Transcript: Shirl Penney



The transcript from this week’s, MiB: Shirl Penney, Dynasty Financial Partners, is below.

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This is my Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have a special guest. Shirl Penney comes from the most humble of all roots and really you want to talk about a Horatio Alger story of a person who essentially picked himself up by his bootstraps and built a career and turn that into a powerhouse business. He runs Dynasty Financial Partners which has over $60 billion on its platform. His story is really — I want to say pretty unique and — in Wall Street. Very, very humble origins and — and very much a self-educated person who was fascinated with finance from when he was younger and use that fascination, really, as a motivation to self-educate — autodidact is the term for that — and really become one of the most impressive CEOs in the financial industry space.

This is a little inside baseball. It talks about what happens when advisers and brokers at big firms like Morgan Stanley or Merrill Lynch or UBS decide they want to go independent and leave those big firms to set up their own shop. What Dynasty does is provides a pathway to do that, either so that the person can become independent or the person ends up on Dynasty’s platform.

This is a pretty fast-growing space. We’ve seen major changes in the financial services industry over the past 20 years. Most of that acceleration took place after the financial crisis where I think the once mighty brands no longer carries the same cachet because of their involvement in and what took place with subprime and CDOs and all that, not so much fun stuff.

Anyway, if you’re at all interested in financial services, registered investment, advisories, anything along those lines, I think you’ll find this to be a fascinating conversation. So, with no further ado, here’s my discussion with Dynasty Financial’s Shirl Penney.

VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: Shirl Penney, welcome to Bloomberg.

SHIRL PENNEY, DYNASTY FINANCIAL PARTNERS, FOUNDER AND CEO: Hey, Barry. So great to be here. I am a huge fan of the show. So, I’m thrilled to be a part of it. Thanks so much for the invite.

RITHOLTZ: Well, my pleasure. This is — this is long overdue. We’re going to talk about dynasty in a little while. I want to start discussing your background because in the world of finance, your story is kind of unique. Would you mind sharing a little bit about your background with us?

PENNEY: Sure. I’m happy to. Look, we’re all living our own unique version of the American dream, but I’ll tell you a little bit about mine. So, I’m from a little fishing village, the eastern most point in the United States in Maine called Eastport, Maine. Population 1,400.

I was raised there by my step grandfather. When I was 11 years old and my grandfather was in his early 70s, the house that we were living in was condemned, literally fell down around us. And for three years, when I was 11, 12, 13, we were homeless. Lived with various neighbors, obviously, very cold in the winters in Maine.

But a great motivator when you’re cold and hungry, at times, and I always had great love and support of my — my step grandfather, but was fascinated by numbers, was always good in math. Convinced my high school teachers to have the stock market game added at the school and I used to tell people, someday I’m going to go to college and head off to Wall Street.

And people kind of chuckle because not only had no one in my family ever gone to college, no one from that for the state of had ever gone off to New York to build a career in finance. I used to ask a lot of that the tourists who would come visit to bring me copies of financial publications and was self-taught, just always fascinated by finance and wealth management and was determined to somehow, someway find my way to building a career in finance.

And my grandfather always told me, look, you can do anything even — though he only had a fifth grade education, he always told me you can do anything you want in life you’d work hard enough towards it and I believed him and it’s been quite a journey.

RITHOLTZ: So, you go to not the usual Wall Street feeder schools. You end up at Bates College which is a small liberal arts school. How did you find your way into the financial services industry from that education?

PENNEY: We are blessed in the state of Maine with three great liberal arts schools, Bates, and Bowdoin, and Colby. Many people would know those schools.

Part of going to Bates was I could stay in Maine, and thankfully, Barry, the day before I graduated from college, my step grandfather who had raised me and meant so much to me as you can imagine, he died in my arms and I had the opportunity to give my diploma before he did pass. I bought up a suit for $13 at the Salvation Army on and I rode a bus couple days past my graduation to New York City.

And I interviewed at Smith Barney which is, many of your listeners will know, is now part of Morgan Stanley and I had interned my junior year at Bates at the branch location in Portland, Maine, at Smith Barney, so got to know some people there and basically traded a summer’s worth of work for an interview in New York.

I rode the bus 16 hours and my biggest challenge that morning, Barry, was making my way through a revolving door which I’ve never seen that point in my life, getting up an escalator which I’d also have not seen — again, being from a very small town, fishing village in Maine — making my way through multiple elevator banks and arriving there at my interview which I was half hour early for.

And I just said, look, I’ll — here’s my main roots I had a job since I was 10 years old, had to, and just said, look, I may not be the smartest person in the room, but I’ll work everyone. I’m self-taught and I’ve studied a lot about Sandy Weill and Citigroup and Smith Barney and they said, look, come back next week for a second-round interview.

I said, you understand what I had to go through to get here? I got to go all the way back to Maine and come back. And the first time that I ever flew on an airplane, Barry, was they bought me a flight to come back the following week for the second round interview which went well and I was hired and off I went to New York not knowing anyone but to start my career in finance.

RITHOLTZ: So, tell us a little bit about your experience at Smith Barney? What did you do? What roles did you hold and how long did you stay there?

PENNEY: The punchline is before starting Dynasty Financial Partners, I spent a little over 10 years at Smith Barney and it was a great place to learn the business. I’m a huge believer in mentorship by Committee. I had some great mentors when I was there.

I move around the country which was fantastic. I went to L.A., I went to San Francisco, I helped open some private wealth offices there and I told a lot of people that are you looking to build careers and finance, to stay close to the field. I think some of the challenges that some of the larger firms have right now is management has not ever really spent any significant time in the field to really understand where the rubber hits the road in terms of the adviser-client relationship.

