Corey Kupfer: Harris Baltch is responsible for leading Dynasty's Investment Banking Division.
Prior to joining Dynasty, Harris spent nearly a decade at UBS Investment Bank, where he was an executive director in the firm's financial institutions group. While at UBS, Harris originated, led, and executed over 10 billion of strategic M& A and capital market transactions for companies in the asset and wealth management industry.
Harris, welcome to the DealQuest Podcast.
Harris Baltch: Thanks, Corey. Great to be here. Thanks for having me.
Corey Kupfer: Absolutely. So listen folks Dynasty Financial Partners is a great industry partner of ours in the RA space. We do a lot with them in various aspects of the services they provide the last couple of years I've gotten to know Harris and we've done a, we've done a bunch of stuff together in the industry and he's a really super knowledgeable guy and great to have on.
I'm definitely looking forward to hearing from him about the RA industry, what's going on at M& A. Thank you. White dynasty started an investment bank. But before we get there, Harris I want to take you back to when you were a little kid growing up, maybe eight, 10, 12 years old. What did [00:01:00] you want to be?
Because I'm guessing an investment banker probably wasn't it back then, but you tell me.
Harris Baltch: Didn't know what investment banking was until after I graduated college, Corey. I did enjoy trading stocks. I was I was actually eight to 12 years old. Maybe closer to 12 years old. I was actually a bagel baker growing up on Long Island.
Corey Kupfer: Okay.
Harris Baltch: And in between playing baseball and wanting to be a baseball player I would do, weekend in between games working as a bagel baker at a bagel store that, that no longer exists. So sometimes it was the afternoon shift. And then, during the holidays I actually did the overnight shift.
So it was a lot of fun because, I do the overnight shift. Open up the store at, I don't know, 11, 12 o'clock, my buddies would come in, we'd have fresh bagels, they'd hang out. Sometimes we'd invite people over, and have a little quiet party and no one, no, it was like our own happy place.
I take the money and then I invested in the stock market and that's how I learned about the markets.
Corey Kupfer: Oh, that's amazing.
Harris Baltch: Yeah,
Corey Kupfer: you said you didn't know what an investment banker was back then. Neither did I. I didn't even, I barely even know what the stock market was back then. I didn't, I grew up in a low middle class family, so [00:02:00] my parents would not invest in the stock market.
They were invested in trying to buy food and and pay the rent. So I think we even later to figure that part of it out. Yeah. Good stuff. And one other question, looking back, what was your first deal of any type? It could have been something small when you were a kid or early in your career, whatever comes to mind.
Harris Baltch: So
my first deal growing up, that's a really good question. It's funny, one of the things that I love to do with my buddies growing up when we were probably in, in college is we'd love to promote parties in the city. So I'm from New York, born and raised and schooled. And when we'd come home for Thanksgiving or New Year's.
Sometimes, around the holidays, we'd have, this influx of people that would come in from, from school, from all over parts of the country and people would want to get together and there was no Facebook or, and there was no, LinkedIn, they were barely cell phones.
So the best way to connect was actually seeing each other and hanging out. Yeah. We partnered with one of our bodies was a [00:03:00] really big promoter in and around the city. So we buy, wholesale tickets and then we'd sell them at retail prices and that, we'd write huge checks to get all of these tickets and then we'd have to sell them over a three, four week period.
And there was no like picket master or StubHub, it was all word about. And that was a lot of fun because in addition to having a great time and hanging out with all your buddies through selling tickets, you make a little bit of money and then you also get the bottle service and the tables.
And I'm not a big party guy, but it was just, it was fun to bring people together. And and just have fun. That was probably the first interaction I had with doing deals and making some real money. And then each year we'd buy incrementally a couple more tickets to just sell them and, a lot of fun stories, few, very few of which are appropriate for this podcast,
Corey Kupfer: I'm sure I've told this story before on the podcast, but.
Not exactly but so it's still when I was in college, somehow my last two years, I got to at Stony Brook, they had there's a beer distributor that would they do the days when the drinking age was 18, not 21 [00:04:00] in New York. So most of the college kids could drink and if you want to go pick up a keg or two, you can go drive out to the Claire Rose and pick it up.
