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Dynasty Opens Up Financing to Outside Firms Via Envestnet Partnership

As part of the rollout of Envestnet's Advisor Services Exchange (ASx), Dynasty is opening its financing options to RIAs outside of its network for the first time.

Envestnet and Dynasty Financial Partners are partnering to offer “equity-like” and debt financing to RIAs outside of the Dynasty Network, in a first for the industry. This week, the two firms launched Advisor Services Exchange (ASx), a platform available through Envestnet Analytics, which will offer capital strategies for RIAs to grow their businesses. ASx also comes with services like transition guidance, an outsourced CFO program, compliance assistance, marketing services, merger and acquisition guidance, new layers of business analytics and investment insights.

Advisors may be familiar with Dynasty’s in-network capital program, a source of financing for RIAs making capital-intensive decisions around succession or M&A plans. As a result of the partnership, which includes Envestnet making an investment in Dynasty and a data exchange between the two firms, advisors outside of Dynasty will now have access to similar financing.

Pending qualification, an advisor using ASx can access debt financing, up to 50% of trailing 12 months’ revenue, or “equity-like financing,” which allows an advisor to monetize up to 10% of the revenue of the firm “at an attractive market multiple,” said Edward Swenson, president of ASx. The difference between equity and “equity-like” is an important distinction, he added. Because the revenue is guaranteed by the business, the advisor doesn’t have to give up ownership rights.

This liquidity is important for inorganic growth, said Swenson. Envestnet data indicated that 1 out of every 3 RIAs plans to retire in the next decade, providing advisors with plenty of opportunities for growing their businesses inorganically.

On the Envestnet Analytics dashboard, advisors will see a new ASx card below their own firm’s AUM, client count, and business inflows and outflows metrics. The card indicates the quantity of capital the firm “may be eligible to receive,” essentially showing what the firm is potentially worth in that respect.

After accessing the portal, a prequalification screener allows the advisor to run his or her business through a short, automated questionnaire. The last click involves the advisor submitting an application, sending it to the ASx team, which promises to get back to the firm regarding prequalification within 48 hours.

“The driving force for founding ASx…is how do we make your business better and how do we help you grow your enterprise value?” said Swenson, in a video introducing the service to registrants of Envestnet’s 2020 Advisor Summit On-Demand.

The plan is to cap the inaugural class of RIAs at 20 firms, before opening the service to any firm using ASx. The service is appropriate for firms with a minimum of $400 million in AUM, Swenson said. Firms of that size tend to have both the infrastructure and personnel to make succession, M&A and liquidity decisions of the type ASx is designed to facilitate, he said.

Data is key to the entire process. Because firms using ASx are already plugged into Envestnet, Dynasty “can underwrite very aggressively,” said Swenson. Data tracked by Envestnet provides Dynasty with the governance and risk control information it needs to deploy capital. Whereas a bank providing an RIA with financing might need to get quarterly information from an advisor, which leads to a more expensive process for a bank, Dynasty is already “embedded” in the RIA’s metrics and can keep its rates competitive, explained Swenson.

For the range of other services available through ASx, such as marketing and compliance, advisors can expect to pay flat fees across three tiers, based on the degree of complexity and assistance they need, said Swenson. Participating in the capital program, however, entitles an RIA to free access to Envestnet Analytics.

The launch of ASx also limits the role of Envestnet Credit Exchange, another financing option available from Envestnet. Earlier this year, Envestnet floated the idea that the Credit Exchange, which connects lenders and advisors, in order to help advisors secure credit for their clients, could be used in business-to-business financing. With ASx in the picture, Credit Exchange will be pulling back from B2B lending, with Envestnet refocusing that offering on advisors’ end-clients, Swenson said.

Following Envestnet’s announcement earlier this year of its taking a minority stake in Dynasty, at least one analyst had floated the idea of Envestnet buying Dynasty. Swenson also put that to rest.

“That’s not something that either firm has committed to or discussed.”

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