Dynasty IPO is still in the cards, Shirl Penney says

Despite its sale of minority ownership stakes to Charles Schwab Corp. and private equity investor Abry Partners, Dynasty Financial Partners is not abandoning its plans for a public stock offering.

“We are absolutely not taking IPO off the table,” Dynasty founder and Chief Executive Shirl Penney said in an interview with InvestmentNews Monday morning.

“I still believe [an IPO is] the right long-term plan for us,” he said.

Penney, who founded the wealth management services platform 12 years ago, said the market for public stock offerings has been unattractive since shortly after the company initially filed in January, two weeks before Russia’s invasion of Ukraine.

“The IPO is quite a heavy lift,” he said. “We’ve had four quarters of the [IPO] window completely shut, and the consensus is we’re still a couple quarters away. It could be well into 2023 before the window opens up, but a lot of things have to happen.”

Penney said plans for the IPO that was filed in January were still on the table up until Friday, when he signed deals with Schwab and Abry, and the Nasdaq exchange was notified.

Market conditions played a big part in the shift toward private investor capital and expanding the sale of Dynasty ownership stakes, including, for the first time, offering equity ownership swaps to registered investment advisers.

Penney described allowing RIA clients to trade equity in their business for equity in Dynasty as building a “tighter alignment with our RIA partners.”

In terms of the IPO market potential, Penney was likely watching the mixed bag of results shared by publicly traded financial services companies.

While the S&P 500 Index has declined by 18% this year, some of the proxies for a publicly traded Dynasty have done much worse. Focus Financial Partners (FOCS) is down 34%, Envestnet (ENV) is down 25% and CI Financial (CIXX) is down 51%.

“The timing for an IPO wasn’t ideal in today’s market, and one might argue it was a little early in the lifecycle of the company,” said David DeVoe, founder and CEO of DeVoe & Co.

Penney wouldn’t say how much of Dynasty is now owned by outside investors, but confirmed, “Dynasty is still majority-owned by the board and there has been no change to corporate governance.”

According to the terms of the deal, Schwab is a passive investor without a seat on the Dynasty board, but Abry will get a seat on the board.

“Partnering with Schwab and Abry will provide value beyond the capital,” said DeVoe. “There are a variety of strategic benefits to partnering with Schwab, and [Abry partner] James Scola will be a valuable addition to the board, and Abry has no shortage of additional capital to invest behind this initial stake, if and when appropriate.”

Chuck Failla, founder and CEO of Sovereign Financial Group, also sees the upside of Dynasty’s shift from IPO to private equity.

“I believe this pivot speaks more to the reduced appetite for IPOs than anything else, however, I do see the potential for significant synergies between Schwab and Dynasty,” Failla said. “I’m thinking about the large numbers of smaller RIAs coming from TD that will be fully on the Schwab platform soon. It is likely that many of those smaller RIAs will be looking to partner with an established platform like Dynasty, and that could be a big win for Schwab and Dynasty.”

Schwab serves as the custodian for over half of the $72 billion in assets under advisement in the Dynasty network.

“As advocates for independent advisers, we are thrilled to invest in a firm that shares our values of empowering advisors with the technology, tools, and resources they need to build even stronger businesses,” Bernie Clark, head of Schwab Advisor Services, said in a statement.

“We could not be more excited for the ongoing growth that is occurring in the RIA ecosystem and are proud to be leaders in the space,” Clark added.