I’ve had the good fortune, Barry, my whole career, the lens through which I see the world as I work for advisers and I’ve been fortunate enough that advisers have entrusted me over the course of my career to be their partner in their life’s work to help them get new clients, take care of their best clients, grow their business, and that mentality I brought to this new business here, I was pushed a lot at Smith Barney and given a lot of responsibility.

Again, understanding, I was a homeless kid from Maine who was on welfare and food stamps and trying to work odds jobs and my granddad worked odd jobs to make ends meet.

And now, at the age of 27, I think, five years into my career, I was actually put in charge of private wealth management which — big responsibility of introducing the firm’s top clients and prospects to Sandy Weill and the senior executives in the firm and showcasing all of the capability of the organization, sitting there with these billionaires, and advising them on what to do with their money when seven or eight years prior, I’m standing in line in the sticks (ph) of Maine, Barry, waiting for a block of government cheese.

So, pretty profound in terms of where my life went in a short period of time. I was working very hard, 17, 18, 19-hour days sometimes because I’m reading all night, trying to come up the learning curve with all these various concepts.

And what I’ve realized early on is that we had remarkable experts in all the different disciplines of wealth management whether it was a estate planning capital markets investment banking, asset management, traditional alternatives, etc. but we didn’t have a lot of people who understood how they all fit together in the support of an adviser and in the support of a large sophisticated client.

And that was over 20 years ago, that early formation of these wealth management divisions and then private wealth management. And I said I want to be the person whose more than conversationally confident in all of the disciplines and help tie it together, and that really helped me grow my career pretty quickly.

So, ran private wealth, ran the executive financial services division, which focused on all the firm’s top corporate executive clients. This is in the early ’90s and early 2000s where executive compensation was really taking off with stock options and that was a big business for us. So, had an opportunity to run that.

And then what I realized is all the firm’s top clients who sat across the table for me in and all these VIP meetings that we did with them, for the most part, they were entrepreneurs and I began thinking about how do I go from this side of the table to that side of the table? How do I take all of this knowledge and skillset that I built up around building platforms, board meeting advisers, and do it in a way that allows me to be not an employee but an entrepreneur and start my own business and that was the realization of Dynasty.

And when I decided to launch it, it was April of ’08 which in hindsight was both a very good and bad time to launch. We’re headed in to, obviously, the financial crisis later that year. So, it’s very difficult to raise capital but there was a lot of challenges that the large Wall Street bring-ins would face over the next several years.

So, from a timing perspective, it worked out really well for this new business model that we created in launch which was providing integrated platform service model for high-end independent advisers, the timing was right to bring that concept to market.

RITHOLTZ: Really interesting. So, let’s talk a little bit about what Dynasty does. What your core services? What’s the short version of the product solution that you offer?

PENNEY: OK. Thanks, Barry. The short version of what Dynasty does, we’re in four business. One is a consulting business that advises advisers based on where they are in their lifecycle launch. If they want to launch a business, we help them do that, breaking away from wire house, etc. If they are thinking about succession planning, if they’re thinking about selling their business, will help them with those types of things as well. So, that’s our consulting business.

Our second business is our core services, running all of the middle and back office for an advisory practice. So, technology compliance, billing, reporting, all the things that most advisers don’t like to do that freeze up their time to take care of their clients and get new ones, they’re outsourcing that middle and back office to us and what we call our core service package.

Third business is our investment platform. Many people refer to that, as you’ve mentioned earlier, the TAMP, Turnkey Asset Management Platform, separate managed account access, UMAs, advisers, portfolio manager, trading tools, access to alternative managers, feeder funds, structure products access and investment banking network that advisers can refer business to for the business owner clients, et cetera. That is an ala carte business. The advisers can choose to use it or not on behalf of their clients. And as you referenced, we have about 27 billion now making us a top six camp in the — in the independent space.

And then, the last business is our capital business. Dynasty Capital Services which is both a debt and an equity offering to advisers. And oftentimes, that capital gets used by advisers looking to launch a business to fund succession, a lot of the capital gets deployed if somebody wants to do a recap, kind of practice what they preach, take a few chips off the table or if they want to grow inorganically and drive their business by acquiring other advisers.

We have a whole M&A team inhouse that will go out, source a deal, help get the deal done to the transition, the onboarding and finance that transactions will. We’ll probably do 20 M&A deals across the 50 firms or so over the course of this year.

And the last thing, I think that’s unique, that people sometimes don’t understand about our business, we’re that little Intel sticker, Barry. So, the advisers own the vast majority of the equity in their business, if not all of it, and Dynasty works for them. We are an integrated service provider that provides all the infrastructure and capital, consulting and support, but all of the enterprise value and growth of that which advisers can monetize in a tax efficient way down the road is owned by the adviser themselves.

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RITHOLTZ: Very interesting. So, let’s talk about when you launched, how did you find the first team that joined the platform? Tell us a little bit about what that process was like in the early days, how — when you’re — when you’ve taken that leap of faith and launching a brand-new business, who comes along at the very beginning?

PENNEY: Yes. So, obviously, when you’re starting the business, signing up those first few clients is a bit more difficult than it is today with 60 billion and a long-standing track record that — that we have. Our first RIA outside client is a firm called Pactolus, they’re in the DC market, run by a gentleman named Alan Harter.

I had known Alan because he was at Smith Barney. So, we had — had a previous relationship, working together there, and he launched his firm little over 10 years ago. He’s has remarkable success growing the business organically and adding new clients and new services but it was a tremendous leap of faith. And it’s not lost on us.

We love all our clients, obviously, but in particular, those early clients, when we were an idea, like this new concept and we said trust us, we understand it’s life’s work and we’re going to execute on your behalf. But we’re going to jump out this window together and that hand shoots going to go up and it’s going to work and you’re going to have that safe and soft landing.

