Episode Transcription 

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This is the ultimate advisor podcast, the podcast for financial advisors who want to create a thriving, successful and scalable practice. Each week we’ll uncover the ways that you can improve your referrals, your team, your marketing, and your business operations, helping you to level up your advising practice, bring in more assets, and to create the advising practice that you’ve dreamed of. You’ll be joined by our hosts Bryan sweet, who is moving fast towards a billion dollars in assets under management, Brittany Anderson, the driving force for advisors looking to improve their operations and company culture, and Draye Redfern who can help you systematize and automate your practices marketing to effortlessly attract new clients. So what do you say? Let’s jump in to another amazing episode of the ultimate advisor podcast.

Welcome back to your Ultimate Advisor Podcast, Brittany Anderson here today with an extra special guest. This is a little bit of a different spin than what we’ve done traditionally, as far as interviews go. So I am personally excited to bring on James Hughes. Today, I’m gonna give a little bit of background. James Hughes is from Live Oak Bank. He serves as the head of investment advisory lending. In his role James leads the sales team and oversees the lending process from the initial call of servicing the loan. Since joining Live Oak Bank in 2013, he has helped hundreds Yes, hundreds of businesses achieve their goals through financing. James has served in several roles at Live Oak Bank including as a sales trader, relationship manager, underwriter and loan officer. Prior to joining the bank, James, he worked at one of the leading investment banks in the world. There he managed a group of derivative trading assistants and several client service teams. Through his unique experience, James has gained an understanding of the challenges that business owners face. James is dedicated to assisting small business owners in the investment advisory industry to attain success and continue to thrive with Live Oak banks, products and services. So all of that wind Enos. That being said, James, we are so happy to have you here.

Thank you, Brittany, I appreciate you having me.

Absolutely. Well. I would love for you to open up. Talk a little bit about your journey. What brought you to work for Live Oak? What got you here where you came from? why you chose that company?

Sure. Well, I appreciate you having me on and hearing you say my bio just like makes me feel like man makes me sound important. I don’t know if that’s actually true. But I guess firstly, you are doing a good job right now by so I’ll go way back but be quick about it. So I’m from New Jersey, originally went to school in Pennsylvania, went to went to Bucknell graduated and moved into Manhattan and started working you know, Wall Street at a couple jobs but ended up at Morgan Stanley and spend you know nine years or so at Morgan Stanley bounced around a little bit but was mainly in prime brokerage. Because you know, client service for for hedge funds. I had a couple of different jobs, get my series seven, management training assistance, as you said, and just really didn’t didn’t love my job. I enjoyed the time there in New York City. And John Mack was our CEO, like during the you know, only was pretty special, just to be a part of that. Special but pretty wild to be a part of that. And I met my wife, she’s from North Carolina. We started dating, we got engaged, and really I was just ready to make a big change. You know, we were living in Brooklyn and paying way too much for a very small apartment and wasn’t in love with my job. And so we started looking in North Carolina where she’s from. And her sister was actually working at the bank. And they needed somebody with a series seven to come and do their secondary market sales for their loans. So I was actually selling our loans in the secondary market. My first job I’d say probably maybe the more interesting story is how I got from being more on the syndication or security side of the business to the lending side. So every Friday here at the bank, we have what’s called credit committee where the loan officer has to get in front of the credit committee and present their their credit. And I was interested. So I would go, you know, it wasn’t something that was part of my my job and I would go just sort of hear what was going on with the bank, and the loan officer would, you know, back then we’d have to stand up in front of this, you know, sort of auditorium type room in front of basically the entire bank and say, I met Mr. Smith and Mrs. Smith, and they want to start a veterinarian doggy daycare in you know, Montclair, New Jersey, and I really liked the location, because it’s right next to a school and right next to, you know, the, whatever else is on the main drag and the we went up and visited them, and there was such a, a tangibility to the relationship that they had with the customer that I just loved. I mean, it was like, that’s so cool that like, you know, you’re gonna go meet the individual that you actually do business with, and, versus my time, Morgan Stanley, like I was dealing with, like hedge funds and like, and then I was doing like, interest rate swaps and credit default swaps, where it was like, you know, a trader at Pimco, I was dealing with or BlackRock, and it just like, didn’t have the same tangibility. And, you know, there’s like billion dollar trades, versus doing a million dollar, you know, loan for someone to buy a business, it felt like something I could really wrap my hands around. So I ended up joining the more than, you know, the retail side of the bank, where, you know, we do our lending, I started in servicing, and I moved in underwriting, and then eventually ended up as a loan officer and the senior loan officer, and the last two years, I’ve been running the investment advisor lending team, and I really love it, it’s, it is just so fun to meet small business owners, and you know, they’re so passionate, and it’s a lot of fun to meet somebody, they have a problem, you know, they need a solution, you know, we put together the solution, and then solve the problem. And, you know, a lot of these relationships go on for years and years and years. And so, some of the deals that I’ve underwritten, you know, the, I’m just thinking about, you know, couple 30 year old brothers, that we did a commercial real estate deal for, you know, probably six, seven years ago, when they were just starting out. And now, you know, using that commercial real estate, they’ve recruited people, and they’ve really built the business. And now they’re coming back for another loan to do an acquisition. And it’s, it’s just a really cool job, and I’m in a much better workplace than I was, you know, when I was in New York City, for sure.

