The arrangement holds the possibility of a symbiotic advisor-vendor relationship between the wealth management platform and the big aggregator

October 18, 2011 — 2:15 PM UTC by Brooke Southall

3 Comments

Dynasty Financial Partners has netted the high-profile account of Lori Van Dusen’s firm, LVW Advisors – and sown the seeds for a possible symbiosis with Focus Financial Partners.

Dynasty Financial Partners, a wealth management platform launched 10 months ago by a team of former Smith Barney executives including its former CEO, Todd Thomson, announced that LVW, which manages about $4.9 billion of assets, will use its services to screen managers and potentially to use a wider swath of its services.

Focus Financial Partners, LLC, the big New York aggregator, announced that LVW of Rochester, N.Y. joined the fold after being part of Convergent Wealth Advisors of Washington D.C.

Van Dusen was recently ranked third on this year’s America’s Top 100 Women Financial Advisors Barron’s. She was also named the Nonprofit Consultant of the Year in 2010 by Institutional Investor’s Foundation & Endowment Money Management.

“Our partnership with Dynasty provides us with remarkable institutional research tools and investment implementation options for our clients, as well as estate planning, lending, and various other capabilities for our client families,” Van Dusen says in a release.

Dry run for Dynasty

There is some speculation regarding whether Van Dusen’s tandem choice of Dynasty and Focus Financial could be a blueprint for future breakaways who seek the scale and autonomy of Focus along with the close-wiring with vendors promised by Dynasty.

Rudy Adolf, chief executive of Focus, says his company is viewing the Van Dusen account as a dry run of sorts for Dynasty.

“We use many vendors and we’re giving Dynasty a test to see if they prove themselves. If not there are other vendors,” he says.

Natural allies

It seems likely that Dynasty Financial and Focus Financial should form a natural kinship, according to Timothy Welsh, president of Nexus Strategy LLC. See: What exactly is Dynasty Financial Partners and why is the Smith Barney execs’ startup gaining so much attention?.

“Focus is more of [an aggregator] and Dynasty is more of a platform so I’d think they’d absolutely complement each other. The whole game is partnership; why would you want to replicate what someone else does well. The reality: you guys should work together.”

Focus Financial has acquired major stakes now in 24 advisory firms that oversee and manage more than $45 billion in total. Focus has overlap in its mission with Dynasty’s — providing logistical support and operational expertise to RIAs.

Twenty years in the making

Van Dusen and her 10-member team began operating independently on Oct. 10. The team originally came together as part Citigroup’s Smith Barney in the late 1990s. “We helped build her company from the ground up,” Adolf says.

Van Dusen said in an interview with Reuters that she’s been waiting for the right moment to turn fully independent.

“It’s been a business model that’s been in my head for 20 years. The industry just wasn’t there before. I couldn’t have put together the pieces the way I did,” she says.

Great expectations

Dynasty also reported last week that it had won an interesting RIA that includes a small, young hedge fund that is simultaneously acquiring a Boston-based advisor team from Morgan Stanley Smith Barney and RAM Financial Group, an existing RIA in Austin, Texas. The combined grouping is taking the name of the Chicago-based entity, Risk Paradigm Group LLC, that owns the hedge fund.

The MSSB team is led by David Gatti who was part of the family office business of Citi. He is now CEO of Risk Paradigm Group.

None of the parties to the transaction would disclose the level of assets that they manage, though Chris Jensen, COO of RPg says that they expect to have about $500 million of AUM by this time next year. Jensen adds that no cash was used to acquire Gatti’s practice or RAM and that he expects to make several other lift-outs that could turn RPg into a multi-billion company in a few years. The firm also is expanding its asset management product offering with a new fund, ICP Endowment Stability Fund, which will complement the firm’s flagship Diversified Risk Parity Fund (NASDAQ: DRPIX).

Interconnectivity

RPg is using Dynasty as a bridge for contracting with several partners including Fidelity Institutional Wealth Services services for custody and Tamarac for portfolio management.

Shirl Penney, CEO of Dynasty, says that RPg will give him a chance to show off all his company’s capabilities.

“I think the deal is a good example of a company using all our core services for setting up their practice including: logo, building a website, selecting a custodian, PR strategy, technology for wealth management and trading and providing financing for getting the business up and running,” says Shirl Penney, CEO of Dynasty.

