Shirl Penney, CEO of Dynasty Financial Partners, created a flap in the wealth management industry when he warned advisors joining private equity (PE)-backed Registered Investment Advisors (RIAs) about the possible negative influences of such ownership. [1].
Shirl knows about conflicts in the industry. He worked at Citi Smith Barney before leaving to start Dynasty. He started Dynasty to help advisors ease the transition to independence.
The truth is, ownership matters—especially to culture. When I worked for big, publicly traded, New York-based, Wall Street companies, the culture was exactly what you would expect—one focused on quarter-to-quarter earnings with a “worldly” culture to match. The values of the firms I worked for didn’t line up well with my own.
As market share in the wealth management continues to shift to independent firms, private equity firms are taking notice and increasingly investing in the space. Mr. Penney was simply responding to that trend. He was pointing out that there are risks to advisors in that kind of ownership structure as well.
Generally, PE ownership is made through funds that have a limited life span. This means that a transition in ownership is inevitable. Leverage (debt) is generally employed in meaningful ways to maximize potential returns to the partners of the PE firms. This approach is devoid of building a long-term culture focused solely on positive client outcomes.
Archetype was founded with permanence in mind. We do not have any debt and have refused PE investment. We are focused on building a business where both advisors and clients thrive across generations. Learn more about our story.