But if you needed 15 or 20. The 25 kegs for a big party, they had to deliver it and they didn't want to deal with a million students. So they only had two reps on campus. And for my last two years, I was one of the reps on campus, my half of the campus. Anybody who needed a beer had to go through me. And similarly, I got a wholesale price and I could, reach it, resell it at whatever price I wanted.
And I made good money, but also, yeah, the benefits were that I Gotten free to every single party and had all the perks of controlling her in college.
Harris Baltch: You were the man,
Corey Kupfer: .
Couldn't be better. All so let's let's let's jump to the present day.
Like I said, in the intro dynasty finance bought us a minute. Great part of ours. We've been working with them since really dynasty started. And, we work, I've worked in traditionally dynasties, what they've known for, and the strength was, helping breakaway brokers set up their own independent RA firms, truly independent because dynasty doesn't take the, in the class model doesn't take an [00:05:00] ownership interest.
Just, provides us the amazing services to help them get going, start up, figure out custodian space, branding, all that kind of stuff. And then, there's ongoing support, back office compliance, that kind of stuff. There's TAMP and that kind of, and all that stuff. But more recently, and it's been the last couple of years, Dynasty has not only expanded into financing options for RIAs, whether that's debt or, or equity like products.
And then also now, straight investment banking. Tell us a little bit about that evolution and the, and, and the role you play and what Dynasty's looking to do with this investment
banking side.
Harris Baltch: Like everything you do in business, you want to strive to, serve the needs of your clients.
And when I joined Dynasty, it was on the back of, my, my decade long career at UBS. And I loved the RIA space. I saw the tidal wave that was coming. I started to read about it and I knew about some of the key competitors. I worked with them. When I was at UBS and I thought it'd be great to deliver a bulge bracket investment banking services to the masses.
And so when I [00:06:00] joined dynasty initially, the goal was to build out and professionalize our capital program and also to help advise a lot of our clients who, launched, they were scaling. A lot of them wanted to do inorganic stuff and there was no real internal investment banking capability.
And yeah, there, there were some. Folks from our firm that had investment banking experience, but there was nobody that came directly off the line that can, sit as a partner to an existing client and help advise them. And most of it, most of the firms inside of our network, I'd say the average CEO is in their late forties, early fifties.
And that's on average, you have some older, some younger. And they want to grow through talking in advisors, buying RIAs, acquiring capabilities, and they really needed someone who could sit side by side with them that can speak that language, right? So in many ways it's neat because we get to be an advisor to advisors and a lot of times folks who join independence, don't know how to grow in organically, and even if they want to they need help.
And so [00:07:00] we've spent a lot of time, 90 percent of what we do, Corey, is education and helping people understand how to do deals, how to be prepared to do M& A when they're ready. And then on the flip side, it's also planning for succession, right? Whether you have succession internally or externally, you need to have a plan.
So so how do you build that plan? How do you think about valuation? How do you think about succession internally? Is your team set up to afford, some of the succession alternatives? If you don't, who are the players that you can align with externally, right? And a lot of that is how our minority equity investment program, blossomed because folks wanted an aligned partner.
And Dynasty historically, serving RIAs, providing wealth management technology and also, best and best class support around practice management, all sorts of wonderful technologies and capabilities. Didn't have a, full spectrum capital program.
And when I joined the business, we had a loan program and we had a revenue participation program where we buy revenue in exchange for [00:08:00] capital, but we didn't have this aligned common equity investment construct. And so we looked at the lay of the land and, we had the fortune of kind of cherry picking You know what we thought was some of the best features.
We had the ability to pull some of our partners who were open to an aligned equity investment, but wanted to make sure that it met both their objectives and our objectives because, a lot of the capital partners that are out there. Lead with capital. That is what they do.
And for us, capital is actually an accommodative business. It's our third business line. So we lead with what we call our core business, which is our technology. It's our marketing. It's our compliance. It's our it's our practice management. Our second business is our is our investment platform.
