The Compound and Friends - The Most Disruptive Man in Wealth Management (Josh with Shirl Penney)

Episode Date: June 24, 2019

Who is the most disruptive person in wealth management? It's not a robo founder. Or an index ETF CEO. Or a blogger. In fact, it is Shirl Penney, the founder of Dynasty Financial Partners, whose platform for breakaway brokers who want to become independent advisors and own their own firms has now amassed almost $40 billion in client assets over the last ten years. Shirl has changed the way wirehouse brokers and other captive financial advisors at large firms have looked at independence. He's built a machine that began under the radar but is now on the verge of pushing the incumbents into allowing a degree of entrepreneurial freedom that would have previously been unthinkable. Josh and Shirl first met during the Investment News 40 Under 40 Summit the year they both made the list. Check out this video to learn about the biggest trends in the wealth management and financial advisor business, and how Shirl is upending some of the most bedrock conventions within the industry by working harder and smarter than his competitors. You can learn more about Dynasty's solutions for breakaway brokers who want to become advisors and launch their own firms here: https://dynastyfinancialpartners.com/ Shirl will be giving a keynote address to the advisors in attendance at this September's inaugural Wealth/Stack conference in Scottsdale, Arizona. Details here: https://finance.knect365.com/wealth-s... 1-click play or subscribe on your favorite podcast app   Subscribe to the mini podcast on iTunes or Spotify   Enable our Alexa skill here - "Alexa, play the Compound show!"   Talk to us about your portfolio or financial plan here: http://ritholtzwealth.com/   Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer: https://thereformedbroker.com/terms-and-conditions/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, I'm Josh Brown. I'm here with my friend, Cheryl Penny, founder of Dynasty Financial Partners. I've referred to Cheryl as the most disruptive man in wealth management. Cheryl's going to tell us all about what's happening on Dynasty, one of the fastest growing largest platforms in the wealth management business. It's a great story. Stick around. You're going to love this. Okay. First of all, thanks for being a part of this. Nice office. Thank you, Josh. I appreciate you coming all the way uptown. Yeah, yeah. I came 17 blocks for this. So make it good. So first of all, for people that aren't familiar, how do you explain Dynasty?

I talk about Dynasty as being a platform service company to high-end REAs. Just quickly, we do four things. We have a consulting business, which we can help somebody launch a new business. We can help them plan for succession, et cetera. That's the first business. Second business is we provide capital, both loans and equity. We buy a revenue stream in firms. Third business is we provide an integrated middle and back office. So we have our own proprietary desktop technology, integrates all the financial planning software, CRM. We do billing, reporting, et cetera. So all the kind of variable cost components of an REA that advisors don't like to do, we do all that to free up time for them to be with clients.

And then our last business is our investment platform. Think of that as a TAMP, SMAs, UMAs, et cetera. And then perhaps the most important thing we do is we give advisors a community because what I've found is even the largest, most successful RIA principals want to be independent but not alone. They want to be around like-minded CEOs. So to back up, the RIA side of the investment business is booming. Breakaway brokers are leaving the large firms, but they've been accustomed to a certain level of back office service and help. And they're not set up to like make all these hires and build all this middle office, back office. So you are like a great solution for the team that says, you know what we're really good at?

We love our clients. We know our clients better than anyone. We love to manage their wealth and help them. You know, we're not good at building infrastructure and bringing in software. So you're doing all of that and people love it. And that's why you're growing. And in particular, that's a great descriptor, but in particular, that's even more so at the high end of the market. So if you look at the REa movement back 20 years ago yeah a lot of a lot of the advisors going independent had more of a retail client focus as a result rightfully so the service providers the custodians back

then built infrastructures to cover those advisors and the types of clients that they service Schwab fidelity Persian exactly yeah yeah so what we've done over the last 10 years as we built Dynasty is build a middle and back office for an advisor who may have 20 million plus ultra high net worth clients who need more alternative investment product. They need more sophisticated reporting. They need different types of technology, capital markets. They need... Absolutely. They need the lending side. So my background was building platforms for ultra high end advisors at Smith Barney in the private wealth business. When I looked at the landscape 15 years ago, there wasn't a platform,

as I just described, that could provide that type of integrated service to a private wealth management advisor. And that's exactly what we built at Dynastar. Right. So the original RIAs were not small accounts, but managing a million dollars, two million dollar accounts. And now the whole game has changed. We have a number of REAs on our platform whose average client is above $100 million. That didn't exist. You go back 10 years ago in the space. I would say what the common denominator for most of the advisory firms that are powered

by Dynasty on our platform is they have a client profile target, 5 million and above. Okay. And those are the most successful firms in the country right now? Arguably. They're growing the fastest. They have actually really good ROA, great profitability. Our average net income right now across our network is about 64%, meaning all their fixed and variable costs are included in the other 36. And they're growing on average in the double digits. So I think they would describe themselves as fairly successful. So what's interesting about you, and I talk to everyone, the wirehouses, I don't know if fear is the right word,

but they know that you can provide almost everything that they provide. But they don't hate you because they kind of understand that there are going to be breakaways no matter what. And they're going to go to someone's platform or someone's going to have a solution. And you have relationships with all these people. So it's interesting. You're almost like a force of nature that there's nothing that can be done about you guys. You're just going to grow and you're going to do your thing. Well, I'm not so sure there's nothing that can be done.

