If one wants to know what the near future holds, the recent past is usually the best indicator.

For the wealth management industry, that means a continued period of increasing mergers and acquisitions, successions and breakaways, and all of the financial, operational and technological challenges that come with them. In spite of the rising costs of capital, economic uncertainty and a potential looming recession, 2022 is expected by acquirers and M&A consultants alike to be a banner year for financial advisory acquisitions—and such predictions make sense for 2023, says Chris Zuczek, chief product officer at Skience.

“It’s a demographic reality,” he says. “We’re going to see more consolidation, firms are going to be acquiring each other, and transactions should accelerate.” There is also a continued move of advisors away from broker-dealers and toward the independent fiduciary space, he says, “which creates its own set of issues.”

All this happens as financial advisory firms are turning into technology firms, dependent on portfolio software, client portals, marketing automation and CRM to get their jobs done. So when a financial advisory practice changes ownership or merges with another, it faces looming technology decisions.

Integration Takes Time
When two firms agree to a merger or acquisition, one of the first questions that must be answered is what technology stays and what goes.

Generally, it can take three to 24 months for two firms to integrate their tech, says Farouk Ferchichi, head of data and analytics at Envestnet. But it depends on what kind of functionality is offered by each firm’s tech design and stack and what the current and future clients will demand. 

Otherwise, the length of time usually has more to do with the number of clients the integrating firms serve instead of the firms’ size or complexity, says Jess Flynn, head of advisor content at FP Transitions. “If a midsize firm [with $500 million in assets under management or 300 clients] is acquiring a smaller firm [of $200 million in AUM and 150 clients], the time line could be six months to a year to merge into a typical out-of-the-box tech setup,” Flynn says. “If the acquirer has built a proprietary tech stack, it could take well over one year.”

In some cases, much longer. It can be so difficult to combine technologies that some merged and acquired firms end up working on two technology stacks at the same time.

The Software
Kyle Hiatt, executive vice president of business development at Orion Advisor Solutions, says that firms should be thinking about technology integration before signing on the dotted line.

“If I have a certain planning or CRM system, I want to be careful to make sure that works with the system of the firm that is acquiring my business—those are cornerstone pieces of technology and ideally I should make sure that these systems can work together,” Hiatt says. “Sometimes, moving information from one system to another has to become more manual, and that can delay the integration. Ease of transition is a big part of this.”

If the two clashing tech stacks don’t align well, that isn’t usually a big enough deal to call off a merger of the firms, though it can throw a wrench in the works. The choice of which to keep comes down to culture, Hiatt says, and what the firms want their shared clients’ journey to be.

“From the prospect all the way through an ongoing relationship with the client or their household—what do they want that to look like?” he asks, adding that the two partners need to “plot all that out, and then find the technology that aligns best with that vision.”

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