Dynasty Tweaks Model with Offer to Buy RIAs’ Revenue
(Adds details of program and comments from CEO throughout.)
Dynasty Financial Partners is launching a new program in which it will buy 5-10% of independent advisory firms’ revenue in return for helping breakaway brokers and registered investment advisers fund their businesses and personal needs.
The model could move Dynasty, a New York-based firm founded in 2010 by former Smith Barney executives Shirl Penney and Todd Thomson to help brokers operate as independent advisors, closer to the so-called rollup space of firms such as Focus Financial Partners and HighTower Advisors that buy majority interests in firms operating under their umbrella.
Dynasty positioned the new program, announced on Wednesday and dubbed Dynasty Capital Strategies, as a “friendly and flexible tool” that will give advisory firms significantly more control than its roll-up competitors. The targeted revenue-purchase range of up to 10% leaves “the majority of upside growth economics on the table for the advisor-owned firms that are on the Dynasty platform,” the firm said in a press release, and also allows RIAs to repurchase their revenue shares after three years.
“We are buying a revenue interest, not large stakes of equities in their business,” Penney said in an interview, distinguishing Dynasty’s new service as a liquidity option for RIAs rather than an ownership model. “We are not getting any kind of control, asking for board seats or setting profitability measures.”
Spokespersons at Focus and HighTower did not respond to requests for comment.
Penney denied that the new program indicates pressure to rev up Dynasty’s relatively slow growth. The firm sells “middle- and back-office” technology, trading and platform services through three-year contracts with RIA partners, creating an impermanent revenue flow. Dynasty has 42 RIA clients managing more than $20 billion of customer assets, according to its announcement. Eight months ago, it had 38 such partners with $23 billion of client assets.
Dynasty has added seven new clients to its network this year, some of which have not yet been announced but that bring the actual partner total to more than 42, Penney said. A majority of partner firms over the firm’s lifespan, “close to 30,” also have re-upped their three-year contracts, he said when asked if the firm’s directors were concerned about retention rates.
The new revenue-purchase program will complement loans that Dynasty currently offers to help firms with start-up expenses, ongoing working capital and acquisitions, the company said. It typically offers five-year loans capped at 50% of a firm’s revenue to owners and/or their businesses. Roughly half of Dynasty’s partners have used the borrowing programs, it said.
Under the new Capital Strategies offer, Dynasty will provide up to five-to-six times a firm’s cashflow in return for the revenue stake it buys, Penney said. For brokers who are transitioning to become RIAs, the firm can “true up” the liquidity stake through a loan or revenue purchase at the end of 12 months based on customer assets they attract, he said.
“We have advisors who are in start-up phase, other RIAs who are in rapid growth and professionalization phase, and some that are beginning to think about and plan for succession,” Dynasty Chief Operating Officer Ed Swenson said in a prepared statement. “We will continue to expand our integrated technology enabled service platform to address the changing needs of our clients as they move through these various business cycles.”
Amit Grover, Dynasty’s chief financial officer, is leading the new program, the company said. Several RIAs, including some new firms, have signed up for the revenue participation notes, Penney said.
Dynasty’s board members include former American Express Chief Executive Harvey Golub and former SEC Chairman and Donaldson, Lufkin & Jenrette founder William Donaldson.