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How to Find Talent in a Tight Labor Market

June 8, 2017

It looks like 2017 will be another record year for M&A in the wealth management industry.

According to FA-IQ, the number of deals between RIAs jumped 29% in the first quarter of 2017 compared to a year ago. The deal-making taking place among RIAs isn’t unique in the investment industry. It’s emblematic of a healthy and robust market for everyone in the business.

Why the flurry