And then really our third business was Our capital program. And when you think about all of the different types of things that are happening in our space, whether it's, aggregators that are getting bigger, you're having businesses that are want to get turned into platforms that are looking for capital to grow.
And on [00:09:00] the back end, you have more advisors that are looking to leave the industry just due to age then are coming in. There's a real need for succession. And I had the I had the vision to, speak with the board and to speak with our management team.
And I said, look, we're doing all of this good inside of our network, right? I'm predominantly on my side. Don't you think that there's a bigger need? Outside of our network where we could really help support all the different types of succession needs that firms have. And some of those succession needs may fall inside of our network.
Some of them may fall somewhere else. But there's really a, in my opinion, a shortage of just there's a shortage of, hiring human talent into RIAs. There's also, in my opinion, a shortage of human talent that are actually advising RIAs on what to do. And a lot of times, when we speak with advisors and CEO, advisors that become CEOs, they spend a lot of time, focusing in the business, focusing on the business and helping grow the business.
But when it [00:10:00] times, when it comes to, thinking about succession, either whether it's internal or external, how do you facilitate it? How do you plan for it? Who do I speak to? It's great to mind share with other advisors, but to speak with someone in confidence who have been through, multiple reps and multiple types of situations can compare and contrast and take a situation from one side or from another and bring it together in order to advise a client on accommodating the best outcome is something that.
I thought was going to be very prevalent in the market. And so we did our homework to make sure that, our FINRA licenses were up to snuff and everybody on my team is, series 79 licensed. Everybody's come from either investment banking, private equity.
We've created our own analyst program internally. So we've started to homegrown the homegrown some of. some of our own talent. And it's been it's been great. We've taken on mandates both inside and outside of the network. The information flow that we're a part of now really allows, both our, ourselves, our clients to really elevate their [00:11:00] game.
Obviously you can't share information, Cory. A lot of this, a lot of the information on deals are non public deal figures typically don't get announced. But on a no names basis, that information flow is so valuable and it helps our... Our clients just get stronger in their ability to execute on whatever their objectives are.
Corey Kupfer: SO just and I know you, you actually said this twice, but I want to make sure the audience, who may not be I know it so I hear it, but just to be a hundred percent clear. So if there is somebody who is not otherwise affiliated with dynasty, not taking advantage of your number one business or number two, a second business as you talked about it.
There's still a candidate to to work on the investment backing side, right? It's not, there's no other affiliation that's required,
right?
Harris Baltch: Yeah. And to be clear, we're not an aggregator, so we're not out there writing checks to buy RIAs. That's not what we're in the business of doing.
It's aligned capital, but we do reserve our capital exclusively for RIAs that subscribe to our core invest, our core platform and our investment platform. But the advisory work that [00:12:00] we do. With our team extends, beyond the network. And so for RIAs that are tuning in to the episode that wanted to have a confidential conversation or just a market check.
A lot of times folks, reach out to us and say, Hey, what are you seeing in the market? How are you feeling about multiples? I'm three years into this, to this plan, how should I be thinking about my exit alternatives now? When should we formally engage?
So we have confidential conversations. All the time Corey the M and a ball game is a very long one. And and so we try to, build relationships with, clients and prospects along the way. And, we were, we're fortunate to, to work with a variety of advisors when they're actually ready to transact.
Corey Kupfer: Love that. So you mentioned something earlier I want to come back to because it's a topic I talk about all the time and I joked that my listeners probably get tired of it, but I'm going to keep talking about it. It's so important, which is this mindset conversation. And you talked about the fact that, some of these advisors, right?
They break away. They're looking to scale and grow, but a lot of times they spend time on the organic growth side, right? [00:13:00] How to get more clients, all that kind of stuff but that they need support and in terms of this inorganic growth conversation, right? How do you do that? And for me, even before the, there's even that mindset shift to say, Hey, wait, there is this other way to grow, right?
And maybe not, and I'm talking about here, less so an exit deal, but more of a, on the buy side to acquire for your own growth what do you think, listen, we see it, I'm very blessed and fortunate to represent many of the firms in the Dynasty affiliated network, And, even within those and certainly outside, dynasty, different folks are in different places.
