If great internal communication is already a hallmark of your firm, it will serve you and your partners well in the newly merged firm. If it isn’t, the run-up to a new partnership is a wonderful time to start exercising those muscles with a view to building a stronger culture over time for both sides of the partnership.
Here it’s important to know that what seems like a cultural clash in the making may in fact point to potentially beneficial differences. Sometimes a hard-edged partner can work well with an advisor who is a softer touch. The one can close deals and stare down the opposition, while the other calms nerves and makes clients and staff members feel deeply appreciated.
Stated simply, generalizations about M&A activity in the wealth-management space mask the fact that no two mergers are alike, and that being overly dogmatic about what constitutes a “good fit” for your firm can leave otherwise promising partnerships on the table.
Diligence and Valuation
One of the biggest factors in a successful merger is due diligence. It should be the basis of your M&A strategies with specific firms because it aims, first and foremost in determining compatibility. In fact, the lack of thorough vetting procedures is largely, if unsurprisingly, a consistent aspect of partnerships that eventually fail.
Think of it this way. When you buy a car, you do research, right? You first compare the type of vehicle you’ve got in mind to others of similar ilks and price ranges, and when you’ve got a specific vehicle in view, especially if it’s had a previous owner, you pour over its CarFax report until you’ve got a sufficient grasp of its history to make a decision.
Do the same thing with any advisor you’re considering as a partner. What’s her background and history? Why did she start the firm? What do former bosses and colleagues say about her now? In other words, get the CarFax on potential partners and their practices in the form of insight on their financial and business metrics.
Another vital part of the run-up to a merger is determining value. This calls for making sure the combined services of the practices contemplating tying the knot actually add up to something of greater value, and not a mere litany of duplication. To this end, it’s best to agree on a roadmap and a timeline for the two practices to achieve success once they’ve come together. This should be a solid blueprint to guide future decisions — rather like the constitution of a nation — that provides for changes to be made in a fair and orderly fashion.
The process of determining value should also shed light on who in the merged firm will handle what roles based on the individual’s training, history and inherent strengths. As mentioned, the ability of partnered advisors to play off each other’s strengths and make up for shortcomings can give them a sense of competitive dynamism they’d never before experienced. But the key to achieving this happy state is having the right talent in the right roles — and formulating procedures to address inevitable — if only occasional — gaps in talent.
Pair With Complimentary Skills and Services
Some financial-advice firms also form partnerships to save on costs, mainly through outsourcing, streamlining, and cost sharing without actually merging. These efficiencies can increase revenue, and stand as a competitive advantage or equalizer, especially in crowded markets. Of course, where both firms in a non-merger partnership offer complementary services with minimal overlap, the new firm could attract more clients — and lead to robust referral streams, and provide the basis for compelling joint marketing campaigns.
Have an Exit Plan
Another vital aspect of merger planning is exit planning — an often overlooked facet of such deals. Advisors hoping to make quick getaways may be surprised to learn that their partners expect them to stick around a lot longer. And even where such expectations are made explicit, the partners may lack processes for undoing mergers that don't meet stated expectations within a set time frame.