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The Fear of Change: A 3-Part Series for RIAs

As the RIA industry matures, consolidates, grows, and evolves, many of our clients contemplate M&A transactions, changing their technologies or workflows, or they may strive to break away from their current employer to build their own RIA.  We focus our attention on building and improving the operations and efficiencies of these firms, and often write practice management pieces to share our learnings and best practices.  However, we have yet to plunge into the emotions that are often involved in each of the above projects, and what recurring fears we find, regardless of the engagement at hand.  Our aim is to explain the impetus to the following fears, and how to prevent/calm these uncertainties:

  1. Fear of change in human capital
  2. Fear of giving up legacy processes
  3. Fear of the unknown

The Fear of Change, Part 1: The Emotions of an M&A Transaction

In the financial services industry, people often think of an M&A event as a transaction in which a buyer offers some economically enticing incentive to a seller in return for the seller becoming part of the buyer’s firm.  Sometimes, M&A is viewed from an operational lens, in which it’s realized that there is more to an M&A deal than cash and equity; there are technology systems, branding consolidation, and office space requirements to take into consideration.  Firms that acknowledge the intense integration aspect of an M&A deal are those we tend to work with, as they value our ability to guide them through the operational and emotional roller coaster that both firms are going through as a result of this merger.

In our experience working through projects and with various personnel on both the Buyer’s and Seller’s sides, the emotions of each party are rarely considered, though they should be amongst the most important aspects of the transaction.

When Buyers and Sellers are still at the negotiating table, they usually work through investment philosophy, geography, and valuation.  Eventually, they will work through operations and processes (that’s where we come in!), but how do you deal with the emotional and psychological factors involved – especially for the employees of the Seller?  With this in mind, we will review each of the three aforementioned fears and aim to provide ways that both the Buyer and the Seller can abate these worries.

  1. The fear of change in human capital

Imagine this: employees working for an advisor/RIA just learned that their company is being sold to another RIA.  The employees have no idea who the Buyer is, what they stand for, what their culture is like… should employees be worried about their job security?  What does this mean for their career?  Should they start looking for new opportunities elsewhere before this new boss gives them a pink slip?

To prevent the above insecurities and unnecessary anxiety, it’s best for the owners of the Buyer and Seller to deeply vet how their respective firm cultures will complement each other’s and how to clearly communicate to the Seller’s employees how this will benefit everyone moving forward.  A great exercise to go through is for the Buyer to prepare their healthcare, benefits, and incentives to share with the Seller’s employees.  If possible, it’s even better to compare these new benefits to the ones that employees have had access to working for the Seller.  Additionally, if the Buyer is able to prepare how the Seller’s employees will fit into their org chart, what responsibilities are expected of them, and how they will work within this new framework, it eases the employees’ minds as it displays this process has been vetted and their personal contributions to the new firm have been taken into serious consideration.

In the unfortunate case where there are human capital collateral damages, the executives of both the Buyer and the Seller need to be upfront and transparent with those individuals.  They should offer the employees a transition period to stay on and help throughout the onboarding and ensure that their responsibilities will be properly looked after.

  1. The fear of giving up legacy processes

From an employee’s perspective, they have put time, effort, and energy – often over the course of years, sometimes decades – into how the Seller currently runs its business and services their clients.  They likely have forgotten why certain systems or processes are in place, but know that this is the way it’s always been done.  How does a Buyer communicate that changes in the way they operate might be a good thing?

Buyers should alleviate these fears by sharing how much more efficient the Buyer’s and Seller’s employees will be using new technology, and how their new processes will eliminate tedious, manual work, like entering the same data into multiple systems, sending coworkers task-related emails rather than assigning tasks in a CRM, or pulling different pieces of a client’s quarterly report from multiple systems.  This will display that the employees’ time is valued!  It’s also a good idea to have the various new vendors available to demo their systems, if warranted, and to have a detailed training agenda set in place to show the employees how to use these various new systems, what the new processes will be, and that there are resources set aside to help them be successful.

  1. The fear of the unknown

Employees’ (and owners’!) fear of the unknown may be the most relatable emotional response.  Will their salaries remain the same?  Will their commutes change?  Will they still manage the same clients, or will they be reassigned to new client service teams?  These are all very real concerns, and can be quickly appeased, if not prevented entirely.  Buyers must present an employee onboarding plan to show that all these concerns and unknowns have been discussed and addressed as part of the negotiations in merging the two firms.

This onboarding plan should include where to access important employee documents, like the operations manual, benefits overview, or standardized processes in place.  It should incorporate a well thought out training schedule, as mentioned above, and literature explaining who the Buyer is, what the mission statement is, and how the experience and tenure of the employees are valued.  It should explain how they service clients and center their needs at the core of their business.

Preparing clear communications and setting expectations from the onset is key in quelling the above fears and high-stress emotions of all employees who have been surprised by the announcement of an M&A deal.  Buyers need to impress upon the Seller’s employees – their future employees – that this consolidation of firms is going to benefit both the employees and their clients, and that their well-being has been thought about and planned for.

Look out for Part 2 later this week, The Fear of Change, Part 2: The Emotions of New Technology, and Part 3 next week, The Fear of Change, Part 3: The Emotions of Breaking Away.