Wealth Advisor Loan Defaults Range From Rare, To Very Rare
Wealth management industry SBA loan defaults
For simplicity, we characterize RIAs, Investment Advisors, Financial Advisors, Registered Reps, and advisory firms as Wealth Advisors. However, none of these titles are used by SBA lenders in their industry classifications. The three most common national industry codes attributed by SBA lenders to Wealth Advisors are Investment Advice (NAICS code 523930), Portfolio Management (NAICS code 523920), and Securities Brokerage (NAICS code 523120). We pulled all three and combined the results for this article.
Tracking SBA loan defaults for Wealth Advisors
While conventional loan defaults are impossible for us to ascertain beyond our own experience (no defaults), SBA 7(a) loan defaults (charge-offs) can be tracked from the loan data the SBA makes available. SBA lending data is ideal to examine conservative loan defaults in the wealth management industry. There is a much larger SBA loan quantity sample size to examine and SBA qualifying criteria is generally not as strict as with conventional lending. Naturally, conventional loans with higher qualifying standards will result in a lower percentage of loans defaulting. Even still, it is rare for a Wealth Advisor to default on a SBA loan.
Loan Defaults vs. Loan Charge-offs
The SBA FOIA (Freedom Of Information Act) data provides data for charge-offs instead of “defaults.” For our purposes, default and charge-off are interrelated terms. However, all charged-off loans are defaults, but not all defaults turn into a charged-off loan. If a loan defaulted but the borrower (through collateral liquidation or other means) pays off the loan balance, then the loan will typically not be classified as a charge-off. It is only after collection methods are exhausted that the loan is then classified as a charged-off loan. The charged off amount is the total loan balance that the lender was not able to collect and charged-off. This includes the guaranteed and non-guaranteed portion of the loan.
361 Wealth Advisor SBA 7a loan defaults all-time, all loan amounts
Historical SBA 7a Loan Defaults/Charge-offs For Wealth Advisors For All Loan Amounts
Breaking out charge-offs in the wealth management industry
While defaults are gauged for ten year periods, for all 3,772 SBA loans to Wealth Advisors since 1998, there have been 361 charge-offs.
Only 4 Wealth Advisor SBA loans > $350K have ever defaulted
Loan defaults by Wealth Advisors for loans > $350,000 are rare, very rare. Looking at all-time historical SBA lending for Wealth Advisors there have been 937 SBA 7a loans disbursed/funded for loan amounts > $350,000. However, 565 have been funded over the last 5 years. For all-time SBA 7a loans to Wealth Advisors ever made, so far there have been only 4 loans charged off for loan amounts > $350,000.
2005: One charge-off loan (original loan amount $1,500,000)
2006: One charge-off loan (original loan amount $356,000)
2007: One charge-off loan (original loan amount $1,175,000)
2013: One charge-off loan (original loan amount $1,312,000)
SBA lenders recording a Wealth Advisor charge-off
Of the 438 SBA lenders who have approved a SBA 7(a) loan to a Wealth Advisor, there have been 50 different SBA lenders who have had a Wealth Advisor charge off, all-time. Over the last 30 years there have been 361 charge offs with an average loan amount of $51,829. Of these, 96% were for loans less than $150K.
Over the last 10 years there have been 16 charge offs on wealth advisor loans with an average loan amount of $28,063.
Wealth Advisors are on a current zero default streak
2017 was the last year that a Wealth Advisor’s SBA 7(a) loan was charged off for any amount. In 2017 there were 2 charge-offs for loan amounts of $75,000 combined.
This is the current zero default streak the wealth management industry is on for all loan amounts:
2021: 0 defaults
2020: 0 defaults
2019: 0 defaults
2018: 0 defaults
SBA Data Source
The original source of SBA loan data on this page is derived from data released by the U.S. Small Business Administration (SBA). The SBA collects individual loan data from the SBA lender/bank approving and providing SBA loans.
Wealth Advisor Industry Classifications
To view SBA 7(a) charge-offs to Wealth Advisors and advisory firms, we looked at the three most common industry codes attributed by SBA lenders to Wealth Advisors. These are Investment Advice (NAICS code 523930), Portfolio Management (NAICS code 523920), and Securities Brokerage (NAICS code 523120).
Defaults and Charge-offs
The SBA FOIA (Freedom Of Information Act) data provides data for charge-offs instead of “defaults.” For our purposes, default and charge-off are interrelated terms. However, all charged-off loans are defaults, but not all defaults turn into a charged-off loan. If a loan defaulted but the borrower (through collateral liquidation or other means) pays off the loan balance, then the loan will typically not be classified as a charge-off. It is only after collection methods are exhausted that the loan is then classified as a charged-off loan. The charged off amount is the total loan balance that the lender was not able to collect and charged-off. This includes the guaranteed and non-guaranteed portion of the loan.
Data Integrity
As with most big datasets, the U.S. Small Business Administration (SBA) reported data is imperfect, relying on a bank representative to accurately input the data that the SBA then uses to make public through the FOIA (Freedom of Information Act) requirements. Sometimes data points can have an erroneous entry due to human error.
No Warranty of Data Accuracy or Completeness
Neither the SBA or AdvisorLoans validates or verifies the data the SBA lenders provide. AdvisorLoans is only able to verify AdvisorLoans SBA lending data and does not make any representation as to the completeness or accuracy of the loan data SBA lenders provide the SBA.