Publications

- October 1, 2017: Vol. 4, Number 10

Building a Dynasty: The rags-to-riches story of Shirl Penney, founder and CEO of Dynasty Financial Partners

by Mike Consol

Though just 40 years old, Shirl Penney has already lived a life of extremes. Nothing is any more integral to his identity than having grown up in extreme poverty and rising above those early years of privation. There was also the extreme success he achieved in his 20s and 30s while quickly climbing the corporate ranks at Salomon Smith Barney and Citigroup, where he ran the VIP meetings between the companies’ senior executives (including Wall Street legend Sanford “Sandy” Weill) and their wealthiest clients. When he decided to walk away from a traditional Wall Street career to become an entrepreneur by starting his own financial services firm in the midst of the financial crisis, he was beset by a work schedule more extreme than even Penney had anticipated.

Now, seven years in development, Dynasty Financial Partners is enjoying a level of success many would certainly characterize as extreme — in the best sense of the term. Dynasty was founded to offer independent advisers looking to start their own businesses a customizable platform with end-to-end support. The result has been what Forbes magazine called “a blue-chip client roster and a board of directors that reads like the who’s who of Wall Street.”

You are renowned for having lived a bona fide rags-to-riches American Dream story. Describe that experience.

I was raised by my step-grandfather in a small fishing village at the eastern most point in Maine in a town appropriately named Eastport. We had very little and were actually homeless for a stretch when our 300-square-foot home was condemned. We lived with neighbors around town, and I started working at age 11 to help with bills and to make ends meet. The winters were tough but my grandfather, who had a fifth-grade education, kept me focused on school and finding a path to a better life. His name was Clarence Townsend and he was a rough and tough man. We were extremely close. He never missed a parent-teacher meeting, a sports game, anything. He was always there for me. He taught me being present is half the battle and forced me never to miss a day of school. He sacrificed so much for me to have that chance and I have always wanted to live a life I know he would be proud of me living. He passed a few days before I graduated college unfortunately, but lives on in our family with both of my daughters being named after him.

There are those who argue that being poor in the United States is not comparable to many other parts of the world, yet you talk of growing up in “extreme” poverty. What made the depth of poverty you experienced extreme?

We lived on about $500 a month between welfare, food stamps, Social Security, and what my grandad and I could earn doing odd jobs. I would say the real difference for me is that I came from Washington County in Maine, one of the poorest counties in America. You're talking about unemployment rates north of 40 percent. The two things that I can tell you are really difficult if you experience them in your life; one is being cold and being cold for an extended period of time, and two is being hungry, when you literally don’t have any money to buy food. Being cold and hungry is a different level of poverty. I used to get up some mornings at 4:30 or 5 a.m. and have to go fishing, dig clams, pick berries, whatever, for breakfast. That was just our reality. We had a 300-square-foot home and a little wood stove, and every two hours me and my grandad would take turns getting up in the middle of the night to put wood in the stove — wood we had chopped all summer and then stored in the room so that we could burn it during the winter in a house that was literally falling down around us and ultimately did. The house became condemned. Once it was condemned, we were homeless for a couple of years. Grandad and I lived with different neighbors off and on. We eventually had the local Native American carpentry school rebuild a tiny home for us to move back into, and it was great, it was heaven. I was 15 years old and had my first shower because the old house didn't have a shower. We used to bathe using a pot in the kitchen sink with a washcloth. The new house also had a little furnace, which meant we didn’t have to feed the woodstove all winter. Those are some personal experiences I had. When I came to New York, I didn’t have anything, but I had a little apartment and ate rice and beans to get by when I was starting my career. Smith Barney gave me a cubicle and a computer and access to people in the firm so I could build a committee of mentors. I felt rich in opportunity, and that is what I often tell young people they should focus on in their first jobs.

So many people fail to rise above poverty, or even their social and economic class, during their lifetimes. What does it take?

I think it takes a number of things to rise from extreme poverty. For me, I was lucky to always have one person in my life, my grandfather, who I knew had my back no matter what. When you tell a kid you believe in them, that they matter, and give them your time and focus, the positive ramifications are huge. On a personal level, you need to be willing to sacrifice for what you want in life and not make excuses. For me, I wanted to change the history and direction of my family and not be defined by what had been.

What single characteristic do you possess that was most instrumental in your success?

It’s tough to pick one characteristic, but I would likely lead with work ethic. I may not be the smartest person in every room I stand in but would put my effort up against most anyone. Sometimes in life the winners are the ones who just simply want it more. I would say closely behind that is character and integrity. Your partners and clients need to be able to trust you and know you are in the fight with them 110 percent and will always try your best to do the right thing.

How would you characterize Dynasty Financial Partners’ client list?

We are blessed with a stellar client list of some of the premier independent advisory firms in the country. A good number of them we have helped start their firms from day one. To us, our clients are everything. We have a culture survey each year at Dynasty, and the number one cultural attribute ranking each year is commitment to clients. We feel we get to live our American Dream by empowering others to live theirs, and we think of ourselves as an integrated partner with our clients on helping them grow and build better businesses. There will be a continued separation between where advice is given and where products are manufactured and sold, and as that happens you will see large winners in the advice space. This will mean larger regional, and ultimately national, advisory brands will emerge, and Dynasty plans to be powering a number of those firms that will help advance the wealth management advisory industry for the better.