And some people have this sort of deal making mentality and some don't right. And some maybe get there. What is it about that mindset shift? What's the, what's that conversation that you have? You talked about 90 percent of what you do is education, right? What is that? What is that shift that happens in people when they see when they start seeing this alternative way to
grow?
Harris Baltch: Yeah, it comes from a lot of different angles, as you can imagine, Corey. So sometimes it comes internally, right? They'll get their [00:14:00] first whiff of M& A when an advisor is really killing it internally and they say, to Mr. or Mrs. CEO I want to be part of the equity in the firm.
And more often than not, the CEO would then call us up and say I want to. I want to get this advisor into my cap table, but I don't know what I'm worth. So if I need to use my equity as a currency, how do I value my business in order to accommodate this advisor?
That, that's one way another way is just, what we call friends and family deals. A lot of, really good advisors have really strong, are really strong centers of influence or participate in really strong centers of influence inside of their community. And it's not uncommon.
For RIAs to know some of the neighboring advisors. Their in, in their own community. Because even though each RAs it's own snowflake, and a lot of times RAs don't compete each other, they're it's such a fragmented industry that it's not uncommon to have,[00:15:00] two rass that operate on the same street and I've seen it.
Or in the same building. Yeah. And through, through just, friendly conversation I've seen situations where advisors want to talk to each other about. What a potential transaction would look like if two of the firms merged because they, they genuinely each other and they think they serve clients in the same way.
So we've seen that before other times we've seen an advisor break away and build an RIA. And then, a year or two later there's some other advisor that was not involved in the transition, but was, potentially part of the office or just some type of relationship that the advisor maybe referred business to when they were at their previous wire house.
And now that advisor wants to leave and join their RIA. So how do you think about that when it may involve capital, it may involve equity it may involve, some type of take on of debt. And so that's how you see a lot of the CEOs and the principals that we work with get acclimated into thinking about valuation, thinking about [00:16:00] structure, thinking about how do I just, what are the subtleties in approaching a situation?
Because we can do a lot of back office stuff in terms of the modeling work and how you think about, proforma valuation and different types of. Of, of consideration mixes to align partners, but a lot of times we also play the role of a psychologist, and the principles that we work with just need help on, it's so funny cause they're asking people all the time for money but they don't know how to approach another advisor and have a thoughtful conversation about merging the businesses together.
So a lot of times we serve as a psychologist to help facilitate. That conversation alone, and then as it takes its own shape, we, we have multiple psychology sessions to, to make sure that, both partners feel good about whatever it is that they're doing together.
So it comes from a lot of different angles.
Corey Kupfer: Yeah, I love that. And it's we've seen all of those and you and I have probably worked together on every one of those examples, right? Which has been fun. So in terms of trends, what are you saying?
I talked about this when I did this series with [00:17:00] the CEOs of the top aggregators and integrators and the question, a few months ago, Yeah. And a lot of those is serial buyers. And I said, Dan, I think it's still true now, some things have shifted, there are some sort of short term Edwin's you could say cost the capital is up significantly.
At the time I did that inflation was higher than it is now it's come down, but it's still not quite where people wanted to be. There's that the marks have been, choppy in the last year or so see, I have those kind of things, but then also and we, we actually discussed this in the other way around Harris was moderating a panel down at the dynasty at their investors forum that I was on.
So I'll turn the question back on you, what are you seeing in terms of the evolution and the, and this tension maybe between some short term headwinds, but, maybe some longer term tailwinds.
Harris Baltch: Yeah, it's really interesting. I'm excited for 2024 to see what it brings, to the industry.
Because it's just, it's evolving so rapidly and yeah, look the cost of capital is probably going to be elevated for. A meaningful period of time. I don't think anybody's questioning that, you have [00:18:00] businesses, just like you have RIAs that are created to serve clients.
You have, integrators and aggregators of RIAs that were created that their role is to invest in RIAs. And that's what the businesses were set up to do right there. Their integration engines, their aggregation machines. And so as long as there is a fragmented market of RIAs and there are succeeding advisors who don't have a solution internally, there is going to be a bid ask for.