You know, and it’s amazing. I mean, we talk a lot on this podcast about, you know, identifying values, and making sure that your decisions for your business, for your clients for your life are all centered around that. And I think what you just shared is a perfect testament to that you knew maybe the lifestyle that you didn’t want for forever, and you made some good changes there. And that’s, in turn serve you but also served the people that you’ve helped to. So I think that’s, that’s wonderful. So in your experience, and I do want to talk in a minute about some of the more specific kind of lending practices and what advisors could be paying attention to. But I’m curious to know, out of all of your dealings working with a lot of really, really successful, you know, on paper advisors, what are you seeing some of the most successful advisors paying attention to?

Yeah, I think maybe just because we do so much acquisition. And I feel like we talk about acquisition all the time, that’s where a lot of the industry focuses, I’d say people that are really successful at acquisitions, dedicate their time to it, and are intentional about it, and constantly have a pipeline of deals. So we get a lot of phone calls from people that are interested in buying a business, and then they don’t do a whole lot after that. So if you want to be successful at m&a, you got to really be intentional and put the effort behind it. And also, don’t be one dimensional about the deal, right? I’m gonna buy 100% of your business and you’re gonna retire. You know, if you’re a lot more open to I’ll do a recruiting deal, I’ll do a merger, I’ll do it, you know, you can, you can win a lot more business. But it’s I just say in general. You know, I’d say organic growth would be one thing that really successful advisors focus on it can really be a great cure for years, like we’re having, you know, if you’re, you know, the market is down, you’re, you know, your general your assets or management is down but you have a great organic growth sort of machine behind that, where you’re growing at a 15% plus clip a year. You know, that’s really going to help Oh, you know, mitigate your decrease in revenue by, you know, bringing those additional assets. So over the years, you know, in our portfolio, the not to get too technical, but the debt service coverage ratio, which is like how much money people are making over the debt payment has increased dramatically, you know, as time goes on. So what that tells you is advisors are continuing to grow their businesses. And that’s what we’ve seen really successful firms do is really be good at organic growth.

Yeah, you know, it’s interesting, because I think, you know, just in our network of advisers, whether we’re talking to people through our mastermind, or through one of our coaching programs, it is interesting, because this year has brought a common theme, and it ties into what you were just talking about how, you know, even when the markets are down, and I mean, let’s just put it out there, the last couple of years have been interesting to say the least. So it’s amazing how so many advisors, they spend their days inside and out, you know, telling their clients just hold steady. Understand that this is very likely temporary, nothing is guaranteed. But, you know, here’s what statistics show, and here’s what the bounce backs look like. And, you know, we spend time, you know, over and over in our day, but to pause and actually remind ourselves of that, it sometimes is a little bit harder, you know, to practice what we preach. So I’m glad you went that direction, because focusing on you know, those tangibles focusing on that growth, understanding that again, this is a temporary period, and holding steady to the things that we can control, I think are really important. So I would love to go shifting back a little bit, call it into the weeds a slight way. Talk a little bit about your approach to lending, because I know that’s where your bread and butter is right now. But what I thought was interesting is maybe the shift away from SBA lending to conventional. So talk a little bit about that, and why advisors should be potentially paying attention to this.

