Page 477 - DCAC February 2024 Files

Continued from Page 1
and advisor-managed accounts, with some advisory practices creating Questions about how the merger will affect objectivity, project timelines,
proprietary investment offerings to be recommended to clients. This billing structures, and the availability of key consultants often follow.
developing trend to aggressively monetize client relationships runs Clients may feel caught in the crossfire of competition between consulting
completely contradictory to the purpose and mission of independent firms. The newly formed entity may prioritize its own interests to monetize
advisors. Historically there was a distinct difference between broker the relationship over those of its clients, leading to conflicts of interest and
advisors that sell proprietary products and independent advisors that a lack of transparency. This can erode trust and leave clients feeling like they
make objective, conflict-free recommendations to their clients. While are walking through a host of potential pitfalls. This can also create liability
strategic intentions to grow revenue might appear sound, the execution for retirement plan clients, as there has been an increase in fiduciary breach
of mergers is far from seamless, particularly when this kind of selling- lawsuits alleging self-dealing and conflicts of interest with advisory firms
what-you-recommend conflicts of interest are in play. engaged in recommending proprietary investment products.
Landmine 1: Cultural Clash Landmine 4: Integration Challenges
One of the most prominent landmines in consulting acquisitions is the The process of integrating two consulting firms is complex and fraught
clash of organizational cultures. Each consulting firm has its unique with challenges. It involves aligning technology and systems, merging
values and way of doing business. When two firms with distinct cultures databases, harmonizing project management processes, and reconciling
merge, it can create significant friction within the newly combined entity. financial systems, among other tasks. These integration efforts are often
Consultants accustomed to one firm’s approach may find it challenging to time-consuming and resource-intensive, diverting valuable resources
adapt to the practices of the other. For example, many of these acquired from effectively serving clients.
firms built their business and reputation based upon a commitment to
remain independent, objective, and conflict-free, but the pressure to The distractions caused by integration can lead to project delays,
cross-sell proprietary products and services creates an unfamiliar dynamic miscommunications, and operational inefficiency. Consultants may
for the acquired firms. This cultural clash can lead to a decline in employee struggle to access the information and tools they need to deliver quality
morale, decreased productivity, and even an exodus of talent. work, further jeopardizing client relationships. In some cases, clients may
become unwilling participants in the integration process, forced to adapt
Cultural misalignment also impacts clients. They may have chosen a to new systems and processes that may disrupt their own operations.
consulting firm based on the compatibility of values and work ethic.
When a merger disrupts this synergy, clients may question their continued Landmine 5: Talent Drain
engagement with the firm. A key asset for consulting firms is their people. Consultants bring their
Landmine 2: Dilution of Expertise knowledge, experience, and relationships with clients to the table. Many of
these top consultants may feel uncomfortable recommending that retired
Consulting firms often pride themselves on their niche expertise and participants roll over their accounts from an institutional retirement plan
specialized knowledge. When firms consolidate, there is a risk of diluting to a retail IRA with the advisory firm. Others may reject the notion of cross-
this expertise. The newly formed entity may become a “jack-of-all-trades selling proprietary investment products over independent, objective
but a master of none.” Consultants who were once subject matter experts investment recommendations. During a merger, the new demands of
in their specific areas may now find themselves working on projects far the acquiring firm, with uncertainty and instability, can trigger an exodus
outside their comfort zone. of top talent. Consultants who are uncomfortable with the changes
This dilution of expertise can have dire consequences for clients who or see limited career opportunities in the new organization may seek
rely on consulting firms for their deep knowledge and insight. They may employment elsewhere.
receive advice and solutions that lack the depth and nuance that they once This talent drain can be detrimental to both the acquiring and acquired
enjoyed, ultimately diminishing the value of the consulting relationship. firms. The loss of experienced consultants can weaken capabilities and
Landmine 3: Client Confusion hinder the ability to deliver on client commitments. Clients may also lose
Mergers and acquisitions can be perplexing for clients. When a consulting trust in a firm that appears to be hemorrhaging talent.
firm they have worked with for years suddenly merges with another, clients To successfully navigate the minefield of acquisitions and consolidations,
may find themselves navigating an uncertain landscape. The profitability advisory clients should consider the cultural integration of an acquired firm
of these acquisitions will be dependent upon the ability to leverage new and pay meticulous attention to the motives of the acquiring organization.
revenue streams through proprietary products and services, something Many of these mergers have diluted the distinction between broker
many of the acquired firms’ clients were never presented with in the past. advisors and independent advisors, moving to arrangements fraught with
higher fees, conflicts of interest, and the potential for increased liability
for clients. Given the recently settled and outstanding litigation related
to cross-selling, it seems imprudent for advisory clients to engage in
practices that may increase liability.
Innovest is different. We are committed to serving as a steward to our
clients – advocating on their behalf and always delivering objective,
conflict-free advice. We have not engaged in the distribution of proprietary
investment products or advisor managed accounts, nor will we. We see
these practices as being in direct conflict with our commitment to serving
the best interests of our clients.
2 / WINTER 2024 WINTER 2024 / 3