Analysts say the decision by Dynasty Financial Partners, the St. Petersburg, Florida-based RIA and turnkey asset management platform with $65 billion in client assets, to launch a $100 million IPO is what would be expected from a firm that has undergone measured rather than explosive growth with managers who have significant experience in the public markets.
“(CEO) Shirl Penney was a senior exec at Citigroup, Harvey Golub from Amex is the chairman, and the team, including the board of directors, were all in the investment business and insurance,” said Larry Roth, managing partner of RLR Strategic Partners, a New York City-based management consulting firm for the wealth management industry. “That’s a big reason to go public, and that’s where most firms are headed over time anyway.”
Roth said Dynasty has “likely had private equity people lined up at the door for a long time,” but simply skipped the “intermediate route” that many firms take to go directly to an IPO.
Gavin Spitzner, president of Wealth Consulting Partners in Basking Ridge, New Jersey, agreed, saying the signs were there all along. “You don't name a firm ‘Dynasty’ if you are not thinking multi-generation,” he said, “and then you can understand why private equity wasn't the best fit for them.”
He also stressed the board’s experience running public companies.
And an IPO provides “a more permanent capital solution rather than private equity, which is less patient,” said industry recruiter Lou Diamond of Diamond Consultants in Morristown, New Jersey. “It’s just more capital for Dynasty to deploy since their main business is helping wirehouse advisors break away.”
Since 2015, Dynasty has supported the launch of 22 RIAs, each with more than $500 million in client assets, including 14 with at least $1 billion.
The firm’s filing shows that $100 million is a placeholder — an estimate solely for the purpose of computing the amount of the registration fee. The actual size of the offering will of course depend on demand.
“Overall, it’s a real positive for the industry,” said Diamond, “strong validation that the breakaway movement is alive and well and that there’s a lot of future interest in helping wirehouse advisors start their own RIAs,” he said.
Spitzner cited a “long runway ahead” for firms serving breakaways and a growing number of independent advisors seeking to become business owners with the support of firms like Dynasty.
As for legal or regulatory challenges Dynasty may face as a public company, Roth said he doesn’t foresee any change in the company’s risk profile or any added difficulty recruiting advisors.
Diamond agreed. “In Dynasty’s model, they’re helping advisors launch their own RIA, their own legal entity. Dynasty has no legal risk when helping a team leave a firm,” he said. “The legal risk is on the advisors, but with Dynasty’s guidance, they’ve done this so many times that teams can also avoid litigation. The burden of proof is on the firm they’re leaving to prove an advisor violated an employment agreement.”
Roth said the public might learn a lot more now about what’s going on among top executives at Dynasty.
“They will have to be more transparent about their strategy,” he said. “They’ve grown in a high-quality but quiet way. People were always trying to figure out what Penney had in mind.”
Dynasty said Penney would not be available for comment. But at a conference in November, after the firm had filed confidentially in September for its IPO, the CEO stated: “As the industry and the end-clients served by the industry continue to favor independent financial advice, we believe that our comprehensive set of business solutions provide advisors a single, holistic platform to enable their firms to be fully independent.”
Roth contrasted the history of Focus Financial, an RIA consolidator that went public four years ago, with Dynasty. “Focus grew with private equity, acquired a large number of firms and went public after. Dynasty is more like an LPL story. LPL had private equity money early on but grew in a more measured way, like Dynasty,” he said, adding that he thinks that measured and deliberate growth will result in a broader strategy for Dynasty.
Diamond said he thinks the firm will likely explore new sources of revenue.
"I expect to see a more unbundled approach to offering services to RIAs,” he said. “They have already started to offer investment banking to RIAs, and I expect more one-off services to RIAs looking to outsource components of their business, maybe compliance consulting or marketing.”
