The three components that drive wealth management M&A in 2021

The wealth management industry is gaining M&A activity headlines, as consultants face an uncertain future and changing clients must create a new financial planning landscape.

Many changes are welcome, leading to greater use of technology, larger planning and investment teams, and ultimately a better experience for customers. However, they can also be a leading consultant to consider two potential futures: to continue to serve clients to the best of their ability, or to retire from their firm while building their team and client after the success of their business.

In any case, the idea of ​​M&A aligning with a large firm is appealing. I sit on both sides of the table, as a consultant who has joined a large firm and is now actively evaluating and acquiring advisory partners as chairman of a firm. Here are the three main components when I run the M&A discussion.

1. Stacking a team with enough and dynamic talent is an important investment. Now more than ever, consultants are focusing on specific client segments, emphasizing specific aspects of planning, and considering a larger universe of investment options for their clients. This creates opportunities for consultants entering the business, but also leaves out established consulting firms with talent acquisition needs. Leaders in small companies are forced to fill the void by wearing multiple hats, financial advisors, technology experts, marketing consultants, human resource managers, compliance officers and more. It’s like asking someone who should ideally think about how to best serve their customers.

Consider a football team that has defensive and offensive coordinators who can focus on details in their specific field. The same thinking is true when aligning with a large firm, which usually has many in-house experts and specialists to work with as invaluable resources. At Merit, our focus is on expanding the departmental and specialized resources available to our consultants, so that they can take advantage of experts who will provide effective change on the first day. From marketing to prospecting to talent acquisition, having a large and skilled team behind you reduces the daily pressure on most small companies. It also improves the client experience, as consultants can better focus on customer needs, not business needs.

For example, we are onboarding consultants who not only match our commitment to clients but also offer specialized skills such as advising corporate executives or supporting clients through divorce or the death of a spouse. Our team mentality allows one’s skills to benefit many customers.

2. The decisions of consultants are increasing due to technology. Many of today’s practicing financial advisors may have started their careers with a very different technology approach. Technology is now at the forefront of empowering future consulting firms and represents a key aspect of running a successful practice. Recent tech offers allow consultants to plan comprehensively and accurately while requiring large investments of time and money, including commitment to ongoing training.

At our firm, we are committed to investing more than $ 4 million in technology over the next 18 months. Our goal is to assist consultants in evaluating investments and returns, managing communications through top-of-the-line CRM, and seamlessly coordinating team tasks and workflows. The purpose of these updates is to stay true to client-centric service and stay competitive with the largest hybrid model consultants. Such a significant capital investment is required in today’s wealth management industry and joining a large company is a great way to enjoy the best of both worlds while serving customers.

3. Expected tax law changes are accelerating the way consultants see the “next stage” of their business. I’ve talked to a number of counselors who are approaching retirement age but still see themselves as “a few years away” from making any decision about retirement. She may move “several years” into concerns related to significant change, and in many cases – in the absence of an actual succession plan.

But now there are some common issues in the news that could speed up the advisory process.

While much of the discussion surrounding President Joe Biden’s recent tax proposal has focused on how these changes could affect clients and investors, consultants need to consider what the impact will be for their business. Most consultants are sole proprietors or have teams to consider, and if they delay finding a company to acquire for their business, they will face huge tax consequences.