And so I would suspect that doesn't change in 2024. Having said that, I think that what you're beginning to see is, a lot of discipline that goes into the underwriting process. I think, looking at where things were really over the past decade leading up until 2022, it was pretty easy by an R a ride the market, and then you could flip the business.
And even if you don't have any multiple expansion on EBITDA. The business grows, you can be thoughtful around how you position the business for sale and you do okay. Now you have, businesses that are bigger, that are [00:19:00] smarter. I also think that there's just been a lot less information, asymmetry.
I think historically these were deals that, that got done. And they just really weren't exposed. I think there's just been an a tremendous influx in the information flow that even though you don't hear about necessarily transaction multiples and deal valuations, you certainly hear about it up deals getting announced.
There's a lot of information flowing around the individuals that are just participating in the transactions, right? And so people are just getting smarter and when you get smarter and you have just an influx of capital and rising costs to transact, you're going to see a lot more discipline.
So it doesn't necessarily mean that the deal volume will slow down, although we think it might slow down a little bit. What you're really going to see is discipline on the underwriting, right? So how are good investors and RIAs are going to risk mitigate. So how do you risk mitigate, right?
You risk mitigate because you're not necessarily paying for all of the [00:20:00] consideration up front. Cash is king, especially in a high interest rate market where you can earn 5 percent on your cash. Cash is valuable. And people are going to be very disciplined with how they're deploying cash.
So you're going to be seeing, a very I'd say a disciplined mix between how much gets paid up front. At closing, how much gets paid over time through retention, through earnouts, right? And so because you see that elevated cost of capital, people are also going to be leveraging, in my opinion, their equity as currency, which is, if the cost of debt is high, the cost of equity is even higher, which makes equity an incredibly valuable transact if you're aligning with the right partner.
And current using equity as currency or equity swaps as a form of transaction consideration is going to be a really important going forward. And I do think that there is a correlation between scale, size and multiple expansion. A lot of the a lot of the alignment that you see happening in M8 today is some component serving as an equity swap.[00:21:00]
Where some bigger firm is going to provide some smaller firm, a form of alignment through an equity swap. And while that's not necessarily a hundred percent of the deal consideration, part of the story, which I think makes plenty of sense, both in our space and in other industries is that a bigger firm is going to be, all things being equal, a bigger firm is going to be more valuable than a smaller firm.
To receive a form of currency in a larger firm and enable you to get in at the point in which that larger firm is likely going to grow faster and scale quicker than you, the smaller firm gives you the ability to not only transact once, but actually twice,
Corey Kupfer: right,
Harris Baltch: which is cool.
And I think you're going to see a lot more discipline in, in how the deal consideration mix is structured and certainly that equity currency, being used strategically as an alignment tool for firms that are looking to.
Corey Kupfer: So let's talk about that, that, that equity [00:22:00] currency and this sort of, second transaction ability, right?
Because different firms have very different models, right? A charity partners, for example, says it's 100 year partnership model, right? So that, they, they're on one extreme where they say, no, we're not looking to, go public or exit tomorrow. Necessarily. I know we're letting out, but, and that's a model where yeah, Maybe you can still get a an equity model and I'm, by the way, I'm not asking you to comment on any particular model, just giving them an example, where, if you retire out, whatever, maybe, there's the ability to monetize that way.
There are other, there are others that are much more, Hey, no we're going to do some around the capital and we'll look at either go public or sell whatever. The and I'm an optimist and I do think that there's gonna be huge opportunities in this industry. So I'm playing devil's advocate here.
The critics of the pessimists might say listen, so far, if you look at this industry, you got, focus financial when public now, they're, they go in private and goodbye, Rudy Adolf. You got some people would argue United Capital went through certain rounds of funding, ran out of PE firms, had a bailout to Goldman.
That was a disaster. I went to credit planning pushing that team, whatever. And again, [00:23:00] without commenting, if you don't want to on any specifics what is the, that second bite of the apple, the value of that currency depends upon it being able to monetize in a way that, you know, that, that works.
And we've seen in other industries examples where that's been done very well and others where. Certain kind of roll up models blown up. What do you think of the factors on what is going to determine whether these equity plays, are going to be turned out to be, doing well or what concerns might you have?
