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Why the Envestnet-Dynasty deal matters

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Envestnet’s minority stake in Dynasty Financial Partners marks a critical strategic juncture for the industry powerhouses.

In the near-term, the two companies will launch a joint Advisor Services Exchange later this year, offering Envestnet clients access to capital, marketing services and outsourced investment and financial services. Longer term, the deal may help both firms address key growth issues.

Envestnet’s partnership with Dynasty will give the industry’s leading TAMP and software provider greater access to the fast-growing RIA market. Dynasty, which leads the industry as a platform provider for breakaway brokers, already partners with 45 firms with combined assets of around $40 billion.

“This is a smart services expansion for Envestnet,” says industry analyst Chip Roame, managing partner of Tiburon Strategic Advisors. “It ties the leading-edge technology platform with additional services many independent financial advisors are looking for.”


The Envestnet-Dynasty partnership appears to be “strategically, a natural fit,” says Joel Bruckenstein, founder of the technology conference T3. “Advisors that use the [Dynasty] services will grow more rapidly. That should lead to more assets on the Envestnet platform.”

Dynasty, meanwhile, gains a prominent, well-capitalized partner that helps validate the 10-year old company’s business model.

Envestnet, which has revenues of $870 million in the trailling twelve month period and a market capitalization of $3.87 billion, will become Dynasty’s first institutional investor, joining such prominent private investors as Harvey Golub, the former head of American Express, and former SEC chair Bill Donaldson, a co-founder of the Wall Street firm Donaldson, Lufkin & Jenrette.

Bill Crager, Envestnet’s interim CEO, will take a seat on Dynasty’s board.

Envestnet also participated in Dynasty’s most recent round of capital funding. Dynasty CEO Shirl Penney declined to say how much Envestnet invested, saying only that all the company’s stakeholders invested a “meaningful” sum.

“This wasn’t about the money,” Penney says. “It’s more about a partnership with an innovative company that will help Dynasty grow. It helps them better serve and take care of their clients and helps us build new services to take care of our clients.”

The deal may also tackle two major priorities for Envestnet: a potential acquisition and additional sources of revenue.

Acquisitions, including Tamarac, Yodlee and MoneyGuidePro, have been a hallmark of Envestnet’s growth for the past decade. The deals have added additional tools, like financial planning software and data analytics, and have been a catalyst for the firm’s continued growth.

This move certainly broadens Envestnet’s exposure to tools that independent advisors need, says Alois Pirker, research director at Aite Group.

The Dynasty investment marks another step in Envestnet’s transformation into a multi-product financial services provider from merely a tech platform, says Craig Iskowitz, CEO of Ezra Group.

“The goal is to shift away from per-seat license fees and basis points and more toward transactional revenue streams,” Iskowitz says. “This was Jud’s vision and his team is continuing to execute on it.” [Envestnet CEO Jud Bergman was killed in a car crash last fall.]

While subscription fees have long been Envestnet’s bread and butter, a move to recurring fees from lending, marketing and outsourced CFOs will diversify its revenue stream. It also means the firm is less reliant on AUM and basis points and the market in general.

Competitors will likely announce similar features in the coming months, according to Iskowitz. But firms will be hard pressed to match the size and scale of Envestnet, which works with more than 100,000 advisors and over 4,700 companies including over 500 RIAs as well as most of the top 20 U.S. banks.

“Envestnet has the market share to drive more transparency, tighter integration and lower prices than almost any other vendor,” Iskowitz notes.

Dynasty also has considerable market clout, but its business model can be challenging, say industry executives.

“They do a great job of transitioning breakaway advisors,” says one executive familiar with the company’s operations who declined to be named. “But you have to keep doing new deals to keep it going. And when the old deals expire there’s always the risk that RIAs will re-negotiate at lower prices.”

Citing Dynasty’s status as a private company, Penney won’t say if Dynasty is profitable. The company is in “a strong financial position,” he says, with “expanding margins” since it moved its headquarters to Florida last year, saving money on rent.

Although he downplays Envestnet’s monetary investment, Penney readily says that partnering with Envestnet helps Dynasty get to scale.

Adding a well-capitalized partner also “probably ensures a longer range plan for Dynasty which should give their partners comfort,” notes Mark Tibergien, CEO of BNY Mellon's Pershing Advisor Services.

The joint venture will allow Dynasty to unbundle and distribute its services, something it can afford to do with a lower cost of customer acquisition, says MarketCounsel CEO Brian Hamburger.

Some competitors suggest that Envestnet’s larger enterprise clients may not be happy it took a stake in a company that they say encourages brokers and advisors to strike out on their own.

Penney dismisses the criticism and says Envestnet and Dynasty remain “two separate companies.”

After all, in the current financial services marketplace, almost every firm competes with a wirehouse, custodian or tech provider, Tiburon’s Roame says.

“Think Fidelity retail versus its RIA force,” he says. “Think Raymond James having a clearing arm supporting independent advisors that compete with its captive advisors.”

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