In November, Dynasty Financial Partners, the St. Petersburg, Fla.-based support platform for registered investment advisors, rolled out Model Select, a model portfolio program for its network of independent advisors.
Chief Investment Officer Bob Shea leads the program, which aims to provide outsourced trading and investment management services for RIAs in Dynasty’s network that previously managed those tasks independently.
Model Select offers options suitable for 11 levels of risk tolerance and taxable fixed-income options. It incorporates automated portfolio trading, tax-efficient management, tax overlay capabilities and educational content for advisors.
WealthManagement.com caught up with Shea to discuss how the program works and how implementation is going.
This interview has been edited for style, length and clarity.
WealthManagement.com: Can you talk about the background of the Model Select program and why it was launched?
Bob Shea: I spent the bulk of my career with Goldman Sachs, where I was a partner in the equities division, managing a number of trading businesses—some client-facing and some proprietary. After 15 years, I left Goldman and seeded and managed a fund focused on Greater China. I wanted to understand that part of the world better.
After that, I co-founded and was CIO of an ETF strategist firm. We built multi-asset portfolios using all ETFs (three asset classes in one SMA) and sold into the independent broker/dealer channel. We scaled and, after eight years, sold the company in 2019.
I joined Dynasty about 2 1/2 years ago. We’ve grown from $60 billion to $110 billion over that time. Upon arrival, I was assigned three primary responsibilities: bring a house view to Dynasty, support it with thought leadership, research and education, and professionalize our OCIO business and build a small account solution.
The Model Select program was created for advisors who had been independently constructing portfolios and wanted to outsource trading and portfolio management. We have observed that the value proposition to an advisor, which includes advanced tax technology, a sophisticated allocation framework, and low cost, is highly compelling. Consequently, the inflows into the program have been substantial and continue to grow. By outsourcing investment management, advisors get to spend more time with their clients, and studies have shown that RIAs that outsource command a higher enterprise value in the market.
We collaborate with industry leaders BlackRock and JP Morgan. However, our clients have shown a preference for the multi-manager “hybrid” (passive/active) solution we provide, particularly when it is offered at a competitive expense ratio. Cheap index exposures where it makes sense, a factor tilt for where we are in a credit or market cycle and using active managers where we see opportunities to deliver alpha.
We thought the average ticket size for the program would be $100,000 to $200,000. Instead, it’s $660,000, proving that the professional and sophisticated allocation framework can support larger clients.
WM: Can you talk about your allocation framework?
BS: It’s a top-down macro approach. I think about three regions in the world—North America, Europe and Asia, and look at the fiscal and monetary forces in each region. Are they supportive? Are there tailwinds or headwinds for risk assets? Then I go down into more tactical measures, like prices that matter to me on a three-to-nine-month timeline.
I focus on four key prices for short-term guidance (three to nine months): the dollar, interest rate levels and yield curve slope, oil and credit spreads. I have found that understanding the primary trend of these prices provides enormous help in how to allocate across asset classes and regions.
WM: Can you drill down a bit on equities?
BS: For equity exposure, we utilize an index, factor and alpha framework. We use cheap indexes where it makes sense. Part of my top-down approach is using a factor tilt, depending on where we are in a credit or market cycle. Factors include Value, Growth, Quality, Size and Low Volatility. I believe we are late in this credit cycle, so we want to have a quality tilt.
Over the past year, the Momentum factor outperformed the Value factor by more than 30%.
Alpha is where we would use active managers to target opportunities for outperformance vs. our benchmark. Active manager performance dispersion in public markets has been minuscule. I believe we might have reached the “peak index” in 2024. When this correction concludes, some new leaders will emerge. It’s a very fertile landscape for active managers, who have been beaten over the head by the indexes for some time.
WM: What about factoring fees into that?
BS: What we’ve learned building this model portfolio is that advisors are price sensitive and want a multi-manager active/passive portfolio delivered at an expense ratio of 40 basis points or less.
WM: Can you also talk about the manager selection process?
BS: We work closely with partners like BlackRock and JPMorgan, but I also enjoy going out and finding managers that can get at a long-term theme that I’d like to express. We focus on boutique firms that excel in our target area.
WM: How are you navigating the recent volatility in markets and talking about it with advisors and clients?
BS: In the time we started talking about this article, we have witnessed some of the most historic market dislocations ever. Yet, within a month, we are within spitting distance of where we started the year. While equities and interest rates remain close to pre-Liberation Day levels, many of these dislocations have left investors questioning which changes represent new and lasting considerations for markets.
WM: With alts, are you looking at traditional drawdown vehicles or at evergreen structures?
BS: For models, we are looking at evergreen or semi-liquid products. We will start with interval funds, and we will move up the sophistication food chain as technology permits. The beauty of the portfolios, what’s made adoption easier, is the tax transition on the trading side.
WM: And what about manager selection for private markets?
BS: We work with my due diligence partners F.L.Putnam/Atrato to source and diligence private managers.
One of the big stories from my perspective is the incredibly shrinking public market for growth stocks. All the best growth companies are staying private. I’m also thinking about phase two of AI. Phase one has been the infrastructure. Phase two is adoption and agents.
WM: When Model Select was unveiled, it included 11 different risk tolerances and tax-aware and taxable fixed income options. Can you talk about that a bit?
BS: It’s giving everyone the opportunity to allocate per their client’s planning budget. We do a lot in 100/0 equities, and options go all the way down to 0/100 fixed income.