Five Questions With Tony Sirianni: Dynasty Financial Partners’ President & CEO, Shirl Penney
AdvisorHub’s CEO Tony Sirianni sat down with Shirl Penney, President & CEO of Dynasty Financial Partners, and talked about the industry. Tony sits with established leaders of the largest firms, as well as up and coming disruptors, and asks them more or less the same questions, so Advisors can get a sense of how each firm addresses the same issues from different perspectives. Taken together, they are a very interesting collection of influential points of view, and display the diversity of opinions and conclusions in Wealth Management today. You may even get to know these industry leaders on a more personal level.
Q. Shirl – you travel a lot, meet with advisors and industry executives and speak at conferences across the country. What are the latest trends in the wealth industry from your vantage point?
A: Thanks, Tony; great to speak with you. I would start with something that seems biased, but is based in the reality of the numbers in that all roads continue to lead to RIAs. If you look at the asset flows over the last 10 years, it’s staggering. You now have RIA custodians with more assets than wirehouses with this migration of breakaway advisors, and frankly, breakaway clients. I meet with hundreds of clients every year with our advisor partners and they talk about wanting to get their advice separate from where products are manufactured and sold to them. The triangulation of advice, as I call it; separating advice from safe custody and from product / asset management firms is what family offices have been doing for years, but now firms like Dynasty, who have aggregated nearly $35B in buying power across its network of advisors, have allowed the triangulation of advice to be democratized. Clients are noticing and voting aggressively with their money. I encourage anyone to truly understand what’s going on in our industry to look at the asset flows, the life blood of our industry; it tells the obvious story of which channels are winning.
Separately, I would say that the wealth management industry is still in many ways a decentralized business. There are 32,000 individual RIA entities in the U.S., but I see strong signs that the business is quickly consolidating. Of the 45 RIAs on the Dynasty platform, many of them have ambitious growth plans and are making moves to be national wealth management boutiques and brands – growing both organically and inorganically. I see this consolidation continuing in all areas of wealth management – among RIAs, technology providers and financial planning software and services. Recent examples include Envestnet’s acquisition of MoneyGuidePro.
Q. Are you seeing a lot of M&A activity?
A: I’m seeing an increasing number of RIAs seeking to expand their businesses inorganically, yes. We are working with our Dynasty Network firms on making sure that they are M&A-ready – in effect, ensuring that they are well-positioned and prepared to make acquisitions. A common mistake for RIAs is announcing that they want to do M&A, but having no plans for offering advisors equity in the business, no strategy for on-boarding advisors and their clients and not having capital lined up to execute the deal. Over half of our Dynasty Network firms are currently seeking M&A opportunities and we are assisting them in sourcing and recruiting advisors and in financing and executing transactions. Increasingly, we are being contacted by advisors looking to join a RIA on our platform. There are breakaway advisors who want to join RIAs vs running their own firm and they call us for those introductions. There are also many RIAs looking for a succession plan who are calling us for intros to our RIA network to potentially sell their firm to one on our platform. They know Dynasty has a robust capital platform to help finance the acquisition, a transition team to do the onboarding, and ongoing service team to help make sure their clients are well-cared-for at their new home.
Q. What’s going on with breakaways?
A: I see many of the largest private wealth management advisors from the wirehouses coming to us on an accelerated basis to become independent. We seem to have reached a tipping point. I think we will see some of the largest breakaways ever in 2019. That is due to a combination of demonstrated success of advisors in the independent sphere – many advisors don’t want to be first movers and want proof-of-concept before making their move. Many have been watching the independent space for years, but are now confident that going independent is the natural next step for them. It also has to do with the build out of robust product, service, and technology solutions now. We have won top platform awards in the industry recently, custodians now know how to support Private Wealth teams and their clients, product and services firms have opened their doors to independents, and technology is superior for top RIAs. Not to mention firms like Dynasty are offering capital to advisors in transition to make the move easier. It’s a bit of a perfect storm frankly, where clients get a great experience, advisors make more money, and their employees get to build their own unique culture. While it’s mostly about what people are running to in terms of making the move, we also hear continued frustration from advisors at wirehouses too. In an increasing number of cases, advisors as young as 45-years old are being presented with sunset agreements by the wirehouses – basically pressuring the advisors to sign a retirement package and sign away their practice – when many are still growing their business and have 20 more years to work. That can be a trigger leading to a sudden move to independence as many financial advisors don’t want to become captive employees that are locking up their clients and employees with limited voices to effect change in their firm once they sign those agreements.