It was, obviously, very stressful times with the first five, six, seven transitions. But knock on wood, those all went well and they continue to go well since. But our original — first handful of clients will always have a special place in my heart because all we were was business plan, a new concept, and they trusted us that we’d make it work for them, and thankfully, we did.

So, it’s now 12 years later, how has the process changed? What have you learned over those dozen plus years? How different does that onboarding new adviser relationship look today versus when you were first starting out?

PENNEY: Yes. Look. I’m biased when I say this, Barry. Obviously, if you’re to talk to a lot of third-party, custodians, et cetera, in our space, I think they would say that Dynasty has the best transition process, really, of anyone in the space. We done it more than anyone.

We’ve onboarded, broken away, if you’d talk about breakaway advisers over the past, just under a dozen years over 150 significant teams. Some of which, we will help them launch their own firm, some of which we help tuck in or join or sub-aggregate other firms that we — that we had on our platform.

We do an extensive debrief on every single one, thinking about how we can get better. And I would say, like a lot of businesses that are north of 10 years in, there’s a huge focus on the professionalization of the business. In the early days, you’re in startup mode, everyone’s, kind of doing everything to get clients in and to actually get to a point where you have a business.

And then once you have a business, then it’s how do you make that business better, how do you professionalize it? How do you scale it? And we’ve really focused on the last five years, in particular, the technology enabling of all aspects of our business.

So, if you — to our question, what’s today? An advisers who’s joining up with us to do a transition today, there’s a lot more digital support, technology support, a lot of practice management around the transition. We have our own proprietary app where we have the hundred and 50 steps that you’ll go through in the transition, all laid out in detail in a password-protected app that an adviser would have on is on her phone.

And when everything goes from red to green across — and we were — we are the staple, easy button. We find you real estate, negotiate the lead, design your name, your logo, your branding, your marketing your PR strategy, your launch strategy, helping you on the legal strategy around the move, setting up your client documentation, helping you select your custodian, doing all the paperwork in transition, training your staff on the new — like, you name it, we do it.

And we’ve done a lot of it. So, like, a lot of things in life, there’s no substitute for experience. We have, at this point, a lot of experience and we tech-enabled, we’ve invested, given the success of our business and people, and the professional development of those people who support the advisers. And perhaps our biggest competitive advantage is something that I mentioned earlier is that everyone who works at Dynasty, they’re all an equity owner. They either bought equity in the firm or we have a — and options in equity program, every single person is an owner, so they act like an owner.

And they wake up every morning and understand that we have one fundamental job which is to work for and support our advisers. And if a transition doesn’t go well, that will set that advisory from way back, sets us back, we’ll get fired, right? The philosophical alignment is viewed — we worked for the adviser and the adviser works for the end client.

We’re comfortable standing and delivering on behalf of our client adviser, just like they have to do for their client. And I think, a lot of ways and this really started 25, 30, 40 years ago with some of the old partnerships, Barry, on Wall Street, starting to go public, that alignment got misaligned, right? With shareholders and management and advisers and clients, but we brought a lot of that purity of the alignment back which I think culturally is a huge competitive advantage for us.

RITHOLTZ: So, last year, Envestnet took a minority share with you guys. I assume that capital is going to give you some serious firepower to do some things with, what are the plans to use that, that capital to fund your future growth?

PENNEY: Yes. Thanks for that question. I am a very loyal person, and maybe it’s in part, my background. But a lot of the firm’s that backed us when I was in my garage with a business plan, that says a lot — it means a lot to me and one of those firms was Envestnet.

And Jud Bergman who we all lose to soon was a very close personal friend of mine as well as Ed Swenson, some of the other cofounders here, and Bill Crager, longstanding, very close personal friend. And we had talked over the years about finding more ways that we could work together, utilize some of their technology on — on our TAMP.

And what we decided to do was to launch something that we’re calling the Advisor Services Exchange which is a joint venture. It’s run by Ed Swenson who’s the president of that entity is also the Chief Operating Officer of Dynasty. We’re bringing value-add business services to RIAs that are current clients of Envestnet.

So, helping them run more efficient businesses, more tech-enabled businesses, helping them outsource things that are not core strategic to their firm, helping them manage your expenses, to build more profitable P&Ls which ultimately result in more valuable business, et cetera.

And we’re off — we launch that about six months ago. We’re off to a great start. There’s been — we built the whole technology interface around data, so the advisers can use the data around their business to make better decisions on how they want to run their business to do business planning, they can leverage our capital programs, compliance, marketing. They can outsource aspects of their investments.

To us, again, all design that create scale and efficiency in the business. The other thing that …

RITHOLTZ: Very interesting.

PENNEY: Yes. And it’s great and it’s a fast-growing element of our business because a lot of advisers are looking to outsource the non-core things. I mean, the — the biggest difference, Barry, if we were to look at a billion, our average RIA is about a billion two. If you’re to look at a billion two adviser, let’s say that we’ve launched as a breakaway versus the average billion two RIA, that’s already independent coming to us to outsource, on average, which I find fascinating, the advisers that we broke away and stood up on average are over 500 basis points more profitable.

And they tend to grow faster. The biggest reason for that, when you really peel back the numbers and do the analysis, is because on average, the billion two firm that we set up has three less people. The legacy RIA, because the custodians are really good in the back office, but don’t really do the work in the middle office have had the hire up.

When you can get synthetic scale and outsource to a firm like Dynasty, you don’t have to hire as many people. And yes, with the vendor and the resource partners, with 60 billion, we get a little bit cheaper but the real delta comes from personnel savings.

And then, not having to manage those people which frees up more time. And if you assume, a multiple of seven or eight times and sometimes higher in terms of valuation, times 500 basis points, you can extrapolate that out to say the firms on our platform are almost a third more valuable because of the enhanced earnings, that we’re able to help — to help — to help drive. So …

RITHOLTZ: Very — very intriguing.

