Expect more breakaway brokers who become RIAs to merge their teams and form mega-firms, says a top industry executive.
"You're going to see much bigger teams going independent and forming mega-wealth management companies," says industry veteran Stan Gregor, who recently joined Dynasty Financial Partners as the service provider's director of east coast network development. "It's not a question of if but when."
The benefits of scale, a wider knowledge and asset base and the increased complexity involving wealthy clients with broader needs are all contributing to the trend, says Gregor, who most recently was founder and co-CEO of Cantor Fitzgerald Wealth Partners and previously was head of Eastern U.S. Markets for Wells Fargo Wealth Management.
Mega-breakaway trailblazers include newly formed firms Corient Capital Partners and Summit Trail Advisors. Based in Newport Beach, Calif., Corient was launched last month by seven advisors from two Merrill Lynch teams who managed over $3 billion. Summit, with four offices around the country, was formed this summer by six former Barclay's Wealth advisors from several teams each overseeing over $1 billion at the bank.
BENEFITING FROM TREND
Both firms have partnered with five-year-old Dynasty, underscoring the banner year that the firm, which specializes in transitioning wirehouse teams to the independent market, has enjoyed to date.
In addition to Corient and Summit Trail, Dynasty has brought 10 other firms onto its network platform this year, bringing its total to 34. The firm has also been hiring high-profile industry executives like Gregor and Scott Welch, the popular and widely respected former chief investment officer for Fortigent.
Dynasty has benefited from big breakaway teams eyeing the success of their predecessors and the high valuations and sale prices that top independent firms like Luminous Capital, Constellation Wealth Advisors and Baker Street Advisors have commanded in recent years, says Dynasty President and CEO Shirl Penney.
"They've seen what other firms have been able to do and recognize that the economics of owning equity can be life-changing," Penney says. "Going independent also resonates with their entrepreneurial clients."
As a result, inquiries from wirehouse teams about Dynasty's services, which include an integrated wealth management technology platform and helping brokers obtain debt financing, have "significantly increased," Penney says.
"Fifty percent of the inquiries come to us directly and the other half come from strategic partners like Schwab, Pershing and Fidelity," according to Penney.
ASSESING DYNASTY'S FUTURE
Can Dynasty maintain its hot streak?
Most likely yes for the near term, say industry observers, but opinion is more divided on the firm's long-term future.
"Dynasty is doing a great job getting the larger breakaway brokers by offering a wirehouse-grade platform and financing," says Alois Pirker, research director for Boston-based Aite Group. "They were very smart not to go after advisors with equity. Not buying practices but servicing them gives them a much larger opportunity to grow their business."
Launched in December 2010, Dynasty rolled out its "very well calculated" business model "at the absolute perfect time," says Ryan Shanks, chief executive of Finetooth Consulting.
"They're taking care of all the details for wirehouse brokers who want to go to the independent space," Shanks says. "I call it a re-startup, because the brokers aren't really starting a new company, they just need a new platform, offices and capital. It's a very well calculated business model, and while there's a tremendous amount of competition for those breakaways, the reality is that Dynasty is staying ahead of that curve."
COMPETITIVE THREATS
But barriers to entry for potential competitors will go down as time goes on and technology costs are lowered, Pirker cautions. And large custodians, even though they currently work closely with Dynasty, are increasingly able - and willing - to perform the services Dynasty does directly for advisory firms, he adds.
"The lines are blurring," Pirker says. "The other big companies servicing this market are not sitting idle. Serious competition is coming and the risk for Dynasty is how to show how they are different and how they can justify their price tag."
One industry executive who works closely with advisors believes Dynasty has to guard against becoming a victim of its own success. Many wirehouse teams have been studying the progress - and success - of previous breakaways closely, the executive says, and are concluding they can make the transition on their own.
"They don't want to add another middleman," he explains. "Two years ago eight or nine out of 10 brokers were telling us they need a partner. Today it's half that."
According to an industry consultant familiar with Dynasty's platform who asked not be named, Dynasty's most serious competitive threat is fast-changing technology and the venture capital-backed software companies targeting financial advisory firms.
"Dynasty is a concierge service offering a good deal and great execution," the consultant says. "Their platform solves basic problems but it's not awesome. It's not super-charged, and in four or five years technology will be tremendously differently and they may be vulnerable. Big new players may come in with lower pricing and better technology who feel they don't need a middleman."
BATTLING INERTIA
Penney and Gregor, not surprisingly, are confident Dynasty can maintain its leadership position.
The firm continues to build its platform and is focusing on client service, practice management and technology, Penny says, while also beefing up its sales team and executive roster with experienced RIA executives.
"Our biggest competition is inertia and spending time with people who don't move," he says. "It has to be in your DNA to want to own and operate your own business."
After 30 years in the financial services business, Gregor says, he's learned that the industry is always changing. "If you're not thinking ahead, you're in trouble," he explains. "I said when I left Cantor that I didn't want to replicate the past but wanted to do something really futuristic."
Gregor says he will be reaching out to advisors and wirehouse teams, hoping to persuade them that their future should also be with Dynasty.
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