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Shirl Penney: Why Biden’s Tax Plans Could Push More RIAs to Sell Now 

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It’s a very hot market for RIAs, according to Dynasty Financial Partners CEO Shirl Penney — maybe too hot. 

“The availability of capital to fuel M&A is abundant and cheap. Whether it’s debt or equity, if there’s an RIA that is looking to sell, it seems like in a sales process, there [are] 15 buyers to every seller that shows up. It’s creating some frothiness with some valuations,” he explained in an interview with ThinkAdvisor on Wednesday.

If you add in potential tax changes “that might further incentivize” an advisor or RIA firm “to do a transaction,” Penney said. “Our group of M&A advisors are going to be very busy with RIAs as a result of some of those things.”

Pointing to Mariner Wealth Advisor’s recent sale of a minority stake, “You see someone like [CEO] Marty Bicknell having a transaction with a valuation that appears to be, from what I’ve read, north of a billion dollars,” he explained. 

Bicknell, says Penney, “built that firm from the ground up” over the past 15-plus years, “starting [out] as an advisor, and then … evolving to be a CEO, and obviously a very good one.”

This trend, which he defines as “the rapid professionalization” of the RIA industry, should continue. In other words, more “proven leaders, or business operators, are going to come into the space to build very large-scale regional and, ultimately, national advisory businesses that [will] compete with some of the big brands we know [today].” 

During a wide-ranging interview, Penney talked about other industry trends, as well as his hobbies and future plans.  Here are highlights of the interview:

THINKADVISOR: How could Biden’s package of tax proposals influence the RIA M&A trend, as well as other aspects of the advisory business?

SHIRL PENNEY:  It will probably accelerate some things that we’ve seen in our industry as far as M&A.

A lot of advisors are considering selling a piece of their firm. And if they believe obviously that long-term capital gains taxes are going to go up, if they were perhaps on the fence about transacting, this could be something that would cause them to lean in and run towards a transaction. That’ll be interesting.

It could [also] be a boon for estate planning attorneys. A lot of people who may [have been] putting off getting some planning done now, with these changes, might run to take advantage of opportunities that they have [which] may change in the coming months. 

I don’t … think insurance proceeds are currently on the list to increase taxes. So that could be a big win for the insurance industry. Obviously, it’s tied to estate planning. But if there’s no additional taxes coming on insurance, it will increase the popularity I would imagine of that product as a planning tool for people.

Also, it’ll continue to accelerate trends [that encourage people] to move to lower tax states. I’m in St. Petersburg, Florida. We’re certainly seeing a lot with people coming from New York, Illinois, California, etc. 

There are plenty of other states around the United States — Texas and others that are benefiting — and if you have people who may be frustrated with the tax environment now, if that goes higher, it might be a catalyst for some of those people to make a move.

Do you have any other concerns about tax reform?

My concern would be if it were to stymie innovation. I’m an entrepreneur, myself, obviously having started Dynasty in my garage. It’s a tremendous amount of effort, work, risk to go all in to be successful with a new business. 

If the capital gains tax more than doubles, there are some people that might look at that and say, given the risk-reward, “[Starting a new business] is not something that I want to do.”

How likely is it that regulators will approve Bitcoin ETFs this year?

There’s a pretty good chance. I can’t say who but I know that several firms [have them] in the works. I would take the under on [this] by the end of the year.

 What’s your overall view of cryptocurrencies?

They’re here to stay. 

What’s even more interesting and will ultimately be more disruptive is blockchain technology and its ability to connect consumers directly with each other. There’s a lot of middleware businesses, a lot of industries that ultimately will be significantly disrupted once blockchain really becomes mainstream.

What’s your main view of the markets?

We’re very bullish and optimistic through the rest of the year. There’s obviously a lot of liquidity that’s coming into the market that we think will continue to drive growth [and] drive earnings. I think the markets will stay hot through the rest of the year.

What’s your overall view of how advisors have served clients in the pandemic? 

I’ve told a number of people that the last year has been the advisors’ Super Bowl. What I mean by that [is] the last dozen years or so we’ve been in a bull market, which sometimes can breed a bit of complacency, where everyone just kind of gets lulled into this sense of “OK, markets just continue to go up. And there’s no huge difference between one financial advisor or another.”

Then all of a sudden, March of last year hits and for most of us we’re hit for the first time in our life with kind of this dual threat of a health crisis with the financial crisis. Suddenly everyone wanted to talk to a financial advisor. It went from advisors finding it tough to get people on the phone to … they couldn’t make too many calls because everyone wanted to talk to them.