PENNEY: Yes. And that was a big part, Barry, and why they did the investment.

The other piece, really quick, is because a lot of the — and this gets in to our entries group which is servicing institutional clients, a lot of the larger independent broker dealers that invest in that is servicing. One of the biggest challenges they’re facing is their largest advisers are starting to graduate off of their platform and go fully independent.

And a little bit of back to the future here, what I did 15 years ago helping to build the private wealth division at Smith Barney for that same reason, the top advisers were looking to leave, we had to build a client segmentation strategy, a dedicated firm within a firm for the elite advisers covering the firm’s top clients, that’s what a private wealth division is. You’re going to start to see these high-end private client or private wealth divisions popping up at the independent broker dealer.

And some of those, I believe, will decide to outsource that to Envestnet and Dynasty because we already have that integrated platform. We — we understand and have the DNA around how to develop a private wealth division. So, I think you’ll see some of that work coming into the market which is great for us because as groups of advisers and billions of assets at a time, coming on our platform, it will be good for those firms to create a division that an adviser can graduate into, as opposed to off of their firm. And it will be great for Envestnet because it’s the 80-20 rule, the top 20 percent of the advisers at the IBDs have the bulk of the assets and create the revenue which then obviously flows back to Envestnet as a technology and asset management partner to those independent broker dealers as well.

So, it was really those two reasons why they made the investment. We added Bill Crager to the board, remarkable perspective that he brings from the industry and it’s just been a great partnership.

RITHOLTZ: Terrorful. So, a number of firms have relocated out of the tri-state region towards greener pastures. You moved from New York City to St. Petersburg, Florida. Tell us about the motivation for the move? What — why exit New York?

PENNEY: So, we officially moved to St. Petersburg two years ago but we started the journey on deciding if we’re going to move and looking at various cities about three years ago. So, we spent a full year.

I personally made, Barry, 35 trips to various cities primarily up and down the East Coast because it was — and Mary Ann, my wife, went with me and other senior executive because when you’re asking and we have a very diverse leadership team, by financial service standards. When you’re asking people to make a move out of Manhattan and to dislocate their family, you want to make sure that you have extreme conviction, that it’s the right thing for the business, and the right thing for the team.

So, you can imagine we took that — we took that — took that very serious. And ultimately, for us, were middle office, back office, company. The close you are to the end client, the less margin pressure you have, the advisers are feeling it a little bit but we feel it more in the middle office, obviously, custodians in the back office feel it even more.

But for us, I find that the businesses that you — the hard things when things are really good to put them in a position doing this disproportionately when things are more challenging are the ones that when more disproportionately over the long term.

So, for us, things are great. This was several years ago. We obviously ended up you being a bit lucky in terms of being here when the pandemic hit. But the result is for us being here, Barry, 70 percent cheaper real estate, personnel costs are 20 percent cheaper, which allows us to take those savings, build a more profitable business, also make more investments in technology and in people to service our clients.

The infrastructure that’s here is fantastic. In terms of the ability to get anywhere with the St. Pete Airport, Tampa Airport, the quality of life, we found a lot of our employees. We’re tired of commuting an hour and a half and having the ability to walk to work. I mean, St. Pete, most walkable city in America, has great culture here, entertainment, arts, the Pro sports team, they seem to win everything in the last couple of years.

I’ll take a little credit because that wasn’t the case when we first moved here. But it’s happened — it has happened since. But St. Pete …

RITHOLTZ: I was going to say it’s funny …

PENNEY: I’m sorry. Do you have a question?

RITHOLTZ: Yes. I was going to say, it’s funny you pick St. Petersburg. I’ve been spending a week or two each winter down there and but for the pandemic, we would’ve been down there for a month or so this year and everybody kind got stuck in place. We weren’t going to try and do it in the middle of pandemic.

But I find that whole area on the Gulf Coast to be absolutely charming. It’s — it’s a very different headspace than the East Coast of Florida, places like Miami, or at any of the other big cities along Fort Lauderdale, anything else that’s along the Atlantic Coast.

PENNEY: We look at some of those locations. And you’re right, it is charming out. We found that the Delta, in terms of some of the cost savings, could be a little bit higher here. But really, what interesting for us, is every time I came here, Barry, it felt like I was getting a community bearhug Every — everyone from the mayor, Rick Kriseman, the economic development team that was here to multiple CEOs, to the owners of the sports teams that are here, everyone really wanted to partner with us.

And Raymond James is here and out from the Paul Riley who runs Raymond James. They were very supportive even though we’re in finance, were not obviously directly in their space which is primarily an employee wealth management business. But the last couple of years, what’s interesting, Raymond James has been one of the top asset gatherers in the employee channel and we’ve been the top asset gatherer on the independent side. And both of those firms are located and headquarters in St. Petersburg.

So, that, to me, really highlights the — where we are now as an industry with technology availability of talent product access. You can really build a large-scale, successful business in finance anywhere in the country. And I would say the last plug for St. Pete, to your earlier point, I think over the next 10 years, one of the hottest cities, fastest-growing where you’re going to see remarkable economic development in technology, finance and other key industries is right here in St. Pete.

So, I would encourage any business owner that is looking at this part of the country to look at St. Pete because there’s pretty remarkable things happening here.

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RITHOLTZ: So, you’re kind of planning it at something that I think is the one of the take away lessons from the pandemic. But let me ask it to you this way, what — what lessons have the pandemic taught you about running a firm remotely and does this give wirehouse advisers an even greater incentive to depart?

PENNEY: Well, great question. So, I would say to the first piece, we support advisers and I think what our advisers weren’t is that being approximate and over communicating and proactive.

