Climate of Consolidation Continues for Investment Industry
By BOB PEPALIS
Consolidations of independent broker dealers have been on the rise for the past few years with many acquisitions, both large and small. Every firm in any industry involved in an acquisition will try to put forth the message that no changes will be seen by the employees or the clients, except for improvements.
However, any adviser who has been involved in a consolidation after a merger or acquisition can tell you the culture will change for the newcomers and even the old hands at the now parent institution. It almost seems like human nature to expect the worst when faced with change. And that’s even when you were pleading for changes from your original IBD.
If there are complaints about inferior technology, advisers will probably be unhappy with the changes made after the acquisitions. The new guys in charge will probably choose the wrong tools for the job, or they’ll take too long to get them to everybody. You can be certain that as the newcomers any improvements will reach you last.
An attempt by those now in charge of creating all of the forms necessary to do the jobs, especially those disclosure forms, will become much too long with dozens of pages when you are sure only five or six pages are necessary. Or if they manage to shorten the forms, it’s a sure thing that some important information will be left out, confusing clients even more.
Will that drive advisers out of the “bigger and better’ firm? The industry warned advisers they will need to perform due diligence to discover what is expected of them in this new environment. It’s not enough to know what you are getting – you need to know what you need and want in the support systems, technology and culture of the acquiring firm.
Whether your firm is kept as a standalone or bundled into the new firm determines how quickly you will perform due diligence. Plan for becoming folded into the new firm as that is likely to happen after some time if not immediately. Advisers will be doing the same thing.
Whatever happens can make you happy with your firm’s acquisition. Or you will have to take advantage of options the acquisition provides. Advisers are in the same boat. Will the acquisition keep the firm stable? Will advisers rush their due diligence because of fears that compensation and fees will drastically change for the worse?
Expect more advisers to be facing these same questions and situations, as most in the industry expect more acquisitions. The temptation to enter into an acquisition is much stronger with multiples so high for broker-dealer owners to sell. Many of the recent acquisitions have closed anywhere between 45-89 percent of the gross dealer concessions produced by the firm.”
Bob Pepalis is a freelance journalist with experience in business coverage in online, daily and weekly media.