Whether the financial industry is contracting due to mergers and acquisitions or expanding with the creation of new firms remains to be seen, according to HighTower CEO Elliott Weissbluth.
“It’s a busy time out there. A month ago I would have said, yes, the industry is contracting because of all the private equity out there willing to provide capital for consolidations,” Weissbluth said during a webinar Monday sponsored by TD Ameritrade Institutional. “But now we are seeing a lot of new firms being created. We’ll know next year whether the industry as a whole is contracting or expanding.”
Weisbluth announced last summer that he is moving from CEO to chairman of HighTower. Current chairman Gurinder Ahluwalia, an executive advisor to Lee Partners, which bought a majority share of HighTower, is moving to lead director. Weissbluth will remain as CEO at the company he helped found until a replacement is found. The search for a new CEO is ongoing.
During the webinar, Weissbluth concentrated on things advisors should be aware of if they decide to go the M&A route. The primary item that advisors and RIAs need to know when considering a merger or acquisition is that the work is not done when the deal is done, Weissbluth said. The work of making a successful transition goes well beyond the closing.
“When merging with another firm, or selling or buying a firm, the focus should be on two or three years down the road after the deal is completed,” said Weissbluth, whose firm has acquired several large companies recently, including the $6.4 billion WealthTrust in April. “Change your point of view from the deal itself and consider what the acquisition will bring to your firm or how being acquired will help you serve your clients. The deal itself is just one point in time.”
Weissbluth said he understands potential sellers who are reluctant to close the deal because they often feel they are giving up something they built from the ground up. But there are areas of running a firm that the seller should be happy to get rid of.
“For instance, figuring out how to meet the Department of Labor fiduciary rule [which was never fully enacted] was a complete waste of time for advisors. It did not grow their business. The same for dealing with cyber security. Dealing with it does not grow the business,” Weissbluth said. An acquiring firm like HighTower can deal with those issues and give the advisor his or her time back.
When one firm is acquiring another, the future is not going to be business as usual; there will be changes. “The firms need to be clear what will change for the seller. The buyer has to manage expectations in order to have a successful transition,” he said.
If the seller operates the business on a commission basis, that part of the business could be retained for some time into the future. “But the trend is to convert business to fee-only, which is what probably will happen with the acquired firm,” he said.
“The one topic we see that catches people by surprise in mergers and acquisitions is that executives forget to have conversations with people who are not in the tent when the decision is made. You should go person to person and tell them how the action will affect them. That conversation tends to get overlooked,” Weissbluth said.