I mean, this was the — over the past year, Barry, it’s been the adviser Super Bowl. And those that have done those things are growing fast. I mean, it’s one of the rare times when literally everyone wants to talk to a financial adviser, and those that took advantage of that opportunity, I mean, we have just seen remarkable organic growth of the firms that we support.

In terms of our business and the home office that’s supporting the advisers, similarly the importance of over communication, being proximate with our client, has been critical.

Some of the challenges that — that we’ve seen is around hiring new people, training, the onboarding is challenging in this environment. I mean, we have some employees that have gone six months that are new team members that haven’t had the chance to meet the broader team members.

Culture, which is so important within a business, is very difficult to drive. I find remotely. Efficiency, sometimes there’s no substitute to walking around the corner and tapping a colleague on the shoulder and saying, hey, how do I do this or what do you think here? Now, it’s an email or a zoom call and maybe the person is not immediately available.

So, some of those things are a little bit more challenging. But I think they’ll get worked out as businesses get back into maybe a hybrid or what I call sometime the cyborging of the business which is leveraging technology with the with the human element. I think we’ll end in a place where it’s one plus one equaling three.

To the question about advisers breaking away, without question. Our business is spring-loaded right now. You were going to have just a fantastic 2021. In large part, because the breakaway adviser movement is accelerating. A lot of advisers, historically, in wirehouses, have thought that a big part of what they give up for the 50 percent of revenue that they give to the wirehouse, big part of that value is real estate which they’re now not getting.

And they’ve now realized that they don’t need that real estate as part of the servicing infrastructure to their client. They also have more free time because are not in the office, they can explore independence or explore move and get educated so the combination of those things, having more time to stick your head up and look around and explore and realizing that they don’t need to give up 50 percent of their revenue.

Advisers that we support, give up 15 percent, one-five, not five zero, and they’ve got some — if they want to have a small office, they can, but the average adviser on our platform is doing mid-60s to high 60s in terms of gross income which is almost 50 percent more from an income standpoint on what they were receiving at a wirehouse.

And the path to independence has become more well-worn at this point. They want to look peer-to-peer and have those conversations success breeds more success. So, what we’re finding, Barry, in light of this environment, it’s only accelerating the movement towards independence.

RITHOLTZ: Quite interesting.

Let’s talk a little bit about the growth of the industry. You’re now over $60 billion on your platform between TAMP and enterprise and adviser assets, how do you grow that to $100 billion in AUM?

PENNEY: It’s organic growth helping our advisers get new clients. And we — maybe you’ve seen, on the past, multiple months over the past year. We started to sponsor, in particular, a lot of local in trying to support some of the local athletes in golf and IndyCar racing and tennis to help get you know the brand awareness out there more.

We have a lot more of that activity to come. That has led to referrals that we can make out to our advisers. And I think about us, really becoming over the next five years, in part the good housekeeper seal of approval for independent buy (ph). So, if you’re looking for an independent adviser, look for one that’s powered by Dynasty, right? Because here’s all the buying power and support technology that they have and I think Dynasty can become a much bigger part helping our advisers grow organically.

Second part of our growth will come inorganically, meaning helping our advisers grow via M&A. Whether it’s retiring RIA principles that are looking to monetize their business, whether it’s breakaway advisers who want all the benefits of independence but maybe don’t want to run their own business, and they want to join an independent firm, that will continue to become need larger part of our business and our growth.

Because of our 50 firms, I would say more than half of them now are M&A-ready and we’ve invested heavily in investment banking team inhouse. We’ve reserved a lot of our capital and balance sheet on to help finance those transactions, so I think a lot of that, as I said, will accelerate.

And then obviously, the third is new store sales and thinking about adding a dozen or so new brands that are powered by Dynasty whether they were already independent firms that are looking to outsource to us or they’re coming from captivity or an employee model and looking to own and operate their own firm. Our flows are very strong in that regard.

So, those will be the primary drivers. And then, the new business, as we’ve mentioned that’s coming on is the enterprise business. But I think selectively, you’ll see a few firms. An example of that would be Mariner which is a $35 billion RIA run by Marty Bicknell who I think is a great CEO in the RIA space, decided he wanted to have a platform affiliate model where advisers that didn’t want us tell the Mariner could get all the benefits of the investment acumen and practice management and coaching support of mariner.

And then Dynasty’s Turnkey platform supports that. We’re getting hundreds of referrals on our website a month. A lot of these advisers are you 50, 75, 100 million. Many of them don’t want to sell, so we have now a channel partnership with Mariner where the adviser can go get the benefit of our platform, get the benefit of the support of Mariner, and not have to sell their business today.

So, you’ll see us selectively enter into those types of partnerships, maybe support some of the larger independent broker dealers standing up a private wealth division. So, selectively, onboarding institutional clients and you add all that together. I’ll stick my neck out here a little bit, Barry, here on the show to say I like to see us inside of 24 months, crossover the $100 billion mark.

RITHOLTZ: Well, that’s a big number. So, let me flip the question on you. What are wirehouses doing to try and retain their top talent, they have to be aware of it’s not just you, it’s places like Hightower and LPL that are attracting a whole lot of talent from them, what can they do to staunch the bleeding?

PENNEY: Well, look, our biggest competitor, frankly, is inertia and complacency. And as you know, and lots of walks of life, good is the enemy of great. And a lot of the advisers, they’ve worked hard to build their book of business and they don’t want to go through the knothole of the transition which is 90 days of work to then get on the other side and have their business.

So, for us, typically a loss would be that we spent six months educating somebody and they just made the decision not to move, it’s rare that we would begin with somebody and they would move and not do it with us in the RIA space because most of the advisers want a supported independent model, they don’t want to have to hire all the people and they don’t want to juggle 65 different vendor balls so they decide to partner with us.

