With the abundance of mergers and acquisitions showing no signs of slowing anytime soon, it’s important that firms preparing to be acquired not delay or ignore technology integration. Any firm that has completed an acquisition knows what a migraine it can be to integrate two separate tech stacks into one, especially if the right questions weren’t asked during the acquisition process. More importantly, the selling firm’s technology might even be a key factor in its valuation.
When you’re trying to sell your house and are determining where to spend some money to get a sizable return on your investment, you must identify aspects of the house that need attention. Apply this analogy to preparing a company for acquisition, and it's clear that technology is where you want to make that strategic investment. Technology has become a deciding factor in today’s deals, so you don’t want to leave a considerable amount of money on the table, or risk being left out altogether.
Automation offers a tidy example. The quality of your technology can tell a buyer how operationally automated the combined company could be in the future — or how much that new company will have to invest to get its tech stack to where it should be.
There's an important message here for advisers, too. If they want to monetize their book of clients or break away from their firm, the technology they're using is an important factor. An adviser’s tech stack will tell a suitor how they can streamline operations and grow the new book of business in a profitable way, while delivering on a better client experience.
When it comes to trying to get a private equity investment, your technology will signal whether you have a unique platform (and therefore one that's worth a higher multiple) or just something that's run-of-the-mill.
If you’re trying get a higher multiple, the advisory platform should have a combination of technology that a competitor can't easily replicate. In other words, a system that's uniquely assembled, incorporates the correct technology, and has defensible and proprietary intellectual property gives the firm a better value proposition to potential acquirers.
As a general rule, wealth management firms that are spending less than 3% of revenue on technology innovation and management will be left in the dust in this increasingly competitive space. Spending between 3% to 6% of revenue — or about 15% of the operating budget — is a good benchmark for the technology spend needed to stay ahead of the pack. If an acquisition is in your firm’s future, assess your tech strategy to ensure that when the suitors line up at your door, you’ll be ready to put your best foot forward — technologically speaking.
Doug Fritz is co-founder and CEO of F2 Strategy, a wealthtech management consulting firm helping complex RIA, wealth, bank/trust and family office firms improve their technical capabilities.
Advisors discuss their use of AI now and how it will change going forward
Medicare scam, pandemic benefit theft, offshore tax evasion — federal prosecutors are casting a wide net.
Report finds that pension income acts as a financial lifeline for retirees facing late-life shocks and raises urgent questions about the DC-only future.
Nine-month electronic trading freeze and share lending program at the center of dismissed claim.
Meanwhile, Rossby Financial's leadership buildout rolls on with a new COO appointment as Balefire Wealth welcomes a distinguished retirement specialist to its national network.
As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management
Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline
