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Having worked with advisors the last dozen years, I have seen the good, bad and disastrous as it relates to M&A transactions. There is always focus on the valuation and the payouts, which are critically important. But what is often be missing in the process are the emotional considerations that can be more difficult to discuss and therefore easier to avoid. However, not exploring these aspects of a potential transaction can be very problematic in the long run.
When my children were very young we needed to decide on a guardian for them if something happened to my husband and me. We tried to have the discussion many times but it was so emotional and we just couldn’t agree on who would be the most suitable person. So we went without a guardian; we avoided the painful decision and prayed that all would be ok. As soon as my sister was engaged, we spoke to her and her fiancée and they agreed to this responsibility — a load off our minds! Advisors often avoid the more emotional considerations of a potential deal. It’s hard to work to manage through the emotional aspects of any decision!
When advisors are clear on their quantitative and qualitative goals for the transaction, they can build a framework for exploring these topics with the other advisors involved in a potential deal. Areas that an advisor should explore include but are not limited to:
Leadership style
How would you describe the current leadership style that drives the culture of the firm? What’s most important for you to preserve as you consider an acquisition, sale or merger of your practice? Post-transaction, who is running the firm? Are there two CEO’s? If yes, how are decisions made? Do partners all have decision rights? Do you need to create a different governance model? Can you agree on one? If no, what are the respective roles of the head of each advisor firm?
Vision for the firm
Be honest with yourself on how you see the firm in five years. How large is the firm? How many employees? Locations? What are the demographics of your client base? What new services are you providing? Be clear on your vision and goals and then compare these with the advisors involved to acknowledge where there is alignment and work through the differences. If you cannot reach agreement on the differences, walking away may be the best decision.
Client acquisition
How do you engage in business development activities today? Who is responsible? One person or a team? Do they have clear metrics for new business or is it less formal? How do you handle COI engagement and client referrals? What do you want to retain about your sales process and what are you looking to improve? Does a potential transaction help or hinder this process? Are you regionally focused, nationally focused? How does the transaction impact your regional footprint? Will it feel too big for you or is that what you’re looking for?
Client engagement
How do you define your client engagement strategy? As the head of the practice, are you hands on with clients or more focused on running the business? How will a transaction impact the way you engage with your clients? If your engagement strategy is well defined and you think it works, how will it be impacted in the future? If it’s more loosely defined, is that what you like or would you bristle at something more formal?
Retention of employees and employee development
How important is it for you to retain all employees? Will employees see this as an opportunity or risk and why? How do you currently invest in employee development? Which HR structures, or other employee-oriented aspects, are important to retain? If there is redundancy of certain roles, how will you handle? Will people get repurposed? If so how and will this be acceptable to the impacted individuals?
As you work through these and other cultural considerations, spend time independently thinking about your responses to the above questions. Dig deep and be brutally honest. Then discuss each of these areas with the other advisor. Look to see where you have commonality and where there are real differences. By talking through the areas of difference, you’ll either be able to compromise in a way that works for both parties to the transaction or you will have learned enough about your differences that you can walk away and avoid a disastrous situation. The implications of any M&A transaction are significant. Understanding what your imperatives are and where you are willing to compromise are critical for the success of deal.
I have seen advisors facilitate their own conversation on cultural considerations and have seen many take advantage of a facilitator – a neutral party who can ensure that both advisor teams are being honest and thoughtful and can help navigate these emotional discussions. However you decide to approach the discussion, the most important thing is to have the open dialogue!
Meg Kelleher has 30 years of financial services experience and is currently Managing Director at The Collaborative (www.the-collaborative.com). Prior to joining the Collaborative, Meg was a regional managing director for Fidelity Clearing & Custody Solutions (FCCS). She oversaw a dedicated team to attract and serve small advisors on Fidelity’s platform, and to promote the services of 401(k) retirement plan record keepers while engaging more effectively with advisors who sell retirement plans. In this role, Meg helped clients drive scale and efficiency, grow their business and keep them at the forefront of their industry. She was named one of the “2013 Most Influential People” by the 401kWire.
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