Harris Baltch: I think the biggest concern I have right now is that the equity gets squashed because you have a lot of firms in the private markets that are taking on significant amount of leverage in order to do M and A. YoU have firms that are levered anywhere from six to 10 times, cost of capital creeping into the double digits on average in order to get deals done.
So just by virtue of that, the ability to accrete over time is going to be a much longer run rate. As opposed to where we were, 18 to 24 months ago. So that makes it, significantly more challenging. And you also [00:24:00] have not every firm is aligned with a private equity partner that, that can serve as, an evergreen capital source, at some point the LPs are going to force some type of liquidity event in order to allow a private equity partner to realize.
Either a gain or maybe even a loss in, in, in their investment on a on a specific opportunity. And I think, I don't want to comment specifically on, on any deal. The fact is that, the public markets award, award companies for earnings growth, organic earnings growth. And for a prudent, capitalization policy, prudent balance sheet policy, most firms that are traded publicly are not going to. bE taken seriously if they're levered six to 10 times. I don't care what industry you're in, you know that's right.
That, that puts you at meaningful risk to, not only service your debt, but also, pay it down when it comes due.[00:25:00] Which creates, a meaningful amount of of risk with refinance, refinancing risk. And and I think in the case of some publicly traded firms that have gone private or other ones that have gone public it's really having a prudent balance sheet policy that will dictate your ability.
It's really simple worry it's, for every dollar of invested equity, what is my. What is my, return on assets, right? If I have a strong return, on, on my assets, I will be able to deliver a positive return, to my equity holders.
And when you introduce the concept of debt and leverage, while I think there is a healthy level of equilibrium between, debt. And equity the public markets are going to dissuade you from, over levering your balance sheet in order to grow inorganically, right?
And so you really need to look at the plowback ratio of what firms in the public [00:26:00] markets are actually doing with the capital that they're generating. And if it's if the earnings are exclusively being used to just pay down debt it's very difficult to, have a sustainable organic growth or organic growth policy.
And so with some of the firms that have gone on private, I think they've, unfortunately the public markets were not able to really understand their story and maybe not allow them to grow the way that they need to grow. And for firms that, that are public or looking to go public I think there's a really unique opportunity to when the markets come back because they're not there right now to leverage the public markets as a, an opportunity to tell or retell the eminent, the independent wealth management story.
Because it's probably the greatest story that hasn't been told. In the public markets the right way. You don't see what's happening in our industry today. Is covered with very specific industry trade rags, but with the exception of maybe the HVAC industry, there's no other industry in the [00:27:00] U S that's more accurate and more fragmented than the RIA space.
So I don't understand why it's not showing up on the cover of the wall street journal. Every quarter, because there's just so much activity going on in, in our space. I, and I, so getting back to your question and just to support your answer a little bit more, I think when firms are looking to enter the public space and maybe they've taken on a meaningful amount of leverage going public is just a great way to accelerate the pay down of that debt and, reward a lot of the equity holders for for the growth that they maybe have endured privately.
That's what's created a historically that's what's created a, an incredibly vibrant public capital market. And I do think we're going to see the public markets come back and in some regard over the next several quarters. I think from a macroeconomic standpoint, investors just need to, investors just hate uncertainty.
And I think we remain in a very uncertain environment between, the war in Ukraine, the war in [00:28:00] Israel, high interest rates we need more clarity as to whether the fed is going to be having a soft landing or whether we're going to. Still be in some level of disarray for a period of time, but the market hates instability, right?
And uncertainty. So when we hit a period of more certainty, maybe, less war and more economic stability, and maybe there's a more there's, there is a more transparent, fed path to interest rates. You're going to see more firms test the waters with.
With tapping the public markets, it's not just going to be the next, tech buzz looking to raise money in the tech buzzed company. We're looking to raise money in the public markets. You'll have more traditional firms. And I also think, and sorry to go off on a tangent, but I've spent a lot of time, working with these types of companies sometimes, you get so big in the private markets that there is just no natural strategic buyer, right?