I think that only the paranoid survive. So I'm constantly thinking about how it is the dynasty that can leapfrog dynasty. But also I was a competitive chess player. I don't know if you know that, Josh, growing up. So I'm always trying to think ahead. Same, but Zelda. Zelda, there you go. I'm sure you were a master. You're a different type of legend.

So anyhow, I'm always trying to think think ahead for the business and I find there's certainly less collisions at the high road so you're not gonna find Dynasty in the press bashing wire houses. We're providing a completely different service. We're powering someone who wants to own and operate their own business and you're're right. There's tremendous choice that's out there now in terms of product and services. But also, if you think long term in our industry, I think you have the custodians kind of moving towards the middle. Custodians or rather wire houses are now thinking about the independent movement, both from an offense and defensive standpoint, what role

they're going to play. You see firms like Goldman Sachs coming into the place. You're going to see more of that, right? So I think Dynasty is well positioned as an integrated service provider that kind of sits in the middle, that's powering those advisors, the real entrepreneurs. So you don't see when the wire houses are now either considering or putting into place this idea where they're telling the brokerage team, hey, don't leave, don't hang your own shingle, or you can hang your own shingle, but you're still going to be on our platform and you'll be a captive RIA. I mean, it's kind of like an oxymoron, but I know they're trying to do that.

I call it captive independence. Captive independence? Did I get that term from you? Is that like a thing that people- You get a lot of stuff from me, actually. Your listeners should understand that. Is that a thing that people are really going to want to do, or is there really no substitute for owning your own business and then finding the right platform for it?

What's the right- I think it would be an incredibly innovative model if somebody had the leaders with the courage with a large scale player that said, we're going to allow complete independence. So we're going to allow a lot of choice. And it's not just going to be custody only with us, but we're going to provide an integrated experience where if we're not best at some product or service, you get it through someone else on our platform that's challenging in this environment regulatory related issues also economics right the custodians want cash they want the spreads on cash right they want the back-end that's what they're there for

so but but I think a lot of the wire houses are sitting there and thinking you know what it could be a good defense right to have people leave but go to a sister co that that's internal and maybe ultimately it's a good offense because it allows us to work with REAs that we can't work with today. We've seen that model. There are some firms out there that have started to build that out. But I think the real winner might be the firm that figures out and has the courage to open it up and say, you can go to this channel and we're actually going to allow choice that forces us to be best in class for you to elect our product and services on this platform. Okay. So hypothetically, Wirehouse says, we've got these

alternatives on our platform, but if you don't like them, you can use someone else's. Yeah. And that's the business, by the way. It's tough. It's tough, but that's the business that Dynasty's built. So if you look at our investment platform, you don't have to use our investment team. If we're not best in class, because we are a service provider, you don't work for us. The client is the advisor for us. The client owns their own firm.

So we have to stand and deliver just like they do, just like you do, Josh. If you don't deliver for your client, you get fired. And that's the way it should work. So how many firms are on the Dynasty platform today? 47 firms. We have several that are in transition. By the end of the third quarter, if all goes well, if the markets hopefully hold together, I think for the first time we're going to hit 40 billion of assets on our platform. It's ridiculous. Did you ever think, did you think? It's been easy too, as you can imagine. I think you're the only person with a more hectic schedule than mine. But did you ever think that that was something that you would build like to that, to that, that quickly to get to that size? Yes. I mean, I certainly wanted to be here. I mean,

we think about being a couple hundred billion. I mean, ultimately the brass ring that we want to grab is we want to be the good housekeeper seal of approval for independent advice, right? Because one of the challenges, and a lot of your listeners, I'm sure, are thinking about this. If everyone in the future says, I'm an independent advisor, well, what differentiates one from another, right? So ultimately, Dynasty wants to be kind of that intel inside that's powering these advisors, building great businesses. So you want there to be name brand recognition amongst high net worth investors. Ingredient marketing, absolutely. So they say, well, this RIA is on Dynasty's platform, so they must be a cut above.