Gatti was part of Citi Family Office before the group became part of MSSB’s purchase of Smith Barney and only about 200 of the wirehouse’s 12,500 brokers were part of that subset. He crossed paths with the principals of Dynasty during his time there.


Mentioned in this article:

Dynasty Financial Partners
Consulting Firm, Specialized Breakaway Service, RIA Set-up Firm
Top Executive: Shirl Penney

Focus Financial Partners, LLC
Consolidator/Roll-up Firm
Top Executive: Rudy Adolf

Nexus Strategy
Consulting Firm
Top Executive: Timothy D. Welsh

Envestnet | Tamarac
Portfolio Management System, CRM Software, Trading/Rebalancing, Performance Reporting
Top Executive: Stuart DePina



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Stephen Winks said:

October 18, 2011 — 8:41 PM UTC

Lori Van Dusen is one of several hundred outstanding institutional consultants (she has never lost a client—quite a testimonial to her ability) who have billions under advisement, who have outgrown the ability of the brokerage business to support them, particularily when it comes to acting on behalf of their clients in the client’s best interest required of institutions which are held to the fiduciary standard of care.

The differentiation Lori notes between independent broker/dealers which have many of the same limitations of wirehouses (except independent firms are far more under resourced), and advisory services support firms like Dynasty is most significant. Essentially product access, trade execution services and administrative support have become commodity services offered by custodians at far more favorable terms than brokerage firms, whether wirehouses or IB/Ds. The game changer is indeed an advisory services support firm like Dynasty, that can actually treat trade execution as a cost center, eliminating the conflict of interest of trade execution as a profit center. Because large scale institutional support for fiduciary standing does not exist even in RIA rollup firms like Focus, where everyone is a free agent and scale is not possible, Dynasty could make a big difference in the evolution of the industry.

Thus the importance of how Dynasty actually approaches its value proposition.

Dynasty can become profound as it can:

(a) create a prudent process authenticated by statutory documentation for each of the ten major market segments advisors serve (Mass, Retail, HNW, Ultra HNW, DC, DB, Foundations and Endowments, Public Funds, Profit sharing, Taft-Hartley) which makes the advisor’s acknowledgement of fiduciary standing safe, as confirmed by expert opinion letter, which entails the expert management of all considerations essential for fiduciary standing which are beyond the reach of the individual broker,

(b) advance modern technology necessary to support the continuous comprehensive counsel required for fiduciary standing (which changes how we approach portfolio construction and the dispensing of high cost packaged retail products in violation of fiduciary duty),

(c) establish work flow management tied to a functional division of labor (Advisor, CAO, CIO) which leads to very high margings and makes advisory services scalable, easy to manage and execute, presently not possible in the brokerage business and not supported by custodians, but perfectly suited for Dynasty as it acknowledges the fiduciary standing of its advisors and accordingly supports them by expertly addressing and managing practice management and expertly simplifing advisory services while maximizing margins, something Focus, custodian and certainly brokerage firms can not do.

(d) manage conflicts of interest, not just disclose them which perpetuates conflicts—which literally makes fiduciary standing possible and establishes the defining competitive edge of Dynastry to which the brokerage industry can not respond in kind.

(e) provide expert advisory services support for each of the ten major market segments advisors serve, with expert user groups for each market segment which make Dynasty far more responsive to the needs of the marketplace than is possible in the brokerage industry which does not even acknowledge that brokers render advice.

Essentially, Dynasty has a lisense to execute that goes far beyond the capability of the brokerage and custody industry’s and can be the first to create large sale institutionalized support for fiduciary standing, which makes advice safe, scalable, easy to execute and manage—the holy grail for the industry going forward.

If brokers want to be part of a first rate, world class advisory services firms, where they can achieve margins not possible as an independent RIA, which is preemptive to the brokerage/custodian industry’s approach to advisory services—Dynasty may be the solution, but only if Dyansty can execute. The industry’s top talent expects world class support, which is presently not possible in the brokerage industry. There is an universal opportunity to build a very large business based on inplace advisory services resources cited above which are preemptive to the brokerage industry. Dynasty could very well become the answer that top advisors like Lori Van Dusen are looking for. Safety, scale, expert support not required by Lori but essential to building a very large business remain challenges. There is much work to be done. Give Dynasty 12 months and we will see if the promise of expert large scale institutionalized support for fiduciary standing is part of Dynasty’s vision..

SCW


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