DFPG Investments, a Utah-based firm founded by four advisors in 2011 as a broker/dealer with alternative investments expertise, unveiled a new name Tuesday after pivoting to a three-pronged wealth management model.
Diversify Advisor Network encompasses the b/d, still DFPG Investments, an independent registered investment advisory affiliate platform operating as Diversify Advisory Services and, coming soon, a hybrid W-2 option called Diversify Wealth Management.
Together, DFPG and Diversify Advisory represent about $5.8 billion in client assets, a little more than half of which is managed under the RIA.
Under the new W-2 option, Diversify will buy a significant chunk (generally 100%, but minority transactions are a possibility) of independent firms though a mix of cash and equity and bring on staff as employees.
“We refer to it as the partner model, which is an avenue whereby advisors can monetize their book of business and take equity alongside us, not in a private equity fund, but right there alongside us,” said Diversify President Ryan Smith. He said the leadership team felt it was necessary to offer advisors a succession solution that presents a clearer path forward than selling to a large strategic acquirer or private equity firm, which can carry considerable uncertainty as consolidation continues and institutional investors tend to be eyeing a payday.
“The private equity route is really for those who may be looking to get out of the business, monetize and take 100% and get out,” Smith said. “That's not what we're looking for. We're looking for partners who are entrepreneurial and forward-thinking, and who want to partner there right alongside us and continue to grow.
“Call us the antithesis to private equity,” he said.
Diversify registered with the U.S. Securities and Exchange Commission in 2015, responding to interest from existing brokerage clients, but it wasn’t until the last two or three years that a concerted effort to focus on the fee-based side of the business began producing real results. Since early 2020, the firm has grown advisory assets from $567 million to around $3 billion.
“We waited a couple of years to start that growth process because we wanted to make sure the infrastructure and the technology were in a place that could support that growth—and that's a never-ending project in this business,” said Smith. “But once we made that decision and we felt like we had the infrastructure and the talent where it needed to be, we began putting that pedal down and that’s where we gained the clarity around this succession plan concept and this clear vision for these advisors as they grow these books they've worked so hard to create and are trying to be good stewards of.”
Hybrid firms with various levels of affiliation are not new, said Echelon Partners Managing Director Mike Wunderli. But it’s becoming “a more common and more relevant trend,” particularly as the movement away from the institutional space continues to pick up speed.
“Advisors have the option to join the hybrid platform as a W-2, affiliate with the platform as a 1099 using its ADV and corporate RIA or register their own RIA and use the platform as their TAMP,” he said. “In each case, the platform becomes an integral part of their business, which puts the platform in a great position to invest in or offer succession options to its affiliated advisory teams. Having a captive pool of acquisition/investment targets and the inside track on acquiring them at a reasonable price is a huge competitive advantage in this market, and a tremendous driver of enterprise value.”
Smith said the firm's inaugural acquisitions will be announced by year-end, adding he also expects to add another billion dollars in assets to the partnership platform before January.
Diversify Advisory Services welcomed three teams in recent weeks, bringing more than $560 million in collective assets to the platform—INPAC Wealth Solutions in Honolulu joined from Osaic, Los Angeles-based RIA KLK Capital Management was previously affiliated with M.S. Howells & Co., and Michael Collins made the move from Wells Fargo in Laguna Niguel, Calif.
The practices cited succession planning support, technology tools and other resources available on the Diversify platform as reasons for making the move.
Firms brought in under the W-2 model will generally be expected to adopt Diversify branding, except in cases where their existing brand is “special and unique,” said Smith. And there will be a focus on firms with a comprehensive planning mindset.
“There are certain types of businesses out there that we're not necessarily interested in,” he said. “We're looking for advisors who believe in that comprehensive planning—incorporating tax and estate planning—and with a focus on the growth of their fee-based book of business.
“We’re still a believer in the broker/dealer model and that for certain clients it makes sense to run business through that chassis,” he added.
Integration of tax services is something that will also be accomplished through acquisition, likely sometime in late 2024, according to Smith. For now, tax and legal services are provided via strategic partnerships.
Partner owned, Diversify has no intention of becoming “some behemoth,” Smith said, and is well capitalized to grow thoughtfully and without the need for any external capital in the near term.
“We have the resources and the talent to create institutional quality resources for the advisor while still maintaining that boutique culture,” said Smith. “Advisors are craving innovation and having the best tools and resources, but they don't want to be just a number and they don't want to have uncertainty as to what the future of their business looks like—and we intend to solve that dilemma."
“Vertically integrating through direct investment is the best way to address ongoing succession challenges while achieving the primary goal of retention,” according to Brandon Kawal of Advisor Growth Strategies, saying that he expects “most, if not all” independent broker/dealers will eventually go the way of Diversify.
“Hybrid and fee-only firms have become professionals at solving for liquidity and succession,” he said. “And the broker/dealers need to keep pace.”