A, look for an independent advisor. B, look for one that's powered by Dynasty. Great compliance, great technology, access to product scale, et cetera. So a lot of people don't know your background. I know your story is amazing. etc so a lot of people don't know your background i know your story your story is amazing um like what's the cliff nose version of how you arrive on wall street from your uh your your early yeah your early beginnings which are i think like most people would hear that story and be really inspired no i appreciate that i certainly believe in the american dream i think we're all living our own version i grew up in a small fishing village400 people in the sticks of Maine, raised by my step-granddad, didn't have parents growing up. Unfortunately, the house that I was in collapsed around us when I was 11 years

old. I was homeless for three years, lived with various neighbors, went off to college, to Bates College, which is in Lewiston, Maine. Fortunately, and I did that so I could go home at least once a month to see my granddad. Two days before I graduated, the man who was my whole family died in my arms, unfortunately. Bought a suit for $13 at the Salvation Army. Rode a bus 16 hours to New York. Didn't know anyone in New York. Knocked on doors, interviewed, and got hired by Smith Barney. That in and of itself could not happen now. That's incredible. Well, it can't because Smith Barney's no more, right? Well, sure. Right.

No, but I actually hope it can happen. I hope it happens more. And I became a fellow recently at the Aspen Institute. And a big part of my focus there is on not about how do we keep the ladder down, but how do more people like us, Josh, work together to build an escalator that brings it, you know, the American dream and makes it more available to more people, in particular to minorities, women, et cetera, in our industry? Because we got a problem at a time in America where more people need financial guidance and advice than ever. There's not enough people in our industry to deliver that. So we need to work together, encourage more people. And why not help power the American dream to get more of those types of people into our industry? It's so funny. People think like, oh no, there's all this competition for wealth management.

There's not enough people to cover everyone in America. And there is a huge portion of the population that's neglected because everyone's too busy fighting over the same clients. I agree with that. And the well-run firms are going to win in a massively disproportionate basis because of the supply and demand imbalance. You're absolutely right. Do you think that that's partially what was on Goldman's mind by going, I don't want to say down market, but looking at traditional wealth management and financial planning as a new avenue of growth for them? I'm sure that that was on their mind, probably ultimately looking at providing more services to REAs. It's undeniable.

The lifeblood of our industry, our assets, they're all going one direction to the independent side. So a lot of firms that are run by smart people like Goldman Sachs are looking at those asset flows. It's where the money is going. Right. So you want to be there or not? Absolutely. Okay. So you're speaking at Wealthstack, and I really appreciate that you're coming out.

Yeah, it's going to be awesome. And I know your CTO is also speaking there. Without telling us what you're going to talk about specifically, like what are the big themes for you for 2019? Like what are the things that you see in the industry that are worth people talking about? Because Wealthstack is September 8th through 10th. We're almost there. What's going on right now? What's on your mind? One of the things I'm excited about with Wealthstack is I want to talk about some tangible takeaways that all the advisors that are there can go back and

apply. It's nice to talk about where the industry is going to be in five years from now, but what can I do now to prepare for that? Well, you're going to have like hundreds of advisors there, so you'll be in the right room for that. Yeah, I can't wait. And my chief operating officer, Ed Swenson, he's excited to be coming and talking about disruptive technology, et cetera. But I'm going to talk about the professionalization, how you evolve from being an advisor to CEO and starting to run a business for the first time, oftentimes different skill sets. Talk about integrated. I'm learning that the hard way.

Yeah, yeah. Every day. We all are. We're all first time. A lot of us are first time CEOs. Going to talk about integration of technology, how it helps scale. Talk about how you can go up market and go after some of these larger clients. How you might grow inorganically.

Because a lot of talk right now around succession planning for advisors that are aging in their career and want to find a place to join or to sell their book of business. Also, probably talk a little bit about capital, right? Not all capital is the same and advisors need to start early to get educated about it and a whole list of other things. It's really just the function of how much time you give me on stage, Josh. Ben, we're going to have to give him more time, I think. I mean, that sounds like a lot. That sounds like a lot. Well, listen, we're really excited to have you out there.

I think you're going to do great. And I think more people, if they knew your story and understood what you were doing in the business, I think people would be really excited to hear it. So we're happy to have you out there. Any final words you want to say on the state of wealth management? Anything we didn't cover? I think the future is bright in wealth management. And anyone who is watching this video who's not in wealth management, I would encourage you to consider it for a career, whether you're starting out on your career journey for the first time or you're thinking about transferring over. We need more great, high integrity, quality people in wealth management

and we welcome you to come on board. I'm Josh Brown and I approve that message. Dude, thank you. Good to see you, man. Great to see you, thank you. All right, that's it from us. Let us know what you think. Leave us feedback.

Make sure you go ahead and smash that like button like we always ask and we will talk to you soon.