36 INVESTMENT ADVISOR JULY 2018 | ThinkAdvisor.com
values. While many firms still exalt rainmakers, new business often represents a
small percentage of a firm’s annual revenue — somewhere between 5 and 10%.
The vast majority of revenue and profits
depend on how well clients are served,
how their expectations are met, how the
advisory firm responds to their demands
and how clients promote (or do not
promote) the firm to other prospective
clients. These critical responsibilities
fall on non-rainmakers.
Advisory firms today
must carefully match the
right people to the right jobs,
and deliberately train and
develop their staff members
to become valuable assets
to the firm. A career ladder that allows employees
to grow over time, to take
on more responsibility
and, ultimately, to become
a partner in the firm illustrates a positive human
Most small advisory practices find
this challenging, but mergers allow
firms to leverage the size of the combined businesses to create a dynamic
human capital experience that values all
employees. Mergers also enable the liberation of non-performing employees.
Merger discussions must define the
parameters of hiring, development,
performance evaluation and treatment of high performers as well as
2. PRICING PHILOSOPHY
In the past, how a firm charged for its
services was not an area of confusion
or complexity. Things have changed.
Advisory firms today often use retainer
programs, project fees, breakpoints on
AUM at higher levels and fixed charges
for certain services.
Advisors contemplating a merger
must understand exactly what will be
delivered to clients and how the service
will be charged. These details cannot
be put on ice or left to the discretion
of an individual advisor. In order to
be consistent in the marketplace, advi-
sory practices must avoid price arbitrage
within the firm and clarify what the
price-value-cost framework looks like.
3. COMPENSATION PHILOSOPHY
How advisors get paid is another tricky
area, especially for firms with origins in
different professional fields. Those who
grew up in the brokerage world typically
believe that the reward should be variable based on “production,” while those
who grew up in the fiduciary world
often think that a base salary plus bonus
or incentive is the proper way to pay.
This issue can create a classic conflict
when a so-called rainmaker is included in
a merger. They inevitably believe that the
lion’s share of revenue and profit should
inure to them. The discussion around
compensation structure must take place
early in the transaction process.
4. DECISION MAKING
Entrepreneurial businesses do not
spring from consensus building or group
decision-making. Typically, a lead owner
has put his or her butt on the line to create the business. Therefore, the risk of
failure falls on that person as the business evolves through its lifecycle.
Once an advisory firm becomes a
more professionally managed enterprise, the process of leading and making decisions changes. Will the founder
insist on retaining the final authority?
Will the dominant firm in the merger
desire the prerogative to overrule?
Mergers generally require the forma-
tion of a new decision-making framework.
The framework should outline individual
responsibilities and firm-wide decisions.
For example, a major discount for a large
client might be something the entire lead-
ership team should discuss because of
the impact on firm resources and firm
profitability. Advisors who come from a
“producer” environment may find this
illogical; naturally, every advisor wants to
win large clients no matter what it takes.
Other important group decisions
include technology, hiring
and firing of employees,
profit distributions, explo-
ration of other mergers and
activities that generally put
the capital of the owners
Issues of power highlight
a cultural dilemma for many
firms. Post-merger, will the
owners retain a death-grip
on every decision their staff
makes, or will they use the
decisions that employees
make as teaching moments whether they
go right or wrong?
DOES CULTURE MATTER?
Without question, the prospective partners in any deal should share a compatible management philosophy. The
desired experience for clients and
employees requires examination and
clarification. Potential conflicts exist
when any two enterprises join together,
but the necessary exploration of mutual
agreement is a form of KYC that enables
the formation of a dynamic business.
Cultural fit and leveraged synergies
really are essential components in a successful merger or acquisition. The potential for greatness is then limited only by
size, depth of management and an aspiration to endure beyond the founders.
Mark Tibergien is CEO of BNY Mellon’s
Pershing Advisor Solutions. Tibergien is also
the author most recently of “The Enduring
Advisory Firm,” written with Kim Dellarocca
of Pershing and published by Wiley. He can be
reached at email@example.com.
Advisors contemplating a merger
must understand exactly what
will be delivered to clients and
how the service will be charged.
These details cannot be put on
ice or left to the discretion of an