Dynasty offers forgivable notes to advisers going independent through firm

Dynasty Financial Partners has created a borrowing program that allows advisers going independent to pay off a forgivable loan with a portion of their new firm’s revenue.

Called the Dynasty Freedom Note, the program allows qualified advisers who join the Dynasty Network to have up to 100% of their most recent 12-months’ trailing revenues paid to them as they transfer business to their new RIA firm in exchange for an eight-year forgivable loan.

Ed Swenson, Dynasty’s co-founder and chief operating officer, acknowledged a bit of marketing went into the “forgivable loan” description, hoping to catch the eye of brokers.

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“We’re speaking the same language that the brokerage community has spoken for decades,” he said. “The big difference with our forgivable loan is that the advisers don’t become Dynasty employees and when the loan is paid, they own 100% of their economics.”

As example of how the loan works, a broker or team generating $5 million worth of gross revenues would get a loan from Dynasty for that amount, and then pay that back over eight years with 35% of the gross revenues from the independent advisory firm.

The loan payments include access to Dynasty’s platform of services, which typically cost between 15% and 20% of gross revenues, according to Mr. Swenson.

“In the past, if you wanted upfront capital, you moved to another brokerage firm,” he added.

Mindy Diamond, president of the recruiting firm Diamond Consultants, is less convinced of the overall appeal of such a loan program but said it shows that “the ecosystem supporting the breakaway movement continues to grow.”

“What’s really interesting is less about how many will sign up than it is about it being another choice,” she added. “Somebody has to really want independence to tie themselves to Dynasty for the life of the note and take a lower payout.”

Mr. Swenson said there are no pre-payment penalties or requirements to stay on the Dynasty platform, which means the loan can be paid in full at any time. He said capital is emerging as the latest hurdle for brokers looking to go independent.

“When we founded the company eight and half years ago, we had to convince brokers to do it, now they just need to know how to do it,” he said. “There is a huge addressable market of brokers looking to break away that is still untapped, and this is going to accelerate the breakaway brokerage trend by putting gasoline on the fire.”

Brian Hamburger, chief executive of the compliance consulting firm MarketCounsel, agreed that access to capital is often a sticking point for potential breakaway brokers.

“The teams we’re working with nowadays are quite often looking for capital and without capital these firms are often forced to sell a portion of equity before they even get off the ground,” he said. “Dynasty has been very successful at trying to make the transition from captive brokerage to independent simple and elegant, and what I like about this is it’s not a forever decision.”

Mike Wunderli, managing director at the investment bank Echelon Partners, believes Dynasty’s Freedom Note is targeting a desperate segment of the brokerage community.

“I like Dynasty’s business model and the services they provide, but I’m very wary of this because it just looks like it’s for advisers who are very desperate,” he said. “Calling it a Freedom Note is an oxymoron, and if you’re paying it back off the top line revenues for eight years, you’re paying it back in spades.”

Dynasty’s RIA network includes 37 firms with a combined $37 billion under management.

The new forgivable loan program comes on the heels of Dynasty’s launch last month of a program to help RIAs on the platform to better compete for mergers and acquisitions.

That new business line and suite of M&A services, called Dynasty Connect, provides advisers interested in buying an RIA with a variety of services, including lead generation, vetting and due diligence of the target RIA, and guidance in negotiations.

Related Topics: Dynasty