Some advisors … , whether it was through fear or just being personally overwhelmed or whatever it might be, kind of went under the rock and tried to hide, while others used it as maybe a once-in-a career opportunity to be aggressive and over-communicate and get out there.

The advisors we support who did [embrace technology and other tools] grew enormously over the last year, because there was a void and everyone wanted to hear from financial advisors. The ones that were proactive, had a great message and got it out there in a scaled way grew very rapidly.

What are your top concerns for the advisors you serve today?

Continuing to stay close with their clients. A lot of them haven’t met with their clients [in person] for a while. Technology’s been helpful but people are just eager [to get out and about]. This [is] a little bit [like] cabin fever. 

Summer’s coming. There’s a desire to get back to some sense of normalcy. A lot of people are focused on … getting people back to work in the office, and making sure that they have the right message around that safety protocols and meeting people where they are.

But it’s really difficult to drive culture in a business remotely. There’s just no substance. 

Business is built around human beings having the ability to interact and have a drink with someone, walk across the floor and problem solve together, [as well as] hire, train and develop people. 

It’s been very challenging over the last year — for a lot of our clients and for people in the industry — to have to try to accomplish all those things remotely.

When will the industry return to the office?

When kids go back to school in the fall. Most people [will] ride things through over the summer. Let more people get vaccinated. As kids start to go back to school, I think people start to go back into the offices.

What’s the role of firm leadership in this return to the office? 

Understand that as leaders, we have to make sure that we’re being proximate in meeting our various team members or constituents where they are. 

Not everyone’s the same. Some people are very frustrated right now that they can’t come back to work, or they have young kids at home, and they’re finding it very challenging to work at home. And other people might be scared. 

You have to have policies and procedures that work for the entire team. And regardless of how you might feel about it personally, you have to remember that you have a diverse group of people that need to approach this thing differently for various reasons, so just be patient. We’re all working through it together over the next six months.

What book are you reading right now that you find insightful?

I’m halfway through — someone sent it to me as a gift — a book called “Legacy by James Kerr. It’s about the values and principles of the All Blacks rugby team in New Zealand and how it’s applicable in business and building a culture of sustained excellence, which to me is what a dynasty is.

What else do you do for fun and how does it help you?

I have two daughters. They’re both in sports. So I spend a lot of time watching them play either softball or tennis.

My wife Mary Ann and I own a horse racing stable called Team Penney Racing. And we watch our horses run up and down the East Coast, which is a lot of fun.

Saratoga [racing] opens in the next couple of months. We still have a home there. So we’ll be up there watching the horses.

It’s good for us because we might have 50-60 people who show up for a race. So given how crazy our schedules are, it’s a really nice way to get together with friends and family and clients in a group setting.

Do you have any professional plans you could share?

I’m 44 years old so I’m still relatively young, even though I started this business 11 years ago in my garage. I’m going to continue to run it for the foreseeable future. 

The game plan is to build the premier integrated wealth management platform in the industry. We’re out in front, and we plan to stay there.

Final question — What led Dynasty to support car racer Sebastien Bourdais?

We sponsor a number of athletes, mostly locals, and this weekend we are sponsoring the Valspar Championship, which is a PGA event here in the Tampa area. We [also sponsor] Chase Koepka, Brooks Kopeka’s little brother, who went to the University of Southern Florida.

And … there’s Danielle Collins, who is something like 30th in the world in women’s tennis. She lives here, and we sponsor her. 

Sebastien Bourdais, the IndyCar driver, lives in St. Petersburg, Florida, and is one of the most successful IndyCar drivers of all time. He’s a four-time champion. He’s won 37 races. He’s a pretty super guy and drives A. J. Foyt’s car. A. J. won the Indianapolis 500 four times.  

The [local] Firestone Grand Prix is a really wonderful event. We get a suite at the finish line. Jeb Bush, the former governor here in Florida, has come. We’ve co-hosted clients for the weekend. The advisors have come and brought their clients. It’s been a great community event. 

We’re doing this because it’s helping to create awareness of the Dynasty brand. It’s ingredient marketing, … like NutraSweet or Intel Inside.

There are lots of consumers out there right now looking for an independent advisor to get advice that’s separate from where products are manufactured and sold, which is great. 

But when there are 32,000 RIAs, how do I pick one? Pick one that is powered by Dynasty, and here are all the things that that means in terms of support on compliance, access to capital, scaled access to products all the things that we do for our advisors. This matters to the client. 

So we’re creating awareness through some of these sponsorships, and now we’re starting to get a lot of leads coming into our website. We then dole these leads out to the advisors on our platform.

– Janet Levaux contributed to this report.