Yeah. So I already said debt service coverage. So I feel like we’re already in the weeds. Yeah. Yeah, so live bank is the largest SBA lender in the country. You know, we’re very proud of that. We love SBA loans, we’ll continue to do that, and hopefully hold that title for many years to come. In the investment advisory space, we’ve always done a ton of SBA lending. But 2021 was the first year that we did more conventional lending than SBA lending. And this year, we’re gonna do the same and we were do a lot more conventional lending than SBA. I say, you know, I mean, all we look for all the things that you think about, right, so we want to have, you know, good personal credit, a good personal balance sheet, we want to have cash flow in the business, recurring revenue, versus non recurring revenue, we don’t want to see a lot of client concentration. So you know, not to get too far into it. But that’s some of the things that we look for, I’d say just generally, you know, I’m really excited about what we have as an offering to financial advisors, because the SBA loan is a really great product for a lot of people. But it only serves when you know, if there’s an eligible use, and then it’s a good fit for the customer. So, you know, we help people start their business as an independent advisor, right, so we’ll help you we’ll break away from Merrill or Goldman or Morgan Stanley, wherever you are, to be independent. So we’ll help you sort of start your business. And then you know, we’ll do acquisition loans, succession loans, lines of credit, working capital, commercial real estate, really any financing need, you have, we can provide it for you. One of the limitations of the SBA is you can only lend $5 million through the SBA, you can pair that with a conventional loan and get up to seven and a half. But that’s really the max that you can do. So one of the benefits of conventional is you can do larger loans. And so we’ve been able to do that, you know, in over the last 18 months to three years, and do some larger conventional loans. So I’m just super excited that we can help the advisor that has, you know, a smaller book of business, maybe as a sole practitioner, with a $250,000 loan, but then we’re also working on an $80 million facility right now for you know, multiple billion dollar firms. So, it’s nice to to be a part of the industry in that way. We’re not just only helping the bigger folks and we’re not only helping the smaller folks are really a true partner to the industry.

You know, There’s a theme I want to pull out here too, you know, you’ve talked a little bit about m&a in that space, and what that can potentially do, and kind of rough made reference to the big guys and the little guys, and being able to help in multiple ways. So the word that, of course, comes up in my mind is succession. And this is such a hot topic too, because, you know, again, with what’s evolved in the last few years, there are definitely advisors, at least in the community that we’ve seen, that are talking even more about either A, I don’t really want to run my own practice anymore, I’d much prefer just seeing clients and being the advisor that I got in this business to be, or on the other end, you have, you know, some of the maybe bigger entities starting to look and say, gosh, there’s some great practices out there, there’s the guys that want to serve their clients that want to come on board, they don’t want to run the business or vice versa. So I would be curious to know, you know, what are some of the first steps that you would recommend that you see, when people are starting to plan for succession, be it being acquired, or on the other side being the buyer? Sure.

