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After launching with a big splash in December, Dynasty Financial Partners is now trying to make good on its initial promise to emerge as the preferred service provider for independent wealth managers catering to clients with over $5 million in investable assets.
Dynasty made headlines last year when it debuted with a boatload of big name backers, including chairman Todd Thomson (former chief financial officer), president and chief executive Shirl Penney (former director of private wealth management at Smith Barney) and board member William Donaldson (former Securities and Exchange Commission chairman). It also kicked off with a big-time sign-on, nabbing heavyweight Wall Street wealth manager Michael Brown, whose team at U.S. Trust managed a reported $5.9 billion.
U.S. Trust parent Bank of America promptly sued, but the two sides reached a settlement in January, and Dynasty, which promises high-end advisors a “best-of-breed” platform of services including trading, clearing, research, custody, reporting, as well as access to investment products, insurance and trust and estate expertise, was off and running.
Initial industry reaction has been positive. “The sheer size and scope of the offering is impressive and I would think appealing to the wirehouse broker considering going to the independent channel,” said Patrick Burns, a Beverly Hills attorney who specializes in working with brokers and advisors transitioning to become independent.
Chip Roame, managing principal of Tiburon Strategic Advisors noted that Thomson was “widely sought out” at Tiburon’s CEO Summit in New York last month and cited the favorable reaction created by Dynasty’s “big media splash, top tier executives, perceived terrific platform and huge first recruit.”
But Roame and others also point out that since bringing on Brown as an equity partner, only one other advisor—Alan Harter from Morgan Stanley Smith Barney—has joined Dynasty’s platform as a paying customer, which is the basis of the firm’s business model.
Competing For ‘Corner Office Guy’
“Dynasty’s platform model is different from the HighTowers of the world, who offer equity to advisors, but they’re all competing for that corner office guy, and that’s not easy in today’s environment,” said industry consultant Tim Welsh, president of Nexus Strategy in Larkspur, Calif.
Penney said Dynasty is currently in “serious conversations” with approximately 20 teams. “We expect to have 10 to 12 teams by the end of the year, including a few in the near-term,” Penney said.
By 2016, Dynasty hopes to have 150 advisors on its platform and around $150 billion in assets, Penney said. Dynasty is looking for advisors with at least $300 million in aggregate assets who focus on clients with $5 million or more in investable assets. “Someone could have $1 billion in assets but if the average account size was $300,000, it wouldn’t be a good fit,” Penney maintained.
How exactly does Dynasty hope to make money? The firm’s business model rests on three pillars, say Penney and Thomson. The first is revenue from selling a bundled package of “core services” such as contact management, financial planning, research and reporting on its technology platform. (Dynasty buys the services from vendors like Black Diamond and Envestnet and makes a profit on the re-sale margin.) Dynasty’s price to advisors is a “basis point number” based on an aggregate book of business that could translate to approximately 15 percent of a firm’s revenues, according to Thomson. Total costs for advisors who join the Dynasty network should be about 30 percent of their gross revenue, he said.
On its wealth management platform, Dynasty sells products such as life insurance and annuities; services like investment banking, philanthropic advice, as well as access to hedge and private equity funds, credit and lending and philanthropic advice, all on an a la carte basis.
The firm also provides transition financing for advisors and brokers going independent. Dynasty will provide financing equal to up to 50 per cent of an advisor’s previous year’s annual revenue. The advisor repays the loan by making annual payments during a five year period which are equal to a set percentage, up to 20 percent, of the advisor’s revenue for the trailing twelve months.
Critics say independent advisors simply don’t need to go to Dynasty to get the services the firm offers and can get them elsewhere. Thomson counters that after an 18-month “listening tour” he and Penney came away convinced that there was, in fact, “a real need in the marketplace” for a “strategic partner” offering a comprehensive platform “with the benefit of network pricing” designed for large RIAs catering to high and ultra-high-net-worth clients.
Competition or Compliment?
As for competition, Thomson argues that the range of services offered by other providers is too narrow for the high-end market. Some industry observers say Dynasty’s real competition are aggressive RIA aggregators with national ambitions like HighTower, and United Capital who offer advisors an equity stake to partner with them. But Dynasty and Hightower executives differ.
Dynasty does not offer advisors equity, but advisors who partner with a firm likethat does can still use Dynasty as a platform, Thomson said. “We’re not mutually exclusive,” he said. “I see us as complimentary.”
HighTower chief executive officer Elliot Weissbluth said he did not consider Dynasty competition. “Service platforms like Dynasty support the growth of the independent renaissance,” Weissbluth said. “HighTower advisors are, of course, able to avail themselves of Dynasty’s services.”
Many in the industry believe Thomson, Penney and other big name partners such as Harvey Golub, former chief executive and chairman of American Express, see Dynasty as an opportunity for an eventual initial public offering modeled after LPL’s successful IPO last year.
Thomson said Dynasty was deliberately capitalized with private investments rather than institutional money so the firm would not face undue pressure to do an IPO. “We want the firm to be built to last, not built to flip,” he maintained.