Responding to industry concerns about a potential conflict of interest, Live Oak Bank is promising that a Chinese wall will separate the company’s RIA lending business and its new advisory division, Live Oak Private Wealth.
“There will be a great wall of China between the bank and the RIA,” says Jason Carroll, the former managing director of Live Oak’s advisory lending arm who now heads Live Oak Private Wealth. “There will be no data share between the bank and the RIA. That would be shooting ourselves in the foot.”
Nonetheless, some industry executives are troubled by the prospect a bank that has become the largest lender to RIAs over the past six years also owning an advisory firm.
“If Live Oak Bank gets an inbound call from an advisor looking for a loan, what’s to prevent them firm saying we will give you a better rate if you join our RIA?’ asks executive recruiter Frank LaRosa, CEO of Elite Consulting Partners. “It’s a huge conflict for them.”
An inorganic growth path presents the thorniest dilemma for Live Oak, says United Capital’s chief business development officer and head of acquisitions, Matt Brinker.
“It's unclear to me how focused they are on acquiring wealth management companies, but you cannot find a firm that is not these days,” Brinker says. “If this becomes a key driver of their growth then yes, of course, there is a potential conflict of interest.”
Brinker is quick to add that “Live Oak is run by smart people, so I am sure this perception is not lost on them. They understand the first time that firewall is breached they will lose a lot of goodwill they've created in the industry and lose a lot of lending business.”
One veteran industry executive who asked not to be named said that the temptation not to share information might be difficult to resist.
“It’s very tough to run both businesses side by side without running into issues over time,” the executive says.
“There will be no data share between the bank and the RIA,” says Live Oak Private Wealth managing director Jason Carroll.
Carroll responds that Live Oak is striving to be as transparent as possible and is not emphasizing M&A as a vehicle for growth.
“As part of a bank, we didn’t have to register as an RIA but we chose to do that,” he says. “We are a wholly owned LLC by Live Oak Bank and there is no sharing of data or knowledge between the two entities.”
Acquiring RIAs is “not currently” part of Live Oak Private Wealth’s growth strategy, Carroll says.
Instead, the new advisory firm plans to focus on establishing itself in southeast North Carolina, particularly Wilmington, the headquarters of Live Oak Bank and “tap into the Live Oak ecosystem” to attract net new assets, according to Carroll.
Managing directors Andy Bassinger, formerly with Wells Fargo, and Bill Coleman and Connor Keller, formerly with Scott & Stringfellow, a broker-dealer owned by BB&T Bank, have brought over approximately $400 million in assets, Carroll says.
Live Oak Private Wealth will target local prospects who either have $1 million or more in investable assets or show high earning potential, he adds. And while the firm isn’t planning to go out and buy firms, Carroll says it will welcome RIAs who want to use its platform.
The new firm hopes to distinguish itself by leveraging technology to offer clients a more “expansive service,” Carroll says. And he hopes to avoid a common mistake he’s seen after lending approximately $600 million to RIAs for the past five years: being too flexible on pricing.
“I’ve seen how quickly advisors will negotiate their rates for a fee,” he says. “Why negotiate if you have the best service?”