What the warehouses are trying to do is to put these retiring place programs in place which takes advantage of inertia. Reality is if an adviser goes independent, it would make a lot more money both in terms of income, they could decide when they want to retire if they sell their business as long-term capital gains tax and a higher valuation. But many advisers just take the easier path which is to say I’ll stay here, it’s a three-month earnout, it’s all W-2 income, but it’s easier.

So, wirehouse is again, understand that you know the inertia and complacency is on their side, so they’re putting those programs in place. I think what they’re also doing smartly and advisers are allowing it to happen is to push forward their brand, more directly to the client. You see this Merrill with Merrill Edge. You see a lot of the smaller account solutions being rolled out at these firms which is the institutionalizing of the client relationship, so the client has more relationship with the brand as opposed to the adviser.

And I think ultimately …

RITHOLTZ: You mean, like wrap accounts, checking accounts, loans, all those fun things.

PENNEY: Yes. So, you cross sell them multiple products and then you put them into models that the firm is running, not the adviser. And then it becomes a deterrent for the advisers to leave because a lot of their clients, you see that firms like Goldman and others where you have typically a lower percentage of client assets that follow when the adviser leaves because the client tends to have more of a relationship with the brand as opposed to some of the firm’s where it’s just the relationship with the adviser.

I think the wirehouses are strategically trying to do more of that whether it’s tying them in with loan products, structured products, things that are proprietary to the firm. It’s about driving the brand and creating stickiness. And I think, ultimately, over the next five years or so, you’ll see the wire houses looking and feeling more like a private bank where the adviser is more of a clear employee and they’re helping to cross sell the relationship across the organization.

And it would become more difficult in that environment for an adviser to do to make a move. So, I think — I think that’s really the strategy that you’re seeing, be deployed.

Longer-term, perhaps, you could see some of these firms open up product access, maybe even eventually custody to independent advisers but that business is such a scale business and you have firms like Schwab that have north of 3 trillion already, clearly a big lead. Fidelity, well north of a trillion.

Purging (ph) is a skilled (ph) player in that space. It’s very difficult to have an employee model supporting advisers and an independent model supporting advisers when you’re subscale in the latter. So, I think, it will be a slow migration and probably more about product distribution to RIA’s then it will be Turnkey custody for most of those platforms.

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RITHOLTZ: Very interesting. There’s a quote of yours I enjoy and I want to have you put some color on it. Quote, “the amount of innovation in the last five years is greater than the 50 that preceded that.” Unquote. Give us a little more explanation. Are you talking generally technology, financial innovation? I don’t disagree with any of that, I’m curious as to — to your thoughts on it.

PENNEY: Yes. Look, the reality is, the whole independent space, the independent movement at this point, it’s been discovered. And you see, if you’re an RIA, you decide to sell. There’s 20 potential buyers that show up on the other side.

I mean, it’s just a wonderful business, it’s annuitized, it’s essential to our country, it’s not going away. So, all roads are starting to lead towards the RIA space.

And what that means is the capital investment that’s coming in, the attention that’s being paid is you’re seeing tremendous innovation across the board. So, yes, in technology, in reporting technology, in OCFO technology and OCIO technology and scaled compliance technology.

Basically, all aspects of an advisory practice and when you’re in the independent space, Barry, and you don’t have to worry about having 50 years of legacy technology, that you can only incrementally move the needle with, but when we launch in RIA, we’re building from scratch, custom technology to specifically fit the need of the way they want to service their client. That’s a huge advantage for them.

On the product side, whether it’s partners now like iCapital and the access to alternatives that really started in the independent space or halo on the structure product front or when Envestnet has done to bring scale into the — into the TAMP and reporting in financial planning space, so many of those firms started on the independent side. And now you have wirehouses and banks trying to leverage that technology that started here, right?

So, the space is kind of turned upside down and then you pour on top of it kind of the gas on the fire which is tremendous capital investment in the entrepreneurship. I mean, one of our biggest advantages is we are entrepreneurs servicing other entrepreneurs. Right? So, we’re getting up every day and thinking about innovation and how do we make the advisers like better and the whole ecosystem that’s evolved over the last 10 years, right?

It’s driven by entrepreneurs who have great access to technology and capital that are fundamentally changing the way that wealth managements being delivered in this country and I think, frankly, it’s just going to continue to accelerate.

RITHOLTZ: Really interesting. You mentioned scale. I — it reminds me of the issue of market share. It’s been pointed out a handful of the largest RIAs are 100 billion plus. When the industry is measured in tens of trillions of dollars, meaning even the biggest firms barely have any sort of market share, does that mean anything? Is there any significance to how widely diversified and distributed the industry itself is?

PENNEY: Well, look, I do think that there will be brands that evolve on the national level, regional level within the RIA space that will have real brand value. And Dynasty, hopes to be, again, that Intel sticker powering. A number of those national scale winners and helping to provide a lot of the scale and access that — that supports them.

But the reality is when you look at the economics of the wealth management business, a lot of people talk about the margin and margin pressure that’s happened in the industry. But when you look at the last 10 years, that has occurred, but in a different way than what most people describe.

And what I mean by that is we looked at the average end-client on our platform is, let’s say, about $5 million. The average client is being advised by one of the advisers. Ten years ago, the ROA, on average on our platform for that 5 million client was around 78 basis points.

Today, it’s 74-75. So, you had three or four basis points of erosion in terms of margin pressure. But the big change is the cost of service. 10 years ago, the client expectation might have been very simplistic, financial plan, and it’s really an asset management relationship.

Today. it’s more holistic wealth management, it’s integrated financial planning, it’s looking at the liability side of the balance sheet alongside of the asset side. It’s looking at overall risk management. It’s incorporation alternative investments alongside of traditional, et cetera, et cetera. So, the team investment, the technology investment, what it cost to service that client has gone up.