What was behind your decision to start your own firm when you had a stellar career well under way?

I had a great run at Smith Barney, and some of my closer friends in our industry are still there. I used to run what we called VIP client meetings with ultra-wealthy clients where we introduced them to senior management of firms. I remember reflecting after a good number of these meetings on what the clients all had in common, and it came down to belief in themselves, a willingness to take a calculated risk to build real equity in something that mattered to them, and the courage to take a swing at executing that dream. I wanted to be an entrepreneur too, like so many of them. In addition, we were seeing assets shift toward the independent movement, with both clients and advisers starting to move more to a fiduciary environment. But when I looked at the RIA space, I did not see an integrated offering like what we had in the private wealth management groups at the wirehouses. I thought, what if you took and leveraged truly open architecture product access with great modern technology, could you build the first technology-enabled integrated platform service company for RIAs? I started talking to people in the space and it was met with quick excitement, so I knew this was my chance to make the entrepreneurial leap.

Was there any single decision you made that accelerated the firm’s growth?

No singular thing, but I do feel we are having our hockey stick growth moment now. When we first started we really invented the category of turnkey middle office for the high-net-worth-focused RIA. It took some time to educate the market on what we do. Today we have a steady pipeline of advisers transitioning to RIAs, large RIAs wanting to outsource to our platform to allow them to scale and grow their firm, and other advisers coming to us to help with succession planning by being introduced to other firms in our network, where Dynasty might finance their acquisition by one of our network member firms. So the growth is really firing now on all cylinders from organic growth of current firms, inorganic growth via acquisitions or tuck-ins, and from new store sales — selectively adding new firms around the country to our network. Additionally, we try to really have a culture of innovation and look to expand our service set where it makes sense to our clients. We have expanded our consulting business to help advisers based on where they are in their life cycle from startup, rapid professionalization, to succession. We have added a revenue purchase option of a client firm to our lending business to give more liquidity options to clients via Dynasty Capital Strategies. We continue to add to capabilities in our Core Services package that allows us to be the home office to our RIA clients, providing a turnkey middle-office solution for them. Lastly, we have continued to add more products and services to our investment platforms, including robust alternative manager access, TAMP services like SMAs and UMAs, and have continued to build out our capital markets and investment banking access.

Talk about the role Dynasty Financial Partners plays for advisers and their clients.

Oversimplified, we help advisers of integrity better care for their clients. We do this by helping advisers professionalize and grow their businesses by taking much of the activity that most advisers don’t like to do off their plates and allow them to focus on what adds value to their firm and their clients. We do this via our consulting business, capital solutions business, our turnkey middle office solution called Core Services, and our integrated product platform. We also allow advisers to be independent, own their equity upside, but not be alone. They get to be in a like-minded community of sophisticated advisers to share best practices and partner with each other as it makes sense. This supported independence at the high end of the space has resulted in many already-independent firms coming to us to move onto our platform, and many large breakaways to call us to have us lead the project planning for them to go independent and then support them once they are up and running. We know we have been successful when our adviser partners transition to independence quicker than those that try it on their own, when our RIA clients grow faster and have higher margins, and when end clients are offering feedback on the quality of their service platform that we help their advisers deliver.

What was the genesis for your idea about offering the so-called Triangulation of Advice?

Having sat with thousands of clients over my career, you learn how to communicate more complicated things in simple ways. Most clients don’t think or understand concepts like fiduciary or suitability, but they understand conflicts and benefits of choice. So when we talk about what the ultra-wealthy have been doing for years with having a family office give them nothing but advice, then having access to separate custodians of their choosing, and then being able to go to any product manufacturer for product and having reporting technology to tie it all together, people realize that the Triangulated Advisory Model might be a better model for them too, verses a silo model where advice, custody and products are all tied together. A firm like Dynasty, with its $25 billion of buying power, is helping to lead the way toward a democratization of advice for clients covered by institutionally-
backed RIAs. Going forward the Triangulation of Advice will continue to accelerate, and you will see people further declare their major on which role they want to play in providing advice, custody or products as clients become more aware of the benefits of clear separation of those functions.

In what situations do advisers come to Dynasty to do business?

Advisers in various parts of their life cycle come to Dynasty for various reasons. It could be to help them start and launch their business and pull all the pieces together to launch a new RIA. We have launched some of the largest RIAs in recent years. It could be to help them evolve from being a great adviser to great CEO. It could be to enhance their enterprise value and grow faster, or it could be to help with succession planning for them and their business. Since we have advisers in all parts of the advisory life cycle, we have a coverage model that we call our Seven Core Value Pillars that allows us to customize our delivery of these pillars in a way that is most relevant to their needs. Our fastest-growing segment right now is already, independent RIAs who want to enhance their growth, want to outsource more middle and back office services, and want to join a like-minded community of elite advisers. We expect that trend to continue and to see more advisers coming to us for succession issues as we now have a good number of sophisticated, well-run firms around the country looking to buy other advisory firms. Lastly, I would say, given where we are right now with advancement of technology and the access to products just about anywhere, I feel what will continue to differentiate advisers going forward will be the competency of their teams and the quality of their service. If we can help them with professional development of their team and themselves, and give them the resources and time to better service their clients, then our adviser partners will continue to win on a disproportionate basis.

