The next five years will be the best time in the industry’s history to be an RIA, said Shirl Penney, founder of Dynasty Financial Partners at RIA Edge, the Wealth Management EDGE conference at The Diplomat Beach Resort in Hollywood, Florida. week
Penney has 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 area; deal-making will continue and amazing partnership opportunities will emerge; technology will make consultants more efficient and responsive; product innovation will continue to accelerate as suppliers focus on the independent sector; and it will be the “biggest time” in the RIA game in industry history.
Customers will move to independence
Penney said too little attention is paid to clients who are increasingly choosing the RIA model over wires, banks and institutions.
Over the past 12 years, Penny said, “Schwab has added more assets than any wirehouse in total assets that took a century to build.” About 15% of those new assets came from disengaged advisers, he said, while more than 80% came from disengaged clients.
If the move to independence was a ball game, the industry is still in its early stages and the next phase will be consumer-led, he said.
“If you want to get the attention of advisors, first get the attention of their clients,” he said. “Right? Because at the end of the day, we’re all doing what our customers want us to do.”
Dealing will continue, but deals will look different
Penney predicts that dealmaking in the sector will continue to accelerate, and he expects companies that are majority owned by consultants or have already become national brands to reap the greatest benefits.
“There’s a lot of structural work going on in the space right now,” he said. “There are a lot of deals to be had, but the ease of getting to them has changed a bit.”
“Over the past four-plus years at Dynasty, we’ve done more than $25 billion worth of shutdowns,” Penney said. “But over the last few years, more and more of them are billion-dollar detachable tabs. And the result of that is that over the next few years you’re going to have some national brand wealth management firms that I think are going to dominate the space.”
Penny said consolidation will continue to be a theme, but he expects to see some new and exciting players.
“It’s not just for RIAs within the ecosystem,” he said. “I think you’re going to find some very unique partners that come together in some way that might surprise a lot of us.”
Technology will be transformative
Penney expects to see widespread use of chatbots and open API integration over the next few years, as well as more efficient use of digital data to deliver better-informed and personalized services.
“Using open APIs to integrate is going to transform the space,” Penny said. “At the same time, you can’t make it technologically possible to talk to someone about whether or not they’re selling their business or whether or not they’re going to retire or, God forbid, some negative life event — the loss of a child, a divorce, whatever it is. be, so human compassion will be incredibly valuable.”
Open APIs enable business owners to connect around customer relationship management, asset and portfolio management, financial planning, turnkey asset management services and other tools to deliver services in a customized way.
Meanwhile, advances in data collection and artificial intelligence are already making everything from building better portfolios and designing better business practices to personalizing customer relationships easier, he said.
He noted that the advisor community has shrunk by more than a fifth over the past decade, from 360,000 advisors to 280,000, while wealth creation continues to grow.
“There are so many consumers who need exactly what you all are doing,” he said. Companies that use technology to scale services, free up time and improve customer relationships “will win massively and disproportionately.”
The products will become even colder
Financial technology has proliferated in recent years, Penny said. Innovations in the space have allowed advisors to access more investments and financial products, design more personalized communications and communications, and manage complex 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 entering the space,” he said. “What we are seeing now is made possible by direct indexation and tax coverage.
“I’ve seen some really great balancers around alternative investments,” he said. “I mean, it’s incredible what’s coming, and of course we can argue, but I think you’re going to see an acceleration in the use of alternatives. client portfolios over the next five years.”
Companies that are less knowledgeable in certain areas can consider farming them out, Penny added.
It will be the greatest era in the history of financial advice
“Why do I think this is the best 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 people need the work that financial advisors provide. There has never been a time when more capital innovations have appeared in space. It has never been easier in terms of how you can implement different strategies for your end customers. There’s also never been a better time to be an independent advisor.”
Penny pointed to Dynasty data showing that the average EBOC (earnings before employer compensation) for wirehouse consultants 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 it by another 5%.
With valuations at record highs, he said, applying a high multiple to a company that retains just 5% more of its earnings could increase value by as much as 30%.
“And I think that’s why you’re going to continue to see a tremendous acceleration in outsourcing,” he said.
Launched in late 2010, Dynasty’s largest business segment is its integrated technology platform, which is used by more than 300 advisors and 50 firms overseeing approximately $75 billion in assets. This is followed by its TAMP, the Dynasty Investment Platform, which represents nearly $40 billion in client assets. Dynasty also provides debt and equity capital options for companies pursuing M&A, and recently launched an investment bank to serve clients outside of Dynasty’s network and gain expanded access to market intelligence.
“One of the things I love about this ecosystem, and we talk about this a lot at Dynasty, is that we can live our American dream by helping others to live theirs,” Penny said. “I like to believe that we’re still very early days at Dynasty, but we have a certain scale, which wasn’t the first time I’d been able to go to a conference like this, and I was so excited to spend time with great entrepreneurs. in space.
“I think as we all grow in the space, we owe it to the industry to keep coming back to these events, to be part of the conversation,” he said. “Come to all the sessions and join in and help the next generation of entrepreneurs because this is where the biggest innovation is going to happen. That’s where the growth is going to be, and it’s the most important industry, I would say, for our country.”
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