I mean, I think that my message would just be to just do it, you know, just like, you know, I think a lot of people wait too long. You know, the sad thing, you know, we see probably four times a year, we, you know, we get a phone call from someone saying, Hey, I’m buying a book of business from an advisor that passed away. And, you know, the accounts are, you know, sitting, you know, waiting to be, you know, moved over, and they’re having to deal with the estate, and maybe the spouse, and it’s just not a good situation, I mean, a lot of times the business is being purchased for a discount, you know, maybe a significant discount, it’s not a good situation for the state or the spouse or the beneficiary of, of the advisors, assets. There’s also a good situation for the clients, right? I mean, if you’re truly in it for me, you know, helping the the end client, well, the best way to help her in client is to figure out what happens when you’re not here anymore. And, you know, so So I mean, that’d be the one thing is just to do it, to do it, you know, to start thinking about it, and, you know, talk to a professional, right, so go out and get a business valuation, know what your business is worth, and then talk about a succession plan, you know, trying to find a successor might be an issue. So I just said the earlier that you can get on it, the better. And then the one maybe, like, misnomer that I think people have is like, you know, I want to just grow the thing, you know, while I’m the 100% equity owner, I’ll just grow it forever, and I’ll get to a higher number and then sell it. Well, you know, there’s been lots of studies, real case studies on when you bring in other Equity Partners, you actually grow at a faster clip. And so, you know, if you bring in your, you know, advisor, the people that are helping you grow the business, as a partner, as an equity owner, they’re going to help you grow, you know, at a much faster rate. And at the end of the day, you’ll end up with more money in your pocket, you know, when you’re selling the business. So certainly succession planning was is, you know, a big thing that we talked about often.
Yeah, you know, the thing that that keeps coming to mind, too, is there are quite a few businesses out there now. And I would see this being a niche that will maybe continue to grow is people that actually help you get met call it max value, obviously, you can’t say that in a promissory tone, but max value for your business by making some small, sometimes very simple changes to how you’re structured to, you know, streamlining practices to having other Equity Partners, you know, whatever that is across the board. So, are there maybe a couple things that you’re seeing people do to increase valuation? presale?
Sure, I think the just the number one thing is going to be efficiency, right? So the higher that you can get your margin, you know, the more that you’re gonna get paid, right? So it’s not just a revenue game. It’s an actual EBITA. Right? I mean, what do you you know, I think a lot of advisors like to talk about, well, I, you know, build this much a month and this month, a quarter, and it’s like, well, that’s great, but like, what is your actual net, you know, because that’s what people are gonna be buying. And so growing, that base is really where you’re going to create value. So efficiency, I think is the biggest thing. Certainly, some of the things I mentioned that we look for, you know, client comp, concentration, you know, high recurring revenue. I even go as far as to say is, you know, if you have advisors that are client facing having them tied into an agreement, you know, non compete and non solicit certainly will help you know, if you’re looking to buy To increase the value, yeah, I think those the non competes and non solicits, those are a big deal. And, you know, we’ve seen all variations of those to some of them being, you know, you can’t practice within a certain demographic time period, etc. But then we’re also starting to see people with the option to buy out a portion of the book. So again, you’re looking at, you know, creating value for yourself creating value on a departure. So just, there’s a whole slew of things that I think advisors should be paying attention to. So what is one gap? If you’re thinking about our industry as a whole? In your dealings? What is one gap that you see in the adviser industry?

I think that, you know, so, I think two things come to mind, one, if I probably will focus more on diversity is one, I think that it’s definitely a big gap, you know, I think that we don’t see enough to diversity in in the industry, I think, you know, younger people, women, people of color, I mean, you just don’t see a true representation of the population. Um, so that’s something that I think that the industry is doing a good job of focusing on and trying to find solutions around. And I do think there’s a ton of young, talented advisors that are our customers that we’ve met over the years that I think that we’re in good hands from that standpoint, but, you know, then the next thing is going to be succession planning. And I do think that that is still a huge gap. And I feel good about the talent in the industry, I think that, you know, we’re in good hands there. But you know, there’s still a lot of assets that need to change hands. And there’s a lot of advisors that are in their 80s, that are still practicing, you know, that are in their 70s and still practicing. And, you know, we’re in their 60s and don’t have a true successor. And so that is something that, you know, is more applicable to my, my job and something that we spend a lot of time talking about, like we said a few minutes ago,
you know, I think I think that’s such a good path to, to think through and think down. Because if you think about our industry, we have been, it’s been a predominantly white male industry. And, you know, one thing that we’ve really been encouraging, you know, amongst ultimate advisor, coaching, suite, financial partners, any sort of outreach we can get is, you know, trying to attract young women into it. And, you know, showing that this is a relationship business, and I love with how you opened, talking about how that’s something you craved. And I think that’s something that the younger generation is craving, too, is connection relationships. And it’s more than numbers, there’s brilliant people that can work behind the scenes to take care of the numbers and the investment choices and all of those more technical decisions. Whereas when you’re the front facing advisor, you’re there, you’re essentially part of your clients, family, you become somebody that becomes indispensable to them. So I think there’s just so much opportunity there. So I’m glad you took it that way. So another thing that comes up often, again, we’ve kind of had a theme here of, you know, relationship focus, being able to serve people at a higher different capacity, succession across the board, there’s one thing that always comes up that can always be improved upon, and that is the client experience. So what are some things that you’re seeing, and again, this doesn’t have to be only our industry, just seeing across the board that people can do to really enhance that experience and deepen the relationships?