So, the margin pressure actually is coming faster on the cost side than it is on the revenue side. And that’s where scale matters. That’s where these large multibillion-dollar independent firms have higher profitability because they’re able to spread the cost infrastructure over more client. That’s why outsourcing to firms like Dynasty is accelerating because you can get synthetic scale.

And then the last part of the competitive advantage is marketing and dollars that you’re able to spend on sales whether it’s adding a new client or adding a new adviser, the larger and more scale you have, the more free cash flow you have to make those investment and that’s why the biggest firms, the ones that you tend to see growing the fastest right now.

RITHOLTZ: So, let’s talk about some of the biggest firms. People have compared Dynasty to firms like Hightower or LPL. Who are do you think of as your competitors and what are the similarities and differences between them?

PENNEY: Sure. Look, and you know this. It’s lonely at the top sometimes and the result is the space tends to be pretty small, so I know the CEOs of most — all of these firms in the space and we get together from time to time and we share a laugh whether it’s about a certain reporter or where the industry is going, the reality is that the people at the top of the organization, from a peer-to-peer practice management perspective, spend some time together.

And in particular, Barry, I have a lot of respect for the other entrepreneurs that have gone out there and bet on themselves and are trying to execute a new model. In terms of competition, there’s a lot — I’m only 44 years old. I was 32 when I decided that the start of this — I’m going to be doing this for a while and it’s a lot of fun for me to be a mentor to, frankly, a lot of these players coming into space, these are firms being started by people that are still older than me even though I’m seen as one of the original visionaries in the space.

I’m still only 44. So, it’s nice for me to be able to mentor so many people coming in. I don’t see anyone today as a scaled integrated platform competitor to the high-end RIA. We invented that, we created that space, 60 billion, as I said, 100 billion here in the near-term. We’re not complacent, only the paranoid survive. So, we’re constantly watching what others are doing.

But in the space where we sit today, I think we sit alone. Now, you mentioned firms — some of these rrollups, some of them have come in and out of the platform business, but as I mentioned earlier, I tell entrepreneurs, you got to be laser focused. It’s very difficult to do one thing incredibly well, it’s impossible to do several things well.

So, if you want to be a rollup and acquire businesses, do that. Don’t try to be a platform service company as well, right? Especially if you only have several hundred billion. I mean, there are players out there with half a trillion that can’t do it, that are trying to build different types of models and there’s still subscale.

So, for us, we’ve been laser-focused on just supporting advisers, being a platform company, and staying in that — in that swim lane. And there’s really no one else that’s doing that.

Inertia, advisers not leaving, big competitor, you mentioned LPL, there’s a lot of independent broker dealers that are trying to figure out how they reinvent themselves as an advisory firm, how did they become an RIA custodian? How did they attract more adviser assets? How do they build TAMP capabilities.

So, a lot of — if you think about working at — we’re in 20 different businesses and we just integrate it into a platform. A lot of our individual businesses may have competition but we’re still the only fully integrated offering at the high end of the model. And the last thing, I think, that I would mention, that I haven’t mentioned yet, that’s a competitive advantage is our community.

And I would say, look, winners want to surround themselves with other winners. There really isn’t a community where the average CEO and principal is a billion plus RIA. They’re geographically dispersed all over the countries. They don’t really compete with each other where they can get together several times a year at our events and share peer-to-peer on what’s working, best practices, what isn’t working on various growth strategies, on brand development, on staffing.

So, our community, I think is a — is a very powerful differentiator. I think you’re defined not just by who you service but also who you don’t. And for Dynasty, thinking about our clients, we’re not trying to be something everyone, we’re trying to be everything to someone.

And that’s the someone that really plays the high-end of the market, that once a partner is focused on building a great business, not just a great practice, really wants to drive enterprise value and wants to have a sustained business over time, that’s our core focus client.

RITHOLTZ: Sounds quite intriguing. I know we only have you for a couple more minutes, so let me jump to my favorite questions that we ask all of our guests starting with what’s keeping you entertained during this work from home period. Tell us what your favorite Netflix or Amazon Prime shows are or what podcast you’re listening to.

PENNEY: Yes. Yes. So, in terms of the little bit of time I have away from — away from work, as far as shows and podcasts, Barry, I’ve never been one to watch a lot of television, to be honest with you. I do watch sports from time to time and follow my favorite teams.

But I do listen to podcasts. I’ll give you a nice complement and plug Masters in Business is definitely one of my — one of my favorite podcasts. I do listen to Jocko Willink’s podcast. My wife and I are big supporters of military. Jacko, obviously is a former Navy Seal but some of his shows around leadership and overcoming adversity, I’ve really enjoyed those.

I am a fellow at the Aspen Institute in their finance fellowship program. I really like the Aspen Ideas to Go podcast. There are some quick hits on various interesting ideas, leadership, entrepreneurship, et cetera. And TED Talks from time to time are things that I’ll take in when I’m taking a long walk, here in St. Pete. But I’m more of a podcast person, honestly, than somebody who is watching Netflix or Amazon Prime.

RITHOLTZ: Got you. So, let’s talk about some of your early mentors. Who help to shape your career?

RITHOLTZ: In terms of my most early mentor, without question is my step grandfather who raised me. His name was Clarence Townsend. Both of my daughters are named after him. My older daughter, her name is Townsend, and our younger one is Ann Clare, the Clare is from Clarence. As they say, we’re named after one of our angels.

He thought me the importance of doing what you say, integrity being honest. He never borrowed a dollar in his life. So, discipline around not spending more than you can afford.

A lot of that, obviously, was very helpful to me, as I said, when I was starting a business and remembering a lot of those life lessons that I’ve learned from him.

