Is Dynasty Financial Partner’s latest adjustment to their outsourcing business model a crucial effort to retain clients, a strategic way to segment them or a smart tactic to attract new customers?
Or all of the above?
The eight-year old firm, which has become a leading platform provider of back- and middle-office services for RIAs, has added a new Enterprise Group to assist advisory firms with at least $1 billion in AUM.
Dynasty CEO Shirl Penny says the new division, which is headed by Ed Friedman, is part of a segmentation strategy.
“The Enterprise Group is not a replacement for anything,” Penney says. “It’s about client segmentation. A $5-billion firm has needs that are unique and different than a $500-million firm. As the industry consolidates, there are going to be significant outsized winners, and we want to be the Intel sticker that powers them.”
But some industry observers — and even some RIA executives who are in the Enterprise Group — see the new business model as a retention play to prevent attrition as Dynasty’s core business, based on being a one-stop shop for breakaway brokers, matures.
“It’s an interesting move,” says Alois Pirker, Aite Group research director. “Dynasty definitely needs to customize their model to keep the big firms happy, especially the breakaways who have gotten their bearings in the RIA business. It’s a long-term calculation that will take into account costs and what changes they can accommodate.”
Industry consultant John Furey agrees.
“This is a natural segmentation of Dynasty’s model,” Furey says. “It hits two cords — growth and retention. As firms grow, Dynasty has to move up the value chain. Customization for the largest firms will likely be critical.”
Both Jack Petersen, managing partner of New York-based Summit Trail Advisors and David Root, CEO of Pittsburgh-based DB Root & Company, say the Enterprise Group was a factor in maintaining their relationship with Dynasty.
Others argue that Dynasty needs to add a new revenue stream to shore up its existing business model.
Summit Trail, which has over $5 billion in AUM, was in the process of “resetting” its relationship with Dynasty, according to Peterson. The Enterprise Group was viewed as a vehicle for obtaining customized assistance that “we most value and would help us given our business,” he says.
Root says he liked the fact that his firm received more attention as a member of the group and would be able to tap Dynasty’s expertise — and cash — as it plotted its expansion strategy.
Others argue that Dynasty needs to add a new revenue stream to shore up its existing business model.
“The Dynasty financial model needs additional fee revenue that can be generated by the Enterprise Group taking advantage on the Dynasty scale,” says Jeff Spears, who formerly was an outsourcing platform provider and is now president of Fort Point Capital Advisors in San Francisco. “That feels like a compelling value proposition.”
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Former Charles Schwab executive Tim Welsh, now an industry consultant, compares the Dynasty move to the evolution of the custodian’s business model as its services became commoditized over a decade ago.
“We launched a consulting platform and loyalty program to help advisors run a better business and allow Schwab to become more of a partner,” Welsh recalls. “It worked extremely well, and now all the custodians have consultants and value-added programs to retain their best advisors and use as a marketing message to attract new advisors.”
Dynasty, he argues, is in a similar position: “Once the big firms get set up and know what they are doing after a couple of years, they don’t need Dynasty anymore. They just become a commoditized platform of services and products and technology the advisors can get on their own. A consulting group and the capital they are offering for M&A really is a way to keep existing firms in line and attract new clients.”
Three billion dollar breakaway wirehouse teams joined Dynasty this past summer.
Dynasty counters that its core business of helping big breakaway brokers is doing just fine.
Penney points to three billion-dollar former wirehouse teams that partnered with Dynasty this past summer, bringing the firm’s total to nine new partners joining this year.
But there’s little doubt that Dynasty also wants to use the Enterprise Group as an enticement to attract new firms.
The company has been putting on a roadshow for prospects across the country touting the firm’s outsourcing services and the additional features of the new division.
An event at the Ritz Carlton in Philadelphia last week drew around a dozen RIA executives, and Root and Petersen were featured on a panel with Erik Strid, a Dynasty partner and principal of Concentus Wealth Advisors in the Philadelphia suburb of King of Prussia. (The other firms in the group besides Summit Trail and DB Root to date are Geller Advisors, Procyon Partners and Corient Capital Partners).
Additional events are set for Los Angeles and La Jolla, California later in the month.
Friedman, the Enterprise Group’s head, who is also a practice management specialist and Dynasty’s former East Coast chief (as well as an alumnus of HighTower Advisors and Morgan Stanley) says he’d like to add five to 10 new firms a year. Examples of projects he is overseeing include designing equity and personnel review plans for member firms. In addition, Dynasty will also lend money to firms for M&A acquisitions.
Enterprise Group firms will pay a project fee based on complexity, Friedman says. Dynasty partner firms pay either a fee based on a percentage of their revenue or on basis points of their assets. Firms joining the group don’t have to be Dynasty partners, Friedman says, but the hope is they eventually do.
Eventually joining the Enterprise Group would be a “natural progression” of his firm's business arrangement with Dynasty says Erik Strid, principal of Concentus Wealth Advisors.
“The big challenge for Dynasty is extending their brand to RIAs and educating the market,” Furey says. “Dynasty has been adding existing RIAs all along, but does the market understand this?”
But Furey, who has worked with Dynasty, is optimistic that the Enterprise Group will fill a demand in the marketplace.
“In the future, keeping up with industry leaders will be harder for RIAs given the pace of change,” he says. “Dynasty has established scale, and they can now add value to larger firms that may be struggling to deal with larger fundamental issues like technology, an investment platform and financing growth.”
Strid says he was renewing his contract with Dynasty and that eventually joining the Enterprise Group if Concentus reached $1 billion in AUM would be a “natural progression” of the business arrangement.
Concentus, which currently has around $500 million in AUM, wants to grow, he explained, and is working with Dynasty on repricing and segmentation strategies as well as a new compensation model.
