Shirl Penney: Why Biden’s Tax Plans Could Push More RIAs to Sell Now 

It’s a very hot market for RIAs, according to Dynasty Financial Partners CEO Shirl Penney — maybe too hot. 

“The availability of capital to fuel M&A is abundant and cheap. Whether it’s debt or equity, if there’s an RIA that is looking to sell, it seems like in a sales process, there [are] 15 buyers to every seller that shows up. It’s creating some frothiness with some valuations,” he explained in an interview with ThinkAdvisor on Wednesday.

If you add in potential tax changes “that might further incentivize” an advisor or RIA firm “to do a transaction,” Penney said. “Our group of M&A advisors are going to be very busy with RIAs as a result of some of those things.”

Pointing to Mariner Wealth Advisor’s recent sale of a minority stake, “You see someone like [CEO] Marty Bicknell having a transaction with a valuation that appears to be, from what I’ve read, north of a billion dollars,” he explained. 

Bicknell, says Penney, “built that firm from the ground up” over the past 15-plus years, “starting [out] as an advisor, and then … evolving to be a CEO, and obviously a very good one.”

This trend, which he defines as “the rapid professionalization” of the RIA industry, should continue. In other words, more “proven leaders, or business operators, are going to come into the space to build very large-scale regional and, ultimately, national advisory businesses that [will] compete with some of the big brands we know [today].” 

During a wide-ranging interview, Penney talked about other industry trends, as well as his hobbies and future plans.  Here are highlights of the interview:

THINKADVISOR: How could Biden’s package of tax proposals influence the RIA M&A trend, as well as other aspects of the advisory business?

SHIRL PENNEY:  It will probably accelerate some things that we’ve seen in our industry as far as M&A.

A lot of advisors are considering selling a piece of their firm. And if they believe obviously that long-term capital gains taxes are going to go up, if they were perhaps on the fence about transacting, this could be something that would cause them to lean in and run towards a transaction. That’ll be interesting.

It could [also] be a boon for estate planning attorneys. A lot of people who may [have been] putting off getting some planning done now, with these changes, might run to take advantage of opportunities that they have [which] may change in the coming months. 

I don’t … think insurance proceeds are currently on the list to increase taxes. So that could be a big win for the insurance industry. Obviously, it’s tied to estate planning. But if there’s no additional taxes coming on insurance, it will increase the popularity I would imagine of that product as a planning tool for people.

Also, it’ll continue to accelerate trends [that encourage people] to move to lower tax states. I’m in St. Petersburg, Florida. We’re certainly seeing a lot with people coming from New York, Illinois, California, etc. 

There are plenty of other states around the United States — Texas and others that are benefiting — and if you have people who may be frustrated with the tax environment now, if that goes higher, it might be a catalyst for some of those people to make a move.

Do you have any other concerns about tax reform?

My concern would be if it were to stymie innovation. I’m an entrepreneur, myself, obviously having started Dynasty in my garage. It’s a tremendous amount of effort, work, risk to go all in to be successful with a new business. 

If the capital gains tax more than doubles, there are some people that might look at that and say, given the risk-reward, “[Starting a new business] is not something that I want to do.”

How likely is it that regulators will approve Bitcoin ETFs this year?

There’s a pretty good chance. I can’t say who but I know that several firms [have them] in the works. I would take the under on [this] by the end of the year.

 What’s your overall view of cryptocurrencies?

They’re here to stay. 

What’s even more interesting and will ultimately be more disruptive is blockchain technology and its ability to connect consumers directly with each other. There’s a lot of middleware businesses, a lot of industries that ultimately will be significantly disrupted once blockchain really becomes mainstream.

What’s your main view of the markets?

We’re very bullish and optimistic through the rest of the year. There’s obviously a lot of liquidity that’s coming into the market that we think will continue to drive growth [and] drive earnings. I think the markets will stay hot through the rest of the year.

What’s your overall view of how advisors have served clients in the pandemic? 

I’ve told a number of people that the last year has been the advisors’ Super Bowl. What I mean by that [is] the last dozen years or so we’ve been in a bull market, which sometimes can breed a bit of complacency, where everyone just kind of gets lulled into this sense of “OK, markets just continue to go up. And there’s no huge difference between one financial advisor or another.”

Then all of a sudden, March of last year hits and for most of us we’re hit for the first time in our life with kind of this dual threat of a health crisis with the financial crisis. Suddenly everyone wanted to talk to a financial advisor. It went from advisors finding it tough to get people on the phone to … they couldn’t make too many calls because everyone wanted to talk to them.

Some advisors … , whether it was through fear or just being personally overwhelmed or whatever it might be, kind of went under the rock and tried to hide, while others used it as maybe a once-in-a career opportunity to be aggressive and over-communicate and get out there.

The advisors we support who did [embrace technology and other tools] grew enormously over the last year, because there was a void and everyone wanted to hear from financial advisors. The ones that were proactive, had a great message and got it out there in a scaled way grew very rapidly.

What are your top concerns for the advisors you serve today?

Continuing to stay close with their clients. A lot of them haven’t met with their clients [in person] for a while. Technology’s been helpful but people are just eager [to get out and about]. This [is] a little bit [like] cabin fever.