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Dynasty's Partner Wealth Firms Go Back To School, Mull AI

Tom Burroughes

6 November 2023

With all the talk and action around AI, wealth management bosses sometimes need to get into a classroom to brainstorm ideas. And what better place to do this than the Massachusetts Institute of Technology?

That’s exactly what St Petersburg-based Dynasty Financial Partners did when it worked with the MIT Sloan Business School, gathering the heads of the wealth managers in its network of firms to work though AI use cases. It’s the kind of work that proves the value of the Dynasty business model, Gordon Ross, chief client officer at the firm, told Family Wealth Report

Chief executives at Dynasty partner firms spent days considering the implications of AI for their business and what steps would make sense. The program involved a “mini-hackathon” to explore ideas, Ross said. 

“MIT was very much talking about how they use this across an organization,” he continued. 

AI remains a hot topic, underscored by policymakers from around the world, and business leaders such as US tycoon Elon Musk, gathering to discuss the topic in the UK last week. The event followed shortly after US President Joe Biden issued an executive order on the regulation of AI. 

The recent launch of ChatGPT has ignited interest in the power of generative AI and represents a breakthrough that could lead to exponential efficiencies for both individuals and industry. AI’s potential is being explored in every industry, leading to transformative solutions and possibilities. Whether it is the use of machine learning to crunch data and identify patterns or develop “chat” communications channels and personalize information to suit individual users, AI applications continue to become more sophisticated. 

According to a recent Goldman Sachs report, the potential of generative AI could raise global GDP by 7 per cent, which amounts to $7 trillion in GDP and a 1.5 per cent boost to productivity growth over the next 10 years. There are a few broad areas where AI affects the financial sector, mainly across portfolio management, augmented advisory and “next best action,” tax planning, client onboarding and cyber security.

As far as Dynasty’s Ross is concerned, it is important for the wealth sector to keep AI’s status on the ground. 

“Our view is that it is another tool,” he said. 

In judging the value of programs such as the MIT one, Ross said an important key performance indicator is how much of what is taught and discussed by the participants is put to work in their businesses.

Another consideration he said is how RIAs frame what their unique value proposition for clients in a time of hectic change. This process can pose problems: “Some have inherited their clients.”

Breaking away from RIAs?
The word “breakaway” has sometimes been used to describe the trend of bankers and wirehouse figures carving out a new, independent career at a registered investment advisor. But sometimes those who make a move discover that their new home isn’t what they had hoped. And so there’s a need to help advisors leaving an RIA to join another, or a different type of business, Ross said. 

Several RIAs have approached Dynasty for help because their businesses have evolved in a sometimes-haphazard fashion, Ross said. “We were getting a lot of calls from RIAs that did a lot of acquisitions and they had five different ways of doing things, and things were in a bit of a mess…everyone was focused on the deal rather than on transition.”

“Our pipeline is of people looking to break away from wealth houses, and some want to break away from RIAs,” he said. “Maybe it was when a transition didn’t go well,” Ross continued.

M&A deal flow in the RIA space has slowed, suggesting that advisors are facing the reality that all this corporate activity – cooled somewhat by higher interest rates – may not build a rewarding career unless resources and talent work in sync with a harmonious culture. 

According to DeVoe & Co, a firm tracking corporate activity, RIA mergers and acquisitions started the third quarter at a solid rhythm. Activity in July and August was above last year’s pace and then “the music stopped,” the firm said. September yielded a scant 15 transactions , erasing the previous months’ gains and resulting in another quarter of decline. The 65 transactions posted in Q3 were three fewer than the 68 posted in Q3 2022.

Regardless of specific volumes, the M&A process is complex. Dynasty does a lot of work coaching firms, concentrating on the importance of due diligence, evaluating the differences between one firm and another, Ross said.

“People will still look at opportunities, but negotiations can be very tough and people limp over the finishing line,” he said. 

“Our suggestion is that people split their due diligence process into two phases: one where you evaluate the opportunity and one where you evaluate the actual deal,” he said. “All too often people fall in love with the opportunity but then the other side begins to negotiate hard, and the eventual deal is a bad deal financially. However, by that stage everyone has invested so much time into the matter that people do not want to lose face, so they agree to a bad deal.”