With President, Kay Lynn Mayhue
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Wealth management industry M&A activity continues to capture headlines, as advisors face an uncertain future and shifting client needs to create a new financial planning landscape.
Many of the changes are welcome, enabling greater use of technology, larger planning and investment teams, and ultimately a better experience for clients. However, they can also be daunting, leading advisors to consider two possible futures: elevate their businesses to continue serving clients to the best of their ability or retire from their firm while setting up their team and clients for success after the departure.
In either scenario, the idea of aligning with a larger firm via M&A is appealing. I have sat on both sides of the table, as both an advisor who joined a larger firm and now as president of a firm actively evaluating and acquiring advisor partners. Here are the three main factors I see currently driving M&A discussions:
1. Stacking the team with sufficient and dynamic talent is a significant investment. Now more than ever, advisors are focusing on niche client segments, emphasizing specific aspects of planning and considering a larger universe of investment options for their clients. This creates opportunity for advisors entering the business, but also leaves established advisory firms with greater talent acquisition needs. Leaders at smaller firms are forced to fill the gaps by wearing multiple hats, serving as financial advisor, technology specialist, marketing consultant, human resource manager, compliance officer and more. This is a lot to ask of someone who ideally should be thinking about how to best serve their clients.
Consider a football team that features defensive and offensive coordinators who can focus on the details in their specific area of expertise. The same thinking is true when aligning with a larger firm, which typically has multiple in-house specialists and experts to serve as invaluable resources. At Merit, our focus is on expanding the departmental and specialized resources available to our advisors, so they can leverage experts who will provide impactful change on Day One. From marketing to prospecting to talent acquisition, having a large and skilled team behind you relieves the pressure that most small firms face daily. It also improves the client experience, because advisors can better focus on the client’s needs, not the needs of the business.
For example, we are onboarding advisors who not only align with our commitment to clients but also offer specialized skills that enhance our larger offering, such as advising corporate executives or supporting clients through divorce or the death of a spouse. Our team mentality allows the skills of one to benefit the clients of many.
2. Technology is increasingly driving advisor decisions. Many of today’s practicing financial advisors likely began their careers amid a much different technology landscape. Technology is now front and center in powering the advisory firm of the future and represents a core aspect of running a successful practice. Recent tech offerings let advisors plan comprehensively and accurately at scale, while requiring steep investments of time and money along with a commitment to ongoing training.
At our firm, we have committed to more than $4 million in technology investments over the next 18 months. Our goal is for new tech solutions to assist advisors in assessing investments and returns, manage communications through a top-of-the-line CRM, and seamlessly coordinate tasks and workflows across teammates. These updates are aimed at staying true to client-focused service while remaining competitive with the largest of hybrid model advisors. Such significant capital investments are essential in today’s wealth management industry, and joining a larger firm is a great way to enjoy the best of both worlds when servicing clients.
3. Anticipated tax law changes are accelerating how advisors view the “next phase” of their businesses. I’ve talked to countless advisors who are nearing retirement age but always view themselves as still “a few years away” from any decision-making about retirement. Those “few years” can slip into several years amid concerns related to significant change and—in many cases—the absence of an actual succession plan.
But there are now some topical issues in the news that may cause advisors to speed up the process.
While most of the discussions around President Joe Biden’s recent tax proposal are focused on how these changes may impact clients and investors, it should also prompt advisors to consider the implications for their business. Most advisors are sole owners or have teams to consider, and they would be faced with considerably larger tax consequences if they choose to delay finding an acquiring firm for their business. The same could be said for smaller firms that have growth aspirations rather than retirement plans. The impending tax legislation is a motivator for many types of business owners to execute on plans they may have been entertaining for a long time.
Each firm is unique in its business needs and goals, but we see advisors united around these common challenges related to talent, technology and planning. Larger firms offer significant resources and scale that can propel advisors to the next phase of their business, no matter what that looks like for you.