Dynasty makes its case to RIAs with a look under the hood

The thousands of financial advisors changing firms each year amid a growing array of potential destinations should carefully consider pay, fees and growth, according to a new study.

As part of a numbers-driven pitch to breakaway advisors leaving wirehouse brokerages for independent registered investment advisory firms, Dynasty Financial Partners tapped wealth management technology consultancy F2 Strategy to compile a research report last month comparing Dynasty's RIA service platform to the industry at large. The unsurprising conclusion that "partnership with Dynasty offers substantial advantages" nevertheless came alongside some rare transparent data about RIA compensation, costs, segmentation and expansion.

"Any entrepreneur that has run a business knows that there are two main things that are at extreme scarcity: time and money," Andrew Marsh, a vice chairman with St. Petersburg, Florida-based Dynasty, said in an interview. "Those firms that work with Dynasty save time and make more money."

READ MORE: Dynasty CEO: IPO still 'on the radar' as firm targets $100B by July

The analysis revealed that RIAs with between $300 million and $1.8 billion in assets under management are "in a sweet spot" for working with Dynasty; firms in that segment, the study said, are able to operate with a smaller staff than are peers using an alternative provider. 

In terms of AUM, the RIAs using Dynasty's services grew at a compound annual rate of 14.3% in the past five years, while the advisory firms that don't work with Dynasty expanded at 6.4%. Using Financial Planning's data on wirehouse and regional brokerage compensation, the report also found that Dynasty's net payout of 62% of an RIA's revenue to the firm's owner contrasted favorably to averages of 50.5% or less at the wirehouse and regional companies among advisors with $1 million to $2 million in annual production. However, Dynasty's technology costs about 15% of an RIA's revenue — which is higher than the 5% to 11% paid by advisory firms using a large custodian's technology and the 8% to 13% for those with "all-in-one" vendors.

"I can go out and select best-in-class technology," said Bryce Carter, an F2 Strategy senior manager and co-author of the report alongside CEO Doug Fritz. "Now I need some smart people to make sure that the systems are communicating well with each other." 

The competition for attracting top independent advisor talent as recruits or potential sellers in M&A deals rages every day in the industry. For example, multifamily office and alternative investment manager AlTi Tiedemann Global and RIA aggregator EP Wealth Advisors unveiled deals to buy firms that each manage more than $1 billion in client assets on successive days last week. In all, 9,674 experienced advisors switched firms in recruiting moves or M&A deals in 2023 — a 7.5% jump from the prior year, according to Diamond Consultants' latest annual "Advisor Transition Report."

"2023 was a year of contradictions in the wealth management industry," Diamond's report said. "Many advisors enjoyed record success, which might suggest they would be loath to upset the status quo, yet advisor movement was up in most industry channels. The firm paying the largest transition deal on the street, First Republic Wealth Management, fell victim to the regional banking crisis. Yet, deals remained elevated, with many firms continuing to color outside the lines for select teams (largely because heightened competition from all corners of the industry forced firms to do so to win the largest and most sophisticated teams)."

READ MORE: Fighting the tides of wirehouse attrition

That fight for talent can make the process of going independent or selling an RIA overwhelming, according to Emily Blue, co-founder of M&A advisory and advisor transition consulting firm Hue Partners.

"Advisors have more options today than ever before," Blue said in an email. "Existing players have continued to innovate and their offering while new players have brought to market some creative solutions. That said, the landscape is more daunting than ever before for advisors to try and navigate on their own. Today, advisors receive more outreach from buyers than fund wholesalers. The buy-side landscape is more sophisticated than ever before. Advisors that have a guide to help navigate the sale of the firm or to go independent is the best way to ensure that they find the perfect fit for themselves and their clients."

For the Dynasty paper, F2 compared 38 firms that use its services against 4,669 RIAs of a similar size that either work with a custodian or use another outsourced technology vendor. For firms with less than $2 billion in AUM, it's "cost-prohibitive" to build a proprietary technology platform, the report said. For those above that level, that development "might be considered feasible if specific criteria related to roadmap, data, talent and valuation are met," it stated. For those below, the cheaper alternatives to Dynasty "offer cost savings but come with trade-offs in terms of scalability, capabilities and long-term growth potential," the report said.

"There are many viable choices with different pros and cons to compare against Dynasty," it stated. "Advisors contemplating independence can leverage this research as a guide, considering factors like cost, staffing, growth potential and long-term strategy. The decision to partner with Dynasty or pursue alternative operating models goes beyond bottom line cost and should be based on aligning technology choices with a firm's unique business objectives."

READ MORE: Best advisor pay for the $1M producer

The firm's value proposition came out in the finding that Dynasty firms employ an average of four fewer staff members than their peers, Carter and Marsh said.

"It was cool to see in the data our hypothesis that Dynasty firms can operate with lower headcounts than comparable RIAs," Carter said. "The staffing side was a component, but that's not the whole equation. The growth aspect was a big finding as well."

F2's data brought "something of a sigh of relief" to the Dynasty team, too, Marsh said.

"It showed us some credibility on what we always believed to be true," he said. "This is what we built our entire company on — our belief that we add value."

Dynasty launched 14 years ago and has grown into a network of 53 RIAs with more than 300 advisors managing $85 billion in client assets under administration, according to the firm's website. In 2022, the firm filed plans to go public before stepping back from an initial public offering in favor of selling minority stakes to private equity firm Abry Partners and Charles Schwab. Last year, Dynasty CEO Shirl Penney said an IPO was still "on the radar" and shared a goal of reaching $100 billion in client assets by July 4 of this year.