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Look familiar? Dynasty offers new wirehouse-type loan aimed at breakaways

With working capital for advisory firms in high demand — and competition intensifying — Dynasty Financial Partners is offering a new product to entice wirehouse brokers to go independent.

On the heels of Merchant Investment Management jumping into the RIA lending market, Dynasty is countering with a new upfront lending option to breakaway brokers.

Advisors who join Dynasty’s network will be eligible for an upfront loan in the form of a note that is forgiven over eight years in return for a portion of the advisory firms’ cash flow. The note will be made through the platform service provider’s Capital Strategies division.

Ed Swenson, Dynasty COO

While transferring their business to an RIA, brokers who qualify for the loans can choose to receive 100% of their trailing 12-month revenue in what Dynasty is calling a “Freedom Note.” During the eight-year loan period, the brokers receive 65% of their revenue. The 35% of revenue that Dynasty receives covers loan interest, regular principle servicing and access to Dynasty’s services package.

The note offering was designed to attract “brokers and advisors who have become accustomed to this kind of deal structure,” says Ed Swenson, Dynasty’s chief operating officer.

Wirehouses traditionally offer forgivable loans as part of recruiting deals that are essentially a signing bonus attached to a note forgiven over the course of a contract, typically nine years. Industry insiders call them golden handcuffs because they help tie brokers down to the firm.

Calling Dynasty’s new product a “forgivable” note is a misnomer, contends executive recruiter Danny Sarch.

Calling Dynasty’s new product a “forgivable” note is a misnomer, contends recruiter Danny Sarch. “If you have to pay back the principal, it’s not a forgivable loan,” Sarch says. “A wirehouse note is forgivable, although you are taxed every year on your income.”

Dynasty’s note has “the exact same structure” of a wirehouse forgivable note, according to Swenson. “The wirehouse is getting paid back 60% of every dollar on that loan on a 40% payout,” he says. “The biggest difference is that at no time is the advisor an employee of Dynasty.”

In both cases, a broker or an advisor has to pay the loan if they leave the wirehouse or Dynasty before the end of the loan period.

“That would be very unusual,” Swenson says. “It’s a small risk.”

According to Matt Sonnen, CEO of PFI Advisors, Dynasty’s note appears to “blur the lines” between the RIA and wirehouse channels.

While breakaway brokers had the option to “take a check to go to another wirehouse, they chose to start their own firm because they believe the RIA space allows them to better serve their clients,” Sonnen says. “Now advisors can reach out to Dynasty and say, ‘We’d like to start an RIA — how much will you pay us to do that?’ That has never been what independence is about.”

Not surprisingly, Swenson begs to differ.

“The language is similar, but the outcome is different,” he says. “In Dynasty’s case, the advisor owns the economics of the whole business and has their own ADV. The note is another indication of the professionalization and maturation of the independent space.”

Does Swenson see the new Dynasty note as another form of a wirehouse notes’ golden handcuffs provision?

“We see it as a positive, not a negative,” he says.

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