Yeah, I think it’s along the same lines of what you sort of were just talking about, I think a more holistic approach is what I would think about, you know, I have some friends that started in Ria, and they focus on life planning. And I think that, you know, more holistic approach is going to be the future. I think everyone says that, who knows that that’s, that that’s true. I mean, do you think that’s what like, you know, I would want and a financial advisor is, I’ll just give a quick example that really kind of bothers me is, you know, my parents are in their 70s. And, you know, they have a big house, and we’re trying to get them to downsize and move to a cheaper state, North Carolina. And, you know, they’re having a hard time deciding that and, you know, I said, Well, what is your financial advisors say, you know, talk to them about it, and call the financial advisor and said, You know, I can’t really provide any sort of advice on that. And it’s super frustrating because it’s like, that’s your, you know, one of your largest assets and, you know, their advisors on willing to sort of guide them in that really, incredibly important life decision of like, when they’re truly retire and like, you know, the timing around that and, and so, you know, when I think about like, you know, providing better client service, it is is just, you know, being able to talk about, you know, your entire wealth spectrum, you know, and be more holistic and not just saying, Oh, well, this year we’re up 10% of this year, we’re down 6%. And, you know, sort of the old school way of thinking that I know, like, you know, we’re so maybe in touch with sort of what’s going on, you know, in in the industry more on the cutting edge side, it seems sort of silly to say, but then like, there are a lot of people that are still out there practicing in a way that’s not, you know, on that cutting edge.
Yeah. You know, and I think that’s such a great point to bring up to, you know, when we think about wealth planning, and I think, too, as an advisor listening in on this, thinking, Well, gosh, I guess maybe I don’t really advise on a home sale or, you know, life plan or whatever, and you’re starting to go, Oh, my goodness, what am I doing? You know, I think that when you look at the trajectory of the industry, and how things are very likely, again, nothing, nothing is guaranteed, nothing is promised, but, you know, the direction that that we’re going in this industry, you know, I believe that it is our, it’s our duty to be able to advise and give context to those things. So, you know, for us, I think about the clients that we interact with, a lot of times what happens is, they’ll come to us with more of an emotional decision. So I would guess, and I don’t want to put words in your mouth or on your parents mouths, but selling a home that they have spent their lives in, and relocating to a different part of the country is a very emotional decision. And, you know, a lot of times as the advisor, we can kind of be the rationale behind the scenes to show, here’s a scenario that actually shows you what that might do for you, and how that might impact your plan and how this could actually increase your quality of life. So again, there’s that fine line, I mean, I don’t know that all of us are in the space for personal development, as much as I love it. Not everybody does. But you know, I think it is something it’s our duty. And it’s it’s where we should be shifting the industry to and really helping people to make sound decisions, but based on logic based on facts based on, you know, looking at their portfolio, and how things are affected, and how their plan, even more importantly, is affected. So I think that’s such a great example. So I always have to ask at least a personal question or two, James. So one of the things that we focus on a lot in both of our podcasts, both here on the ultimate advisor, podcast, and on our dream architects life podcast, we talk a lot about mindset, and how to really control your mindset, regardless of the uncertainty that’s going on in the world. And I know, I know this for certain, because I’ve had advisors reach out recently, especially that so many clients and advisors alike, are in this consistent search for truth. Like there’s so much information flying at us right now that people just want to know what’s true. Sure. So I would love to know from you, James, when you’re in a state of overwhelm, when you’re frustrated, when you’re maybe feeling down or not at your best, what are some of the things that you do to kind of pull yourself out of the funk, or overcome those feelings of negativity?

