How your tech stack can make merger & acquisition activity more successful

After a short hiatus in the second quarter of 2020 due to the pandemic, merger and acquisition (M&A) activity among registered investment advisors (RIAs), family offices and wirehouse breakaways continues to rebound, setting a record high for overall value of $5.8 trillion in 2021.

Advisors looking to sell their practices often do so as part of a succession planning strategy, while larger acquiring firms seek to add new products, enhance processes, upgrade technology, add to their existing product portfolio, improve operational efficiency, or a combination of all.

But as these larger firms continue to increase in size and complexity, how can they scale to near-overnight growth, consolidate trading, and effectively transition and support new advisors?

Tech must-haves for growing firms

Advisors joining new firms as a result of a merger or acquisition need dynamic, flexible technology solutions that help them ramp up productivity to compete on a more advanced level. Here are five game-changing trading, rebalancing and portfolio modeling capabilities firms must have to successfully onboard advisors while enabling the now-larger firm to scale to growth quickly and efficiently.

1. Support for multiple sub-advisory firms

Reduces complexity for the business and for advisors, while giving advisors the autonomy to manage portfolios the way they want to.

2. Target generation and tax-aware rebalancing capabilities

Bifurcate order generation and order management, allowing advisors to adhere more closely to client constraints.

3. Flexibility to handle different client scenarios

Enables advisors to more effectively manage models, strategies and exceptions, as well as one-off scenarios.

4. Rebalancing and trading capabilities that remain in sync with client tax requirements

These include target overrides, location preferences, equivalents and restrictions.

5. A multi-custodial platform

Gives advisors the flexibility to work with familiar custodians, and straight-through order execution via the FIX network improves efficiency.

Using technology to create value and drive strategic growth

Merged firms typically have the resources to hire top talent and build best-in-class tech stacks to drive higher operational efficiency and improve client experiences. At the same time, though, M&A activity can introduce greater complexity into the business. Technology has the potential to become an impediment or an integral part of advisor productivity, client retention and business growth.

Firms should not underestimate the impact of additional advisory practices and the larger universe of client constraints and preferences that enter the picture around cash allocations, restriction equivalents and target overrides, for example. Finding the right tech solution should be on every acquiring firm’s critical path to fulfilling their strategic plan to scale the business, maintain advisor talent and deliver continuous value to their clients.