Schwab’s Investment in Dynasty Could Be the First of Many


Dynasty Financial Partners, a RIA services provider based in St. Petersburg, Fla., canceled its long-anticipated IPO late Friday, instead receiving a handful of investments from Charles Schwab and private equity firm Abry Partners. announced. Industry observers believe the deal marks his Schwab’s strategic decision to invest in the RIA and aggregator space, and that similar deals are likely to occur in the future.

“It always felt like this was the most natural place for custodians to step in and make minority-type investments,” said a source close to the RIA M&A community. “We talk about thin profit margins every day. We talk about the race to zero transactions. why?”

He’s surprised other custodians haven’t made similar minority investments in RIA firms, with billions of dollars in revenue coming from the compressed margins RIA firms are experiencing and the move to zero transaction fees. This is one way Schwab is making its relationship with its advisors stronger.

“One way to create persistence is to equitify it. Given the balance sheets they have and the fact that most of these companies provide some level of banking and trust services, It’s not a big leap for them to go ahead and make this happen. Move,” he said.

According to the announcement, Charles Schwab is the custodian of more than half of the $72 billion in assets advised by Dynasty Network.

“This was an opportunity to invest in an RIA service provider that, like Schwab, is committed to helping advisors grow, compete and succeed,” Schwab spokesman Joseph A. Giannenone said in a statement. said in “We have a decade-long relationship with Dynasty that supports independent and growing advisors in the RIA industry. This investment is our continued support for the RIA ecosystem.”

“Where did the Custodian’s biggest job come from? It came directly from,” the source added. “But with the birth of things like domestic RIAs and domestic platforms, custodians are getting more business outside the direct market than ‘indirect’. If that’s your biggest source of channels. , how do you strengthen its strengths and revenue lines? You buy a piece of it.

Of course, Dynasty itself is not an RIA. This is a service provider to the independent HIS RIA network. However, as part of the announcement, Dynasty said it would make minority stake investments in many of its RIA clients in exchange for Dynasty shares. The company also began a minority investment in his RIA in May 2021 as part of its capital solutions business.

“I don’t think it’s a huge leap to say that Dynasty gets capital from Schwab and what is Dynasty going to do with that capital? They’re going to use that money to buy an advisor,” the source said. “And for them to become Schwab’s team. ”

Dynasty and its advisory clients still have multiple custody, but sources say Dynasty has control and influence over custody choices.

Larry Roth, former CEO of Advisor Group and Cetera Financial, Founder and Managing Partner of RLR Strategic Partners, said: “Specifically, if Schwab or another custodian invests in a company (such as Dynasty) that provides platform services to an RIA, and the platform company invests in the RIA that provides the service, the custodian will indirectly invest in the RIA. Investing in, which ties the RIA to the platform provider and the administrator.In my view, there is no need for the custodian to invest directly in the RIA.”

Mark Tibergien, a consultant and former CEO of Pershing Advisor Solutions, said it doesn’t appear to be just an investment for Schwab to make a profit. “Obviously there are strategic and business reasons that tie everything together,” he said.

“Dynasty has proven successful in attracting RIA clients, especially away from brokerage firms. will continue to be under multiple custody, but it appears most of their assets are already in Schwab.”

It also raises questions about what Dynasty plans to do with the money, Tiberjean added.

“They could evolve their business model from being service providers to investors in these companies and eventually become RIA consolidators, or full RIA companies themselves,” he said. rice field. “I think what Dynasty has done is take the fragmented elements of the breakaway market and build a platform to serve them, so they focus on integration. Being in the middle (e.g. just being an administrator or just being a service provider) is a low-margin, highly volatile part of the business. Because you can choose your provider, the closer you are to the end consumer, the more control you have over the outcome.”

The custodian business has become very competitive. Interest rate spreads have improved, but transaction fees are no longer needed, so these companies will have to find other ways to ensure profitability, he said. Custody business asset yields tend to be 8-12 basis points compared to 80 basis points for advisory business.

“It doesn’t make sense that this would be the only investment in the RIA business,” says Tibergien. “So we have to guess that it is the start of something. It helps us power a stronger, closer-to-consumer channel, just like we are on the intermediary side.”



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