Even though that might be the natural buyer of the business. If there is [00:29:00] no natural strategic buyer and you've just gotten so big, and there are plenty of firms out there that are getting really big, you've got creative planning. It's almost eclipsing 300 billion.
You've got, on the IBD side, you have advisor group, you have, excuse me, Osaic, you have Satara. These firms are becoming massive firms. And if there's really no, no natural owner, I suppose you could always. Flip to private equity yet, yet again, and kind of restart that, that cycle, or you could look at yourself in the mirror and say that the public market is really the natural owner of a business.
And yes, you can make the argument that once you go public, you're always on sale. So you could always go private again. And that, that, that creates a vicious cycle. But when you hit a certain size and a certain threshold sometimes the public markets are really the only natural path to create liquidity and to create growth.
Corey Kupfer: Yeah.
Let's go back to the investment banking service that you're providing through Dynasty especially to not necessarily only to the [00:30:00] internal folks. Who's the ideal client for that? What's the, what's, what size RIA, what, what are they looking for? Give us an idea of that.
Harris Baltch: We like working with all different, sorts of firms. We work with firms that are as small as, 200 to 250 million in AUM. Maybe it's one person and two support staff or one person, a junior advisor and support staff. We work with firms that are as big as, five, 10, 15 billion as you can imagine the dynasty network in and of itself has firms of that size.
We work with firms that are backed by private equity or family offices and those that, that haven't. Given that we've come from bulge brackets, bulge bracket investment banking, we could serve firms really of any size. What I've found is that, some would say that, the smaller firms are more difficult to work with because they're smaller.
So you're, as a banker you're transaction oriented. You're not going to make as much money, if you're a smaller firm and you're listening to this podcast, you'd probably be surprised with what I'm about to say, but they're also very valuable. A lot of these, a lot of these smaller firms are under banked.
They're [00:31:00] not called on by the aggregators because they just fall below the cusp of the list. And because they've been do it yourself for such a long time and they're small, they run really lean. And that creates, tremendous cash flow. And so when a smaller firm is just thinking about doing a transaction, they just need to set a comp ratio that they're comfortable with and capitalize the rest.
And then it's, up to us to find an aligned partner with their business and their clients, et cetera. But we love working with all different types of small businesses across the country because those are sometimes. The most fun and, the most impactful firms to, to work with, but on the larger side, as you move up, it just becomes more complex, right?
You have more owners, you have more stakeholders. Sometimes you have outside capital providers. Sometimes the operating agreement has changed over a couple of times, right? You got to answer to multiple types of stakeholders. Sometimes you're not just dealing with outside investors and inside investors, but you're also dealing with the employees because one of the biggest questions that always comes up is when you're working on an M and a deal it's great that, you got a strong valuation, you've [00:32:00] got a competitive process, from, a couple of different credible partners.
How do you compensate some of the. Some of the people at the company that aren't equity partners, but have been incredibly loyal, right? So those are interesting conversations that we like to get involved with to make sure that all the stakeholders are feeling good about the types of deals that they're doing.
And then on the, on the buy side we get involved in, right now we're working on a merger deal between two RIAs. It's not always just an advisor, an RIA looking to talk in an advisor. It's sometimes an RIA looking to, buy and merge with another RIA.
A lot of the clients that we work with are not backed by private equity, right? And so how do they use an aligned currency or how do they raise capital to just structure a deal, and to make it work for both parties. So we get involved in all different types of transactions, both sell side and buy side.
Corey Kupfer: Love it. You mentioned something that I want to highlight a little bit, which, this conversation of, what do you do when you have a G2? Maybe there hasn't been equitized and now you got a deal going on and [00:33:00] maybe they control, we've seen it definitely whether or not equitized at all, or maybe.
You've got the junior guy has 10 percent of the company, but controls 30 percent or 40 percent of the client relationships. And so there's, there's a conversation about how you solve for that on the back end, which if you have any input, I'd love to hear, but also, because we work together, at least in terms of the dynasty affiliated firms, one of the things that we work together on is trying to think through the an equity and capital structure that anticipates it.
