Consolidation within the financial services industry reached a record high in 2021 against the backdrop of a massive wealth transfer that will see nearly 45 million U.S. households transition an estimated $68.4 trillion in wealth to heirs and charity by 2043. Wealth management practices are likely to seek scale to take full advantage of this generational opportunity—further expanding the consolidation trend.
And today's technology-enabled integration process is more streamlined and straightforward, making the choice to scale or take advantage of high practice valuations through M&A more attractive. Additionally, the mass acceptance of these solutions allows for more deals to get done faster.
Three years ago, about 40% of LaSalle St.'s incoming advisors said they would utilize digital channels to close recruiting deals. Today, that figure is close to 80% due in part to a global pandemic that continues to limit face-to-face interactions.
But technology can only go so far in supporting the continued industry consolidation. Person-to-person relationships are at the core of every aspect of our business. The cultural and social dynamics of building a successful individual practice and firm must balance the clear advantages of technology-enabled processes and traditional methods of advisor recruitment.
A Streamlined Approach
These compounding trends and COVID-19 safety protocols forced firms to find more efficient ways to recruit. Luckily, advances in back-office automation, communications and technology provided a clear path forward.
Technology facilitates a faster, more efficient transition process from start to finish. Holding first meetings from anywhere there is a cell signal provides flexibility. Sending advisor and client paperwork electronically within hours of closing a deal reduces downtime for all parties. Presenting product and technology demonstrations for multiple parties is more efficient than traditional methods.
Nearly every administrative step of this process is enhanced using digital channels.
There is a cost-savings component too for financial firms embracing digital channels. Highly tactical operations, from relying on videoconferencing and limiting travel budgets to simplified transfers of books of business, make sense to digitize.
Trust Your Instincts
Technology is helpful in many phases of mergers and acquisitions. Yet, one of its most valuable and underappreciated attributes is the time it puts back on the clock for firms and advisors to build personal relationships.
In-person meetings are the best way to test instincts about a deal and understand how people will work together. Videoconferencing filled a void during the immobile days of the pandemic, but relationships built over dinner, coffee or even across conference tables are stronger than those fostered only online.
Initial recruiting outreach can begin via phone or videoconference, but firms should conduct an in-person meeting with the team responsible for supporting daily operations. This gut check can help eliminate integration challenges stemming from misaligned management philosophies and personalities.
Technology stacks can change—but a firm's culture will not. Advisors should choose a firm that best represents their values. Exploring shared values and cultural compatibility is a personal, not digital, experience.
Mergers and acquisitions will not slow, presenting more opportunities to leverage the efficiencies offered by electronic delivery methods. And as technology continues to supplant traditional communication methods, clients are learning to adapt to a new normal. It's an opportunity to make the shift to embrace more digital channels.
These new tools replace traditional methods except for the intangible value of a face-to-face meeting. The email has replaced the marketing postcard, saving all parties money, time and effort. However, we cannot replicate the experience of visiting an advisor solely with technology. Interpersonal interaction has value.
Integrating these practices will deliver better recruitment outcomes and retention of advisors for firms.
Mark Contey is senior vice president of business development for LaSalle St. Securities LLC, a family of wealth management firms encompassing independent broker/dealer and registered investment advisor (RIA) platforms.