03 May2019
To The Victor Goes The Spoils- The Benefits of Strategic Growth Through Acquisition

Last year financial services saw a boom in mergers and acquisitions that strategically redefined the landscape of the industry. Statistically speaking, 2018 registered a 6% increase in financial services mergers and acquisitions, representing a cumulative 461 deals according to a White & Case research report. The big winners were Independent Broker Dealers, whose dynamic business structure, transparent management style, and flexible product and service mix enticed many an advisor and team away from their former wirehouse partners.

The reason behind the surge in M&A trends is a simple one. Independent Broker Dealer firms recognized the soundness of a ‘growth by acquisition’ strategy and put into action recruiting practices to achieve this goal. There was no need for these firms to reinvent the wheel – theirs is the business model most desired by the best advisors and teams in the field today. Creating recruiting packages which delivered a compelling financial return in alignment with the business freedoms so lacking at tradition-bound wirehouses was all it took to turn the tide in their favor.

As we enter the second quarter of 2019, the trend of M&A as strategic growth power play shows no sign of ceasing. Last week both Ameriprise Financial and Raymond James released statements recommitting themselves to strategic growth through acquistion, an effort supported by the expanding recruiting budgets articulated by both firms. Earlier in April Cetera Financial Group, a firm with the largest 2018 financial services M&A deal to its credit, announced its purchase of Foresters $12 Billion advisory business. As these most recent firm announcements indicate, in the race to assume dominance in the Independent Broker Dealer space the message is clear – there is no more assured way to success than through acquisition.

It is important to note the winner in the acquisition game is not restricted solely to the acquiring firms. The benefits of acquisition to the smaller firms, teams, and advisors choosing to join a new firm partner are numerous and transformative in their own right. The most prevalent among these is business operational support, most notably through compliance, technology, marketing, and managerial structure. The impact of these areas, and their potential financial implications on the lean margins of smaller firms, becomes probable assets through an acquisition by the ability to capitalize on a larger firm and its resources.

Take for instance compliance. As the regulatory climate has toughened the proliferation of acquisitions has increased as smaller firms, who in some cases have needed to hire compliance support to keep pace with increased regulation, seek relief from the constraints they face. The same holds true with technology, marketing, and overall managerial support, where the financial and logistical assets of a larger firm partner provide the much needed resources that allow the acquired smaller firms to thrive when part of the larger whole.

As M&A trends continue their upward trajectory, what will prove most interesting in the coming months is who the major players will be. For it can be assured that those who win the recruiting and M&A game today will be the new leaders who shape the financial services industry of tomorrow.