The ability to equitize, people as you bring them in as to whether it's people or people you're talking in. So talk a little bit about that whole equitization conversation and like the proactive view. And then if you haven't done it proactively, how do you deal with it?
Harris Baltch: I'll give you the proactive and then the reactive because on the proactive it's easy. Cause when we're working with advisors that are looking to either join our platform or create a new RIA. The proactive view is, you're starting from scratch. Dynasty, you've seen a gazillion different types [00:34:00] of situations.
How can my operating agreement be bulletproof? And unfortunately we can't be a bulletproof for every situation, but. In terms of setting up the right types of share classes, that are either led by owners, led by advisors or future equity owners. There are ways to structure your operating agreement to accommodate internal succession situations and whether the person receiving.
The equity is, it participates in just the capital upside or the capital on the economic upside is really up to, up, up to each RIA. And that's the beauty of independence is that you can really craft your operating agreement to to really meet the needs of what you think you will need in the future.
And yeah, you could always change your operating agreement, but you can be proactive on the front end to, to address a situation that you think will come up. Or is coming up as a result of going into independence on the reactive side, it's interesting my, my biggest advice for listeners out there that are [00:35:00] thinking about doing an internal succession is that, yeah.
Everybody needs to lean it. Everybody needs to lean it because it's a great way to perpetuate your business. And there are plenty of RIAs that are just rugged individualists, rugged independent firms that will not, never take private equity. They don't want outside capital. And it's really important for them to to, to perpetuate the business from the inside.
So just by virtue of that you need to be flexible with how you accommodate the rotational equity inside of your firm. So everybody has to lean in sometimes with valuation owners need to lean in on when they receive their payout for their equity.
Sometimes the cost of that buyout may involve not just a seller finance note, but also outside capital. The cost of outside capital to a second generation advisor is naturally going to be much more expensive than a friendly seller note. Coming up with a cost of capital [00:36:00] mix for a second generation advisor, who by the way, is also owns, a home and is looking to save money to put two or three or four kids through college, has a very different liquidity profile than someone who's retiring and looking to perpetuate their business through a succession event.
So it's not easy but I'll tell you, Corey from working with, our clients, when there is a real desire. Of the of the firm to perpetuate and everybody's willing to lean in and give up something, right? Maybe the exiting owner doesn't get the max valuation.
And, but they get to, issue a seller note on their terms that makes sense for them and for the advisor, and for the for the second generation advisor, and then for the second generation advisor, Maybe they have to commit to making a bullet payment [00:37:00] on, a certain tranche of the equity a couple of years out because it forces them to grow the business and the enterprise value of the firm, which only makes their equity more, more value for a future, succession event or the types of things that, you need to deal with.
And it just requires a lot of iteration but most importantly, patience.
Corey Kupfer: Yeah.
Yeah. That, that, that's absolutely true. . There's so much more we can talk about, but we're out of time. So I'm going to ask you my final two questions. First one is just, what can people find out more about you and the services specifically that you're providing at Dynasty and,
Harris Baltch: Sure.
Yeah. We, the Dynasty Investment Bank has its own website. So if you just Google Dynasty Investment Bank, you can certainly look us up for For folks who are listening that are familiar with Dynasty, you can go to dynastyfinancialpartners. com or dynastyinvestmentbank. com and you can learn more about, Dynasty's business and our investment bank.
I
Corey Kupfer: love it. I asked my final question of the podcast is always about my highest value in life, which is freedom. And for [00:38:00] me, that means everything from freedom around the world, from all, for all people from oppression to why I've been an entrepreneur for decades and haven't had a boss. What does freedom mean to you and how does it impact your life and business?
Harris Baltch: It's a great question, Corey. For me freedom means peace on earth. It means creating unity and community around, around you. And that level of harmony. Is your Zen and enables you to perform at your highest level every day. And that runs with you at home with your family and then in your office with the people that you work with.
And if you feel free and we're lucky to, and very fortunate to work in a a free country where we have our freedom it, it enables us to be the best we can be.
Corey Kupfer: Harris, thanks for being such a great guest on the \Dealquest podcast.
Harris Baltch: Thanks, Cory.
