The failed deal between wealth manager Rathbones and Smith & Williamson would have been the latest in a long line of high profile mergers and acquisitions in the wealth management sector. Low interest rates, downwards pressure on fees, and increasing regulation is increasing pressure on margins. In turn this has triggered a period of consolidation, as companies look for inorganic ways for growth – or to build cost synergies.
However, when two businesses undergo a merger of this scale, there is no guarantee of success – especially in the asset management space. The nature and structure of wealth managers offer unique hurdles, frequently preventing the leadership from creating a cohesive, high performing culture across the new business. Implementing a strong people strategy can help mitigate some of these issues, allowing the leadership team to unlock the full potential of a merger or acquisition.
Industry hurdles and opportunities
Mergers can be particularly challenging in the wealth management sector. Wealth managers can often be small “independent” businesses, with each portfolio manager, or head of team running a distinct, specialist business, directly accountable to their clients. This independence can make it harder for the individual wealth managers to be accountable to the wider business, and efforts to bring a single purpose and leadership approach across the whole organisation.
Remuneration policies can add an additional stumbling block to company cohesion. With wealth managers’ remuneration typically tied to the performance of their client portfolios and area of specialism, there is less financial incentive to buy-in to a large scale corporate change in approach or culture – especially if client work is at risk as a result of the merger. Recognising these structural and cultural issues is the first step to making the necessary changes to resolve them and create a high performing team.
However, on the flip-side, the typical skill-set of wealth-managers can prove highly useful in times of a merger. Wealth managers are highly flexible, able to manage customers changing needs across detailed regulatory changes, and understand the volatile economic environment. It is through this collaborative approach that wealth managers are able to develop high degrees of trust with their clients, demonstrating their value as reliable advisers by interpreting their needs and matching them against complex products and solutions. A high degree of cohesiveness is the way to deliver successful integrated solutions for clients.
These strengths in the leadership help out the benefits during highly changeable times of a merger. However, to create a high performing team, it is vital that the leadership also bring out this collaborative approach across the business, and articulate the need for cohesion, and benefit of, cohesion.
Defining a common purpose for the new company is paramount to drive it forwards. However, communicating this purpose to employees is equally important. Too often the communication around the strategy driving the merger is clouded by rhetoric and nonspecific language, with a frustrating lack of clarity about the benefits of the deal.
In order to keep business performance stable, the leadership team need to communicate regularly and clearly with employees about the merger as well as setting out very specifically how to measure its success.
Each stakeholder will have their own personal requirements and fears, as well as ambitions, and aims that they expect to achieve in the new environment, and they need to feel that these are heard and understood by the leadership team. Moreover, individuals and teams will be in different stages of understanding from only just hearing the message, not accepting or understanding, confused with their part, to fully supportive and excited about the possibilities of the new organisation. This means there can be no ‘one-size-fits all’ approach to engaging with stakeholders throughout the new business.
Failure to take these factors on board may lead to team members becoming dysfunctional and creating barriers to achieving the optimal business outcome, reducing the success of the transaction.
With this trend of consolidation is continuing, there are likely to be further opportunities for wealth managers to come together, find synergies to cut costs and adhere to tougher regulation. However, it is would be a wasted opportunity if the lack of a clear people strategy prevented the optimal result of an acquisition or merger. The key is understanding the concerns and ambitions of employees, addressing them, then shaping the internal communication to ensure they feel trusted, heard, and valued.