Well, I’m not on social media, outside of LinkedIn. So maybe that helps me a little bit. But I travel a lot for work. And I’ve been fortunate enough to build a great team here where I’ve, I’ve sort of taken a step back there and COVID helped with that a little bit, too. But I remember being really discouraged on the road. I was in California, gonna visit a customer or someone who’s like, what am I doing with my life? I haven’t been home and three nights, and it just felt like, you know, what am I doing? And I remember coming home and scheduling a trip with my mom. And I took her on a trip to do breadmaking. And we did that for four days, it was a lot of fun. So I would say like, my family is probably you know, just spending time with with my kids and my family is something that like, brings me back to like this is what’s important. You know, I have a three year old and a four year old and yeah, just seeing them, you know, is really what grounds me.
It’s so beautiful. And I can fully relate. I have an eight year old, a five year old and a three year old and these times and the things that they come up with and say and the stuff that falls out of their mouths you’re like wow. So good. Well, before I asked you the last couple closing questions, James if somebody wants to get a hold of you to learn more about what Live Oak Bank does to see how you might be able to support them in their business or even with their clients. How can they get ahold of you use
LinkedIn or email james.us at live dot bank, you know or the incoming call. They elbel text email, however you want to reach out.
Excellent. Well, the last few questions I have for you, James, what are you working on right now that you’re really excited about this could be wide open personal professional?

Yeah, it’s a personal, not a whole lot happening. They’re just trying to keep those kids in good place, which is a struggle. You know, professionally, we are, like I said, you know, moved into, you know, doing more conventional lending. And so, we’re currently working on an $80 million deal that we’re trying to get to the closing table. And it’s exciting to work on a larger project. Absolutely. But it does come with like a lot of complexity. And I think that’s been the most fun part is just like, you know, managing the customer and managing everything internally, and a lot of complexity around it. And it’s just testing me and my ability. And so it’s been, it’s been good, because I think we continue to grow as the industry, you know, demands more from us. And I think that’s a good place to be. So I’m excited about that transaction, and what that means for us, you know, in our capabilities in the future.

Excellent. And, you know, I love stories like that, where people are pushing themselves beyond maybe what they’re comfortable with, because that’s where true growth happens. So kudos to you for that. Very last question. And I promise, I’ll let you off the hook after this. What haven’t I asked you that I should have?
You know, we asked this question too. You know, I feel like bankers get asked this question. But it’s like, a typical banking question is like, what keeps you up at night, right, we have this portfolio of, you know, really, it’s 1.1 billion, maybe 1.2 billion at this point in investment advisor loans. You know, what worries me about the portfolio. And we have had such a really good run as far as the customers that we have. So the portfolio is in great shape. And we actually today, and next week, we have our quarterly meeting, where we’re talking about all of our problem, you know, credits, and we really don’t have anything to talk about. So, you know, knock on wood. Right now, what keeps me up at night is, is probably more like, you know, personnel stuff and other stuff going on within the team. But it’s not the actual credit, which is the most important thing, right? So so I feel really good about the portfolio, where we stand today. And where we’re headed as an industry, certainly, you know, a prolonged downturn could create some issues, then that’s something that’s always in the back of my mind. But you know, I mean, the advisors are are resilient, and the businesses have a ton of flexibility, and you know, the expenses inside the business. So we feel really good about the industry. I feel really good about the industry. So yeah,
awesome. Well, I love the silver lining stories like that. I think we need to hear more and more things where you’re like, hey, we have these meetings to talk about the bad stuff. And we don’t really have a lot of bad stuff going on right now.

Yeah. You also need to knock on wood as you say that though. Yeah,
right. Right. I’ll do that right after this, just so I don’t make it noisy here. Well, James, thank you so much for your time today. It has been a great pleasure getting to know a little bit more about you about what you guys do there at Live Oak Bank, and we wish you very much continued success.

Thank you, Brittany. I really appreciate you having me on and it was very nice talking with you.

Awesome. Well, that wraps up today’s episode of your ultimate advisor podcast. We will catch you right back here for our next episode.

Hey there, Brittany Anderson here. If you are loving what you’re hearing on our ultimate advisor podcast, don’t keep us a secret. Share us with other advisors that you think would benefit from the messages that you are hearing. The easiest way to do that is to simply send them to ultimateadvisorpodcast.com. And if you want to learn a few other ways that we could potentially serve you as an advisor, go check out ultimateadvisormastermind.com. As always, we are so happy to have you here with us as part of the ultimate advisor community and we look forward to a continued relationship.