ST. LOUIS — In five years, the XY Planning Network has grown from less than 50 independent advisors to over 1,000.
The networks’ co-founders, Alan Moore and Michael Kitces, attribute the fee-only financial planning network’s growth to a commitment to continuing independently, and the appeal of its mission that financial planning should be transparent and always in the clients’ best interest.
But as the network's ranks swell — XYPN says its adding 50 new advisors a month — and it rolls out new services, some members raised questions about its ongoing business strategy, and ultimately if a funding round, or even a sale to a larger rival, might be in the network’s future.
Some publicly asked how the firm will fund its growth strategy and if venture capital cash or a sale to a larger financial institutions is possible. During the firm’s annual conference, one member asked anonymously via a mobile app about a potential acquisition during a live Q&A session with the firm’s founders.
Other members joined in with similar inquiries. “What’s the exit plan for XYPN? Will you IPO? Sell to a larger firm? What’s the succession, retirement plan for the co-founders?” another member asked during the session. “Would you consider selling XY if you got an offer you couldn’t refuse?” asked another.
Right now, a capital raise is not on the agenda, Moore says, adding the firm has even turned down deals of upwards of $20 million in venture capital. Being self-funded might mean the firm stays “bootstrapped” for cash, but it also allows it to maintain control of the network’s destiny.
“And that's the opportunity that we have turned down,” Moore says. “The fact is that when you look at our growth targets, it's a linear progression. It is not a hockey stick. That's not our interest.”
The decision to stay self-funded means the owners aren’t beholden to stakeholders. Moore and Kitces evenly split ownership of the venture.
However, the business partners have looked to unusual sources to raise an influx of cash.
In January, the duo
AdvicePay Enterprise was built over the past four months and specifically designed to help organizations that support large numbers of advisors in collecting fees from clients.
“They want to maintain the vision,” says Ryan Mohr, founder of Clarity Capital Management. “[XYPN] is just not meant to be public.”
Taking on venture capital or selling would not make much sense for the network right now, according to Bill Winterberg, who runs industry blog fppad.com. Kitces and Moore have emphasized that the network was never built with a sale in mind, he says.
Instead, the network should look to establish a leadership team with experience in supporting and growing a network of like-minded professionals, Winterberg says. That will provide confidence among members that the future of XYPN extends beyond the direct efforts of Kitces and Moore.
Moore points out money was never the endgame for the network.
Case in point, the fastest way for his firm to grow would be to take on advisors who sell insurance, he says. While that would be sacrilegious to many members (and adding he would “have to quit because I would never do that”) Moore would have to navigate those types of shareholder conversations every quarter.
“Look at companies that have raised $30 million with almost no revenue in our space,” Moore says. “There's a few. You can come up with names. How many times did they pivot every six months? We found our spot. We know where our growth is coming from.”
With the continued expansion of the independent channel, XYPN expects to ride the breakaway movement without having to “cannibalize the entire marketplace,” Moore says. He estimates the network may be able to capture 1% to 10% of the growth of the RIA marketplace overall. As of now, 5% of all RIA registrants at the state level are affiliated with XYPN.
Still, some market observers note that as XYPN continues to broaden the breadth of its services, it is beginning to mirror some of the larger competitors in the financial services industry.
The network recently added coaching on compliance and sales tactics, a financial planning and process consulting service and a tax offering that employs four CPAs to help advisors manage their clients at tax time, according to the firm.
“XYPN looks like a lighter weight and more flexible version of a TAMP, or a packager like Dynasty Financial,” says Lex Sokolin, global fintech co-head at ConsenSys. The network focuses on the services that young advisors find useful, and a big part of that is a strong emphasis on technology.
“If a large broker dealer is interested in understanding how to attract and retain younger talent, it could be an attractive bolt-on,” Sokolin says.
Others disagreed.
“It would really, really surprise me,” says Joshua Knauss, a financial planner and CFP with the Lewisburg, Pennsylvania-based Omniwealth Group, about a possible sale of the network. “It’s really not about the money for them. They know when you take money or go public you’re going to lose control.”
With the trend toward financial planning growing, the XYPN network will likely be able to sustain its growth or even accelerate it, Knauss says.
“It very well could be 10,000 advisors serving a million clients,” he adds.
