The wealth management industry continues to see a surge of merger and acquisition (M&A) activity as firms turn to inorganic growth to drive scale and profitability. While the upside potential of acquisitions is attractive, the nitty gritty details involved with integrating new businesses while maintaining daily operations are a constant pain in the a**.
One of the least talked about obstacles facing M&A firms is performance conversions – the tedious task of migrating years of historical account data and investment holdings between (often disparate) technology platforms. Even when firms use the same core portfolio management system, the risk of data integrity issues is still there lurking in the shadows.
The Conversion Complexities
Wealth management firms have to make decisions early on about what scope of data to convert for newly acquired businesses. Is the aim to bring over full transaction histories or just more recent performance intervals? What if the acquired firm’s data just can’t be easily migrated from the existing platform to the acquiring firm’s systems?
There’s a constant balancing act of making the acquisition firm happy and the acquiring firm keeping a conversion affordable so leadership doesn’t blow a gasket.
Vendor Partnerships & Costs
To handle these nuanced projects, firms frequently have to engage multiple specialist vendors and consultants in addition to their core technology providers. But this fragmented approach can inflate costs even more with overlapping fees, conflicting statements of work, and a lack of accountability.
Firms end up paying a hefty price in the form of unexpected conversion costs as well as opportunity costs from disrupted client services and trading operations. It’s a classic case of having too many cooks in the acquisition kitchen.
Maintaining Momentum
Perhaps the biggest challenge of M&A performance conversions is maintaining operational momentum and continuity throughout the integration chaos. With teams already stretched thin across daily portfolio management, trading, reporting, billing and more, something’s eventually got to give. Often, these conversion projects can get deprioritized as other initiatives take precedence.
What started as a planned six-month conversion can easily turn into a multi-year headache with data running on separate, redundant systems in parallel at escalating costs. The drain on productivity and operating margins makes M&A integrations even more difficult to rationalize.
The Path to Execution Excellence
While the performance conversion doom and gloom can go from 0 to 100 quickly, there are proactive steps firms can take to clear hurdles with minimal disruption:
Firms that invest in developing repeatable conversion processes and rigorously improving best practices will be best positioned for sustainable growth through M&A. Performance conversions don’t have to be a tightrope walk when the right preparedness and guidance have been put into place.