Your organization holds an annual Partners’ Summit. What is it? Who attends? What is the objective?

The Dynasty Partners Summit is an annual event for our entire community to get together and discuss industry trends, business ideas, do some professional development, team building and to have some fun. We also have other industry leaders attend, and it’s a very good place to have high-level discussions about the future of our space and how we can all get better together. We usually host in great and unique locations. We run regional events throughout the year for our advisers to get together, host Dynasty Days for staff members to spend time as a group, and host various client events for our firms to leverage. The community aspect of what we have built at Dynasty is often one of the top-reviewed elements of Dynasty by our clients in our client feedback surveys. Being independent but not alone is very important to many top RIA advisers, as it’s tough to find a peer set for many advisers at the high end of the independent market.

You studied economics at Bates College. What stands out about your collegiate experience?

I was the captain of the baseball team and really enjoyed the relationship with my teammates. Three of them are at Dynasty now. A couple of my roommates, a few other people on campus and I started the investors club. It is now a very large club at Bates, and one of my college roommates, Ed Swenson, was one of the co-founders at Dynasty. I was a junior adviser to a group of freshman and a resident coordinator to one of the larger dorms on campus my senior year. I also worked nonstop on various jobs to make ends meet, including developing my entrepreneurial skills by owning a newspaper distribution business on campus, and working on writing skills by helping to write many of the press releases for the sports teams throughout the season.

How did you come to be hired at Citi Smith Barney?

I interned at Smith Barney my junior year of college and had interned at other advisory firms before that in freshman and sophomore years. I was in the Portland, Maine office of Smith Barney and asked for an interview in New York City. I went to New York by bus in my $13 Salvation Army suit and interviewed for a job with Smith Barney asset management. I told them I would do whatever they needed to help them win and would work around the clock if they just gave me a chance. They offered me the job, but when I went home to Maine I found out my grandfather had just recently been diagnosed with cancer. I postponed the job with Smith Barney four months to care for him at the end of his life. I will always be grateful to a gentleman named Joe Mara who hired me into my first finance job and then waited that long for me to come take the job while getting things in order at home.

What stands out about your tenure at Citi Smith Barney?

Smith Barney during the late 1990s and early 2000s was a great place to learn business. With the merger with Citi, the firm became the largest financial company in the world for a period of time, both in terms of revenue and number of employees. I was fascinated by how we could pull all that capability together for the benefit of our advisers and their clients. I wanted to learn about every discipline in wealth management and from a very young age got access to all the senior department heads. That allowed me to quickly move up in the firm as we created the wealth management support groups, as I was one of the people who knew how all the product and service pieces fit together. I also benefitted not only from great exposure and opportunity, but also from great mentors. I got to spend time with divisional heads of business and top leadership of firm on a fairly regular basis. Some of them are now investors, friends, business partners and board members at Dynasty, like Todd Thomson and Jerry Eberhardt. Perhaps most importantly, I got amazing access to all the firm’s best advisers and lived much of my career at Smith Barney in the field. To this day, I’m most at ease in our business when I’m in the field meeting with our adviser clients and their end clients. I think too many people in our industry have lost focus that the adviser is in fact the most important person in the wealth management ecosystem, and if we focus on making their lives better and easier, the rest usually finds a way of working itself out.

What has been the most formative personal experience of your life?

Having children. We have two daughters ages 9 and 11. They are amazing people and have taught me so much about perspective, love, patience, compassion, and have helped me understand the importance of the focus on the long game for all of us.

What has been the most formative professional experience of your life?

Starting Dynasty and going more than two-and-a-half years without a paycheck. Someone once told me, if you want to take the island, you need to burn the boats. I think one of the barriers to entry to a business like ours is most people are just not willing to take the risks and do what is required to build a new business from the ground up.

My understanding is that you live in Saratoga Springs, N.Y., but Dynasty Financial Partners is in New York City. Tell us about the decision to settle in Saratoga Springs.

My wife, Mary Ann, is from a small town in southern West Virginia, and I am from a small town in Maine. We built a vacation home in Saratoga Springs. We love horses and the area. We literally built an office in my garage as we had two baby girls running and yelling around the house. Over the past eight years, we have just gotten into a rhythm of me being in Manhattan during the week and home on weekends. We travel a lot as a family and have made it work. This is another example of where my wife inspires me, as she is a special role model and mother to our two girls with me being away a decent amount. She has been all in on this ride with me from day one and was the first person to tell me to take the entrepreneurial jump. Her father, Al Robinson, was the second. They then took the liberty of surprising me by building the office in our garage so I could finish the business plan and start calling investors, employees and prospective clients. Having that level of support at home is so important — in particular in the down moments when the odds are stacked against you. It makes everything that much more rewarding when you end up winning as a team or as family. Success is best shared.

 

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser.

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