Building Enterprise Value Through Fee-Based Transitions with David Lau

In this episode of the DealQuest Podcast, I'm excited to welcome David Lau, founder and CEO of DPL Financial Partners, a privately held financial services firm that has transformed how registered investment advisors approach insurance and annuity products. Since launching in 2018, David has built DPL into a platform working with 20 leading insurance carriers and serving more than 10,000 advisors at over 3,500 RIA firms. No one on earth has done more to bring the $144 trillion RIA market and the $1 trillion annuity market together. His career spans being the chief marketing officer at the first internet bank in the country, raising over $500 million in capital across multiple ventures, and building and selling an insurance carrier to Nationwide. He also serves on the CFP Board's Standards Resource Commission and the Insurance sub-committee.

What struck me most about this conversation was David's ability to connect the dots between capital raising, company building, and the real mechanics of what drives enterprise value. He has lived through the full spectrum of deal experiences, from taking a company public to selling a business, and now building DPL with institutional backing. His insights on why organic growth matters more than market growth in valuations, and how converting commission-based business to fee-based revenue can multiply your exit value, should resonate with any business owner thinking about their next transaction.

FROM ASPIRING ATHLETE TO ACCIDENTAL ENTREPRENEUR

David laughed when I asked what he wanted to be at ten years old. Like so many guests on this show, he dreamed of becoming a professional athlete. "I was always a pretty good athlete but then as I got to high school and actually played, then you realize that you need to be six foot four."

That reality check opened the door to a career path that was anything but linear. David admitted he never had a clear idea of what he wanted to do, calling his early career "a little bit happenstance" before becoming "pretty intentional" over time. It is a reminder that entrepreneurial journeys rarely follow the straight lines we draw in business school.

RAISING CAPITAL AT THE FIRST INTERNET BANK

David's first significant deal experience came as chief marketing officer of Telebank, the first internet bank in the country. The capital raising experience shaped everything that followed.

"We wound up doing I think three different capital raises in four years," David explained. "We raised a little over $500 million for the business." When preparing to go meaningfully public, the stock price jumped from $17 to $150 in just a few weeks. Goldman Sachs had to work to stabilize pricing before they ultimately struck the deal at $105.

That intensity of going public, the roadshows with institutional investors, and managing analyst expectations taught David lessons that still inform how he builds businesses today.

THE TRADEOFFS OF TAKING OUTSIDE CAPITAL

When David launched DPL, he initially planned to bootstrap. Having just come out of another private equity backed company that was built and sold, he had seen the cycle enough times. "I'm bootstrapping this," he told himself.

Then he met Todd Boehly, who owns Chelsea, the Dodgers, and part of the Lakers. Through Boehly's firm Eldridge, along with Bob Diamond's Atlas Merchant Capital, David secured the institutional backing to scale DPL. "I was introduced to Todd and I was pitching him the business and what I was doing and he wanted to invest. How do I not take money from that guy?"

David was candid about what taking that capital means. "You're signing up for growth. You are signing up for going hard. You're signing up for in the early years certainly 100% growth year after year."

He shared a powerful insight from his banking days. When deciding whether to go meaningfully public, the founder told the team, "The thing is, if we go do this, it's going to change the company. A number of the people that have helped us get here aren't going to make it. We're going to outgrow them."

For David, that was one of the hardest parts of taking professional capital. You go through phases of the company, and the people who helped you reach one stage may not be the right people for the next.

VENTURE CAPITALISTS VERSUS PRIVATE EQUITY MINDSETS

David drew a sharp distinction between early stage and later stage investors. "Venture capitalists are the optimists. They see your vision and they're super excited."

Then comes private equity. "They're no longer the optimists. They're the guys who see all the downside. They're the guys who see everything that can go wrong in your model."

This shift requires entrepreneurs to adapt. The storytelling that wins over VCs and the discipline that satisfies PE investors are fundamentally different skills. Understanding which phase your company is in determines how you need to communicate with your capital partners.

This resonates with insights Tom Dillon shared in Episode 350, where he discussed when venture capital makes sense versus when entrepreneurs should explore alternative funding sources. The key is matching your capital structure to your actual exit expectations.

CHOOSING THE RIGHT INVESTORS OVER TAKING ANY MONEY

"People can sometimes get excited that somebody is offering them money," David observed. "I'll just take the money. All money's good money."

That thinking is a mistake. "The partnerships and the relationships matter. The right people can really help you grow your business, can help you get to the next stages."

Beyond strategic value, the right investors bring networks, internal talent, and guidance that can be transformative for smaller companies without those resources. The relationships you build with your capital partners will shape your business for years.

THE RIA INDUSTRY PROBLEM DPL SOLVES

When David built Jefferson National, the insurance carrier he eventually sold to Nationwide, he saw structural problems in how insurance products served the fee-based advisory world.

"The RIA industry is booming. When we first launched that company, I think the collective assets were like 600 billion. Now there's firms who have that much. It's closer to a $10 trillion market now."

But while advisors migrated from transactional to fee-based revenue, the insurance world stayed commission driven. David saw two structural barriers preventing change. First, there were no products designed to work in a fee-based model. Second, technology silos kept annuities separate from portfolio management systems.

DPL tackled both problems by working with carriers to create commission-free products and integrating with platforms like Orion and Black Diamond to bring insurance into the same systems advisors use for everything else. The platform can now review approximately 2,500 policies in an hour, allowing firms to get a better understanding of their annuity book during valuation and transition. A significant portion of the roughly $4 billion in annuity sales completed by DPL to date were related to M&A deals and team lift-outs.

HOW CONVERTING TO FEE-BASED MULTIPLIES YOUR EXIT VALUE

For hybrid advisors who use annuities, David explained how conversion to fee-based revenue transforms their exit potential.

