RIA Edge: Shirl Penney Predicts the Future
- May 25, 2023
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The next five years will be the greatest time in the history of the industry to be an RIA, Dynasty Financial Partners founder Shirl Penney said at RIA Edge, part of the Wealth Management EDGE conference at The Diplomat Beach Resort in Hollywood, Fla. this week.
Penney identified five trends that will shape the RIA industry over the next five years.
Penney predicted that client demand will drive more assets to the space; dealmaking will continue and surprising partnership opportunities will arise; technology will make advisors more effective and responsive; product innovation will continue to accelerate as providers focus on the independent sector; and it will be the “greatest time” in the history of the industry to be in the RIA game.
Clients Will Lead Move to Independence
Penney said too little attention is being paid to clients who are increasingly choosing the RIA model over wirehouses, banks and institutions.
Over the last 12 years, said Penney, “Schwab has added more assets than any of the wirehouses have in total assets that took them a century to build.” Some 15% of those new assets came from breakaway advisors, he said, while more than 80% came from breakaway clients.
If the move toward independence was a ball game, the industry is still in early innings, and the next phase will be consumer-led, he said.
“If you want to get advisors attention, get their clients’ attention first,” he said. “Right? Because at the end of the day, we all ultimately do what it is that our clients are asking us to do.”
Dealmaking Will Continue, But Deals Will Look Different
Penney predicts dealmaking in the space to continue to accelerate, and said he expects firms that are majority-owned by advisors or already becoming national brands will reap the most benefits.
“There’s a lot of structuring going on in the space right now,” he said. “There’s a lot of deals to be done, but the ease of which to get them done has changed a bit.”
“In the last four-plus years at Dynasty, we’ve done over 25 billion-dollar breakaways,” Penney said. “But over the last couple years, more and more of those are billion-dollar breakaway tuck-ins. And the result of that is you’re going to have some national branded wealth management firms over the next couple of years that I think are going to be dominating the space.”
Penney said consolidation will continue to be a theme, but that he expects to see some new and interesting players.
“It’s not just for RIAs within the ecosystem,” he said. “I think you’re going to find some very unique partners that are coming together in some ways that might surprise a lot of us.”
Technology Will Be Transformational
Penney expects to see widespread utilization of chatbots and open API integration over the next few years, as well more effective harnessing of digital data to provide better informed and increasingly personalized services.
“The integration utilization of open APIs is going to transform the space,” Penney said. “At the same time, you can’t tech-enable talking to somebody about should they sell their business or not, or should they retire or, God forbid, some negative life events—the loss of a child, divorce, whatever it might be—so that human empathy is going to be incredibly valuable.”
Open APIs enable business owners to connect many of the tools available around client relationship management, asset and portfolio management, financial planning, turnkey asset management services and more to provide services in a customized way.
At the same time, advancements around data harvesting and AI are already making it easier to do everything from building better portfolios and designing better business practices to personalizing the client relationship, he said.
He pointed out the advisor community has decreased by more than a fifth over the last decade, from 360,000 advisors to 280,000, while wealth creation continues to rise.
“There’s so many consumers that need exactly what it is that you all do,” he said. Firms that embrace technology to scale services, free up time and improve client relationships “are going to win in a massive and disproportionate way.”
Products Will Get Even Cooler
Financial technologies have proliferated in recent years, Penney said. Innovations in the space have allowed advisors access to more investments and financial products, design more personalized outreach and communications, and manage complicated portfolios with increasing ease.
“Just think about how far we’ve come in a short period of time with some of the digital wealth platforms that are coming into the space,” he said. “What we’re seeing now become possible with direct indexing and tax overlay.
“I’ve seen some really cool rebalancers around alternative investments,” he said. “I mean, it’s unbelievable what’s coming in and, certainly we could argue, but I think that you’re going to see an acceleration of utilization of alternatives in client portfolios over the next five years.”
Firms that are less savvy in certain areas might consider farming those out, Penney added.
It Will Be the Greatest Era in History of Financial Advice
“Why do I think it’s the greatest time in the history of our industry to be a financial advisor?” Penny asked rhetorically.
“It’s the culmination of everything we just discussed,” he said. “More and more people need the work financial advisors are providing. There’s never been a time where more capital innovation is coming into the space. There’s never been more ease in terms of how you can implement various strategies for your end clients. It’s also never been a better time to be an independent advisor.”
Penney pointed to Dynasty data showing that the average EBOC (earnings before employer compensation) for wirehouse advisors is about 42% of total revenue. A typical $1 billion RIA has an EBOC closer to 57%—and Penney suggested partnering with a firm like Dynasty to provide technology and back office support could increase that by another 5%.
With valuations at record highs, he said applying a high multiple to a firm keeping just 5% more of its revenues can increase the value by as much as 30%.
“And I think that’s why you’re going to continue to see massive acceleration on the outsourcing,” he said.
Launched in late 2011, Dynasty’s largest business segment is its integrated technology platform, which is utilized by more than 300 advisors and 50 firms overseeing around $75 billion in assets. That’s followed by its TAMP, Dynasty Investment Platform, which represents nearly $40 billion in client assets. Dynasty also provides debt and equity capital options for firms pursuing M&A, and recently launched an investment bank to serve clients outside the Dynasty network and gain expanded access to market intelligence.
“One of the things I love about this ecosystem, and we talk a lot about this at Dynasty, we get to live our American dream by helping empower others to live theirs,” said Penney. “I like to believe we’re still in the very early days at Dynasty, but we have some scale that I didn’t have the first time I would go to a conference like this and I was so excited to spend time with great entrepreneurs in the space.
“I think as we all grow up in the space, we owe it to the industry to continue to come back to these events, to be part of the conversation,” he said. “Come to all the sessions and lean in and help the next generation of entrepreneurs, because that’s where the greatest innovation is going to occur. It’s where the growth is going to occur—and this is the most critical industry, I would argue, for our country.”