding if a deal goes bad, raising the stakes and making longevity difficult. We believe that Live Oak has staying power as a lender because we are a bank." says Mike McGinley, general manager of investment advisor loans at Live Oak.

"In our opinion, the paperwork is worth it if it means you can come back to us for additional capital,” he says. His firm has made nearly $700 million in loans to RIAs. 

Playing the field

RIAs should use as many options to get cash as possible, says John Furey, managing partner of Advisor Growth Strategies of Phoenix, Ariz. 

“If I’m an RIA, and I need capital for some reason, it’s way better that there are a web of participants versus just Schwab or Fidelity. To me, this is a private equity deal.” 

John Furey
John Furey says RIAs don't necessarily want to get loans from their custodians. 

He anticipates Merchant will be an option for many RIAs.

While Schwab has a bank, Furey says RIAs don't necessarily want to get loans from their custodians.

“Sometimes, you wouldn’t want a loan from your custodian because it’s too deep of a relationship and you want to compartmentalize.” 

But McGinley says you don't get something for nothing.

“Merchant uses private sources of capital," he says. "While there may be more perceived flexibility with the private capital because FDIC-insured banks are regulated to a greater degree, the funding sources for a bank are going to be more predictable and steady over time."

Merchant's longer term plans call for lending far more than the initial $200 million and for doing business across a much wider array of services than merely financing.

Expect multiple raises by Merchant from the insurance company or other institutional investors, the unnamed source says.  That could create lending capacity of $1 billion and finance hundreds or thousands of loans.

Word is out, he adds, that wealth management loans are proving to be among the safest of any small business -- right up there with pharmacies and veterinarians.

Merchant, founded two years ago, has three business lines: Purchasing non-controlling minority stakes in RIAs; investing in independent companies that provide services to RIAs and a newly launched Fidelity partnership, dubbed Merchant Credit. 

The partnership is offering Fidelity RIAs reduced rates to buy technology from Merchant-owned firms, including AdvisorAssist, a compliance company, and Compass, which provides outsourced CFO and accounting services.

Fidelity won't receive compensation on the loans, Canter says. But Fidelity's RIAs will get a discount on the loan origination fee. Spilker says the origination fee will vary for every RIA. He couldn't offer an idea what the typical fee might be.  

Power resumes

Merchant's owners include ex-Dynasty, ex-MarketCounsel and ex-Focus Financial executives who want to make a splash in that realm of "synthetic scale" where Dynasty currently leads. It provides a combination of pooled outsourcing and some proprietary services for middle and back office.

David Mrazik is the managing partner; his last stop was MarketCounsel, where he was also a managing partner. 

Merchant managing partner Tim Bello was an early stage partner at Dynasty Financial Partners, and Amit Grover, chief financial officer at Merchant, also served as a Dynasty CFO. See: Dynasty Financial Partners brings on Timothy Bello from SkyBridge Capital

Having  individuals with powerful, RIA-familiar resumes at Merchant is significant, says Steven Levitt, managing director and founder of Park Sutton Advisors. 

 “I think Fidelity is trying to be a thought-leader in this space and provide advisors with meaningful resources. I know Tim Bello came from Dynasty and several people came from Apollo Global, which was the firm behind NFP," he explains. 

"I think it’s interesting to hear about a group like this that’s been under the radar screen. They’ve been quietly making investments,” Levitt says. 


The same day that Merchant announced its deal with Fidelity, Dynasty also launched its own financing capabilities for RIAs. Bello says he’s not worried about Dynasty as a competitor. 

Tim Bello
Tim Bello: 'What is so cool about independent wealth space is everyone has a place at the table.'

“Shirl’s a world-class operator. You can see it. It’s a continuous evolving space. What is so cool about independent wealth space is everyone has a place at the table.

"If we’re all focusing to help people on credit, then the market probably needs additional help with credit.”

In other words, he says, banking isn't one transaction but a relationship for an RIA over time, particularly if it wants to borrow money repeatedly for different transactions.

As such, Merchant also plans to morph into a technology provider similar to Dynasty Financial Partners. 

Access to this Merchant's capital, however, is likely to come with a hefty price tag. It's expected to lend at rates substantially higher than banks -- more like 8% to 10%. Competitor Live Oak's interest rates are typically range between 7% to 8%.

Spilker declined to say how much interest he will charge other than that they will vary from RIA to RIA. He also declined to give a range, or name the insurance company or other investors.

 Merchant intends to complete 300-400 deals and complete two more fund-raising amounts for a total loan portfolio of $1 billion, the source says. But Spilker says no set amount has been established yet. 

Options, options, options

Even though, Merchant is entering a crowded field where a dozen or so firms offer different tricks, Bello says RIAs want as many options as possible.

“There’s a destination for everyone. Everyone is looking for something can find a place to go. There’s a lot of entrepreneurs that run wealth management businesses,” Bello says.

 Bello says his firm will provide good value because its partners all hail from RIAs and bring special expertise.

“We really believe if you take a combination of people who are part of this business, then we’ve got something exceptional and it stands on its own.”

Spilker says his firm simply offers another option for RIAs. "There are circumstances where certain loans don't work for a lender."

“What’s different is this is outside of the Small Business Administration loan construct," Canter says. "This is not subject to those rules. It’s pure commercial lending."

“We’re not a bank. We like to think with private capital that you allow yourself to do things more quickly. It’s efficient with institutional quality and flexibility," adds Bello.



Live Oak


Marc Spilker


Merchant Investment Management


Mike McGinley

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