Q. Are large RIAs more challenging to work with?
A: At Dynasty, we are well acquainted with the fact that the largest RIAs have different needs than other firms. A $5 billion firm has needs that are unique and different from a $500 million firm. They tend to have multiple locations, have an active M&A strategy and require capital. As a result, we unveiled our Enterprise Group last year to cater to these large complex practices.
These large practices asked us to expand our services to continue to meet their growing needs. As a result, our RIA lending program continues to grow rapidly. And the launch of our revenue participation note (RPN) program has been a nice complement to our lending option, as it provides our clients more choice in how they access liquidity for their growing businesses or their families. This program provides flexible financing structures for use in the funding of RIA startup expenses, ongoing working capital, and acquisitions. Our Dynasty Capital Solutions business has been one of the fastest growing business units for the firm in the last few years and we have secured a significant pool of capital to help provide capital to our growing network for their various needs. Lastly, I would say I predict that there will be many $10B plus RIAs in the coming years, given how fast some of the most well-run RIAs we are working with are growing. This will create tremendous enterprise value for the owners of those firms and it’s great for clients as well, as the scale will afford more and better services. However, the $500mm RIA now needs to think about how they will compete with these larger RIAs with their same independent story and more resources. I think this has contributed to Dynasty growing fast with the $500mm RIA, who is signing on to outsource with us to help drive synthetic scale that enables them to compete with their larger RIA competition, without having to crush their margins by over-hiring.
Q. Your personal story is fascinating. Can you share a few thoughts on your rise to success?
A: I think we all face adversity to some degree in our lives and frankly there is always someone that has it worse. That said, I do think that for many, adversity builds character – steel is forged in the fires. I was extremely poor as a child and my step-grandfather raised me in the sticks of Maine in a little fishing village of 1,400 people, called Eastport. He was 60 when I was born and he took me in. We had a rough go of it financially, even becoming homeless at points in my youth. It forced me to work early on, to value a dollar, and to make the most of the resources available. It also taught me to be appreciative of what I had, the value of relationships and community, that your name is your brand, and that if you worked really hard and applied maximum effort, you can consistently drive positive results over time. Great training to be an entrepreneur! My time at Smith Barney was good for learning about the industry; I had some great mentors and they allowed me to have significant responsibilities at an early age. The wirehouses are filled with many fantastic people and some of my best friends in the industry are still there. At the end of the day, I wanted to own and run my own business; to live my version of the American dream and to help others, through our work, to live theirs. It was clear to me that the trend to independence for both clients and advisors – getting and giving advice separate from where products are manufactured – was becoming more of a movement. The disproportionate asset flows and growth toward independence were telling an obvious long-term story and presented an opportunity for us to build a business that took advantage and supported those macro trends. Raising money out of the financial crisis was tough, taking over 2.5 years to raise the capital and build the team. But again, if you want to take the island you need to burn the boats! We were all-in on the dream to launch Dynasty and then some! Creating a firm that would be an integrated platform to help power elite independent advisors, to be their “Intel Inside”, and to help broaden that service platform over time as the needs of the advisors’ clients changed was our vision when we launched 9 years ago and remains our vision today. I would not change anything about my path to where I am today frankly, and today is the best day of my life both personally and professionally, and I believe tomorrow will be even better!