"The advisor is now getting more revenue and better revenue. When it comes to deals, they're going to get maybe three times the amount of revenue they might have been generating from a trail. And they're going to get probably five times the multiple."

This mathematical reality should get every hybrid advisor's attention. The same client relationships can be worth dramatically more in a transaction when the revenue model shifts from commission to fee-based.

The valuation impact extends beyond multiples. "Not only is it not valued in the same way, but it also opens up options because there are a lot more firms willing to buy fee-based assets," David explained. Staying hybrid narrows your potential buyer pool significantly.

WHY ORGANIC GROWTH TRUMPS MARKET GROWTH IN VALUATIONS

David shared a favorite story about sitting on a panel with three billionaires who had all lost everything and rebuilt. When asked about mistakes, one billionaire replied, "I mistook a bull market for brilliance."

"You're not going to get credit for growth that came from the market," David said directly. "The acquirers and particularly their private backers want organic growth."

He cited an example from a recent conference. "If you're an RIA ten years ago and you did absolutely nothing over the last decade, you're making twice as much money. You're in the right place at the right time with the market going up. But if you're looking to do a transaction, you're not going to get credit for that."

This connects to themes in Episode 339, my solocast on why G2 leadership matters in M&A. Buyers pay premium multiples for businesses that demonstrate actual organic growth capabilities, not just market appreciation.

LESSONS FROM BEING A PUBLIC COMPANY EXECUTIVE

David's time at the bank taught him hard lessons about public company dynamics. After what he thought was a great quarter, with bigger accounts, more deposits, and lower acquisition costs, the stock got crushed.

"We didn't have as many accounts. We brought in more assets because we brought in bigger, better accounts and we did it more efficiently. From a business point of view, that's a great outcome. But we got crushed because it wasn't as many."

The lesson extended beyond that single quarter. "Every metric matters. Even if you're thinking we had a really good long term business outcome here, that doesn't necessarily matter. You truly have to make quarter to quarter decisions."

That pressure is why many companies are choosing to stay private longer or, like Focus Financial, going public and then getting taken back private.

THE FUTURE OF RIA CONSOLIDATION

Looking at where the industry is heading, David offered a nuanced view. "A lot of people have been predicting you're going to see some of the consolidators consolidating. I think that's harder than people think."

Each aggregator is building their own culture and entity. Merging those at scale presents significant challenges. "They're all getting crazy multiples right now. How do you make that happen?"

Yet he remains convinced that consolidation of the consolidators will eventually occur, and some will go public. "I think we're still in the early innings of consolidation. There's still more new firms coming into the market than ones getting gobbled up."

For business owners considering their exit options, this means the window for premium valuations in RIA M&A remains open, but organic growth and fee-based revenue will increasingly separate the attractive targets from the rest.

KNOWING WHEN TO SELL A BUSINESS

When David sold Jefferson National to Nationwide, several factors came together. Being a small insurance carrier with a limited balance sheet meant there were constraints on what they could accomplish alone.

"We really needed to partner with somebody with a bigger balance sheet. It was a bit of, okay, this business has kind of run its course. We've taken it probably as far as we can take it."

He also recognized that an insurance carrier requires significant capital intensity, which narrows potential investor audiences. The valuable part of the company was actually the distribution, not the balance sheet. That insight led directly to building DPL as a distribution-focused platform.

"A lot of RIA firms probably get that way too," David observed. "At some point those larger firms can bring more capability to you. They can bring a marketing and growth engine. They can bring lawyers and estate planners and all kinds of things. The scale of one of those companies is just going to be beneficial to your business in a way that maybe you can't accomplish on your own."

FREEDOM FROM THE BIG COMPANY TRAP

For my final question about freedom, David shared an unexpected story. His first job out of school involved working with a foundation that helped the CIA resettle Russian defectors after debriefing.

"It wasn't until talking to those people that you realized how much the benefits of freedom that we have in this country really mean. You're talking to people who were high level Soviet politicians at the top of the country and they're living in one bedroom apartments with shared bathroom and kitchen with ten other families. And they had no freedom."

Those conversations gave David perspective he has carried throughout his career. "It helps you appreciate America and the freedoms and benefits we have. I think it's the most fundamental thing. To many, you just take it for granted like anything you're used to. But when you've got a good experience of a place where there is no such freedom, it can open your eyes and bring some gratitude."

Tune in to this episode to hear David Lau share his journey from raising half a billion dollars at the first internet bank to building DPL Financial Partners into a platform serving thousands of advisors. From capital raising lessons to why fee-based conversion can multiply your exit value, this conversation offers essential insights for anyone in the RIA space considering transactions. For more on capital raising decisions, check out my conversation with Tom Dillon in Episode 350 on alternative funding sources, or my solocast Episode 339 on why G2 leadership matters in M&A

Listen to the full episode of DealQuest Podcast Episode with David Lau: https://podcasts.apple.com/us/podcast/dealquest-podcast-with-corey-kupfer/id1451959848

FOR MORE ON DAVID LAU:
LinkedIn: https://www.linkedin.com/in/david-lau-b6449b7/
Company: https://www.dplfp.com
Twitter/X: https://x.com/dpl_fp

FOR MORE ON COREY KUPFER:
https://www.linkedin.com/in/coreykupfer/
https://www.coreykupfer.com/

Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

Get deal-ready with the DealQuest Podcast with Corey Kupfer, where like-minded entrepreneurs and business leaders converge, share insights and challenges, and success stories. Equip yourself with the tools, resources, and support necessary to navigate the complex yet rewarding world of dealmaking. Dive into the world of deal-driven growth today!