On the entrepreneur side, one of my best friends is a guy named Mike Repole. Your listeners will probably know the name. Mike was one of the founders of Vitamin Water. He helped build other brands like Kind Bar and Pirate’s Booty which he didn’t found but then he went on to found now BodyArmor. Very few entrepreneurs have ever founded a billion-dollar brand from the ground up, even fewer number have done it more than once and BodyArmor, certainly a multibillion-dollar brand, at this point, as was Vitamin Water.

So, early on, when I was looking to launch this business, Mike was a remarkable sounding board. He and I actually named Dynasty together which we thought about it. We’re both sports guys, so we thought about it meeting winning consistently overtime, multi-generational, financial, obviously describes industry and partners in terms of how we work with our clients and our resource partners and relate to each other internally.

So, if you were to look at, Barry, the Dynasty logo, you will see some similarities to the Vitamin Water logo and that’s because when you have a brand-building genius who’s helping you early on, you want to listen. So, I would — I would say Mike was a great mentor to me early on in starting Dynasty (ph).

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RITHOLTZ: So, let’s talk about books. Tell us what’s some of your favorite reads are and what are you reading right now?

PENNEY: Well, I just read and this is — this is going to be a shameless plug for someone who’s a friend of both of us. I actually just had the opportunity to finish reading Josh Brown’s book on “How I invest My Money.” Josh and I have been personal friends for quite some time and what you know, you have remarkable talent and partner there who thinks the world of you …

RITHOLTZ: And let me — and let me just jump — let me just jump in here and say, I remember when the two of you — I want to say it was 2015. Were both named to the 40 under 40 list. Am I getting the dates right?

PENNEY: Yes. He’s much older than me, but that’s right. Yes.

RITHOLTZ: I think you guys are about the same age.

PENNEY: We are. We — and all kidding aside, we are and we’re kindred spirits and he’s the best. So, he invited me …

RITHOLTZ: Isn’t that a great idea for a book, by the way, the — to speak to a bunch of people in finance and say, don’t tell us what you say on TV, tell us how you invest your own money. I love that idea.

PENNEY: I do, too. When he sent it to me, what I — the first thing I said to him is this is brilliant and I’m shocked that no one else has thought about it. I said, did you do your research? Has anyone else done this? And he said, I’m telling you, they haven’t.

And I get people reaching out to me all over the world. I mean, it’s pretty special saying, hey, I just read our chapter of how I invest my money and I love how you said how you think about the family capital or I have a fun bucket which for me is houses and my horses. We have a horseracing stable and people from all walks of life have reached out. So, it’s been great and I’m glad that the Josh invited me to be a part of it.

The other book I’ll mention, which I just started to read, I’m a big proponent. I talked about mentorship, both being a mentor, and being mentored by a committee of people, I’ve just started reading in professional development in yourself and your team a book called, “Tribe of Mentors” which is written by a guy named Tim Ferriss and …


PENNEY: it’s a book that got introduced to me just through the Aspen Institute. And again, it’s early. You asked what I’m reading right now but I love the concept of group mentoring.

RITHOLTZ: What sort of advice would you give to a recent college grad who is interested in a career either as an adviser or in the professional finance services industry?

PENNEY: Yes. Barry, I love that question. First and foremost, I would say do it. We need you. The financial health and wellness of our country is not where it should be, whether it’s on a national or state level, whether it’s the fact that over 70 percent of Americans can’t put their hand on a thousand dollars in an emergency given my background and how I grew up, financial literacy is something that’s near and dear to me. It’s fundamentally changed the life that that I’ve been able to live.

So, we need more people to come into the industry. Please do it. It’s critical to our country.

In terms of specific advice to someone starting out, it’s not about what you earn, it’s about what you learned in the first, let’s call it three years. So, finding a great mentor, finding an organization, finding a team, that cares about your development, will push, will let you fail, will let you learn from those mistakes.

If you can find that environment and you’re going to get paid $5,000 to $10,000 less, then an environment that you’re not going to have that, take the lower pay, it’s all about what you learned, tuition, think about it that way early on if it’s a lower price job and put yourself in that environment because it’ll pay massive dividends for you over the course of your career.

RITHOLTZ: And our final question, what do you know about the world of financial services, investing, advising today that you wish you knew 20, 25 years ago when you were first getting started?

PENNEY: Yes. Well, that’s a good one, because again, I’m 44 now. So, you subtract off 25, I was a 19-year-old kid. But what I like to tell a lot of young people and certainly would tell my 19-year-old self is to have the discipline to pay yourself first from an investment perspective.

And as we all know, it’s not always about getting right whatever that means, the asset allocation, because that will change overtime or security selection etc. It’s about actually being disciplined to save.

And whether you’re saving five percent early on, and even if that appears — I hear a lot of people saying I can only save $50 a month, well that’s great. That’s a wonderful place to start. Save the $50, start to invest it, and let the miracle of compound interest start to work for you as early as possible in your life.

And I love getting that message out to young investors just to get them started and being disciplined. We all have a lot of priorities. But if we can say, look, five percent early on of our check, without exception, regardless of what seems to be a big priority in our life, we’re going to pay yourself first and start investing it, get a simple financial plan in place, you look back, to your question, 25 years later, you’ll be very glad that you did it.

RITHOLTZ: Great stuff.

We’ve been speaking with Shirl Penney. He is Founder and CEO of Dynasty Financial Partners. If you enjoyed this conversation, well, be sure and check out any of the previous 400 such interviews we’ve conducted over the past seven years. You can find that at iTunes, Spotify, wherever you feed your podcast fix.

We love your comments, feedback, and suggestions. Write to us at Sign up for my daily reads, check out my weekly column on, follow me on Twitter @ritholtz.

I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Reggie Brazil is my audio engineer, Michael Boyle is my producer, Atika Valbrun is our project director, Michael Batnick is my head of research.

I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.




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