Bolstered by a booming Black Diamond deal, DPL grows investor base 8X, raises another $20 million and holds off on a likely bigger round until 2023

DPL Financial Partners just did a $20-million raise and purposefully held off on selling a larger stake until the market rebounds -- hopefully next year.

The Louisville, Ky., RIA annuities marketplace provider scooped up the cash two years after raising $26 million from the same private equity firms after growing the number of annuities sold eight-fold. The latest round is slated for more people and technology. 

A fruitful deal with Black Diamond drove much of that growth. See: DPL Financial Partners raises $26 million after explosive growth turned backers into believers in David Lau's promise to create a guaranteed income supermarket

"We did a smaller inside round with the idea of next year doing a larger round," says DPL CEO and founder David Lau. "The market's not tremendous right now for raising capital."

DPL raised the cash from existing investors, Atlas Merchant Capital and Eldridge to keep pace after having passed the $1 billion mark in annuities sales cumulatively. The story was broken by a business journal, Louisville Business First, which uncovered a Form D filed with the U.S. Securities and Exchange Commission.

"DPL increased revenue 400% year-over-year from 2020-21. He anticipates increasing revenue over last year by another 100%," the article reads.

The attraction of DPL to investors, who look for high rates of return, comes down to being part of a growing RIA market with a growing appetite and appreciation for not farming the business out to brokers, says Connor Owens, who helped direct the first Atlas Investment and who has since transitioned to Great Hill Partners in Boston. 

Chasing tailwinds

"When we originally looked at the business we saw a rapidly growing base of RIAs who didn't want to send their client's AUM to insurance brokers anymore, were willing to pay DPL to learn more and ultimately wanted a way to go direct to carriers," he says by email.

"On the insurance side there were two carriers Security Benefit (owned by Eldridge) and Jackson National (now I think 7-10 carriers) who were willing to pay DPL a 'commission' to have access to the [1000] firms because in effect they were agnostic between paying an insurance broker or DPL.

"Plus Orion was plugged into their platform and other carriers were already distributing on that as well, which we thought was great," he says. 

"There was also less competition in the tech intermediary space (Viz insurance brokerage & RIAs which were and are white hot) when we found DPL but the same types of tailwinds."

It now has about 85 people on its staff yet also employs various contractors for software engineering, advertising and public relations. With the fresh $20 million in hand DPL can keep hiring , adding office space and building out its technology. It plans to hire 25 people the year with 110 and hopes to double that number next year, Lau tells Business First.

In 2021, DPL began its partnership deal with Advent/Black Diamond, which serves about 20,000 advisors with $2 trillion of assets. Now the shared platform represents about 33% of its business and on average DPL onboards about one advisor per day through it.

DPL carefully curates which products get listed on its platform; currently it has about 25 carriers and 70 products.

Bypassing biases

Though the product itself is largely automated, Lau concedes that DPL still needs plenty of people.

Most RIAs don't really know how to integrate annuities into plans and performance reporting. The assets are not held in custody with traditional Schwab-Fidelity-Pershing providers, and just the idea of how to think and talk about annuities is foreign -- or even repugnant.

"Advisors have sold against them for so long," Lau says. "We have to get you past your own biases." See: Decades-old stench of annuity sales and deception hangs heavy, but very 2018 efforts by DPL, Nationwide, Allianz and others offer whiff of hope of cracking the RIA market

Lau says he spent time in Japan where the words for pensions and annuities are the same, hence, easier to explain.

Here in the United States, he says he needs to explain that the concept of guaranteed income was only corrupted by overly high commissions on opaque products.

By removing the need to sell the products for commission, the conversation is more reasoned, he says.

"We're not telling stories and scaring people." 

Secondary revenue

The vast majority of annuities are still sold by brokers, but the shift away from brokers is a steady trend now spanning two decades. See: How Edelman Financial Engines spin-off deal became a RetireOne engine that's heating up the RIA annuity game again

"The traditional channels pay the bills, but we can help them get started on the fee-based side without disrupting their old [channel]," Lau says.

One difference, however, is that DPL nearly has as many vendors of annuity products as it needs to cover the spectrum of investors, which has reopened a secondary revenue source.

When DPL got started, it charged consulting fees to big annuity makers to teach them the RIA business as a means of generating bootstrapping cash but stopped when it was using it as a loss leader to win them over.

With the pendulum having swung, the need to dispense free advice is over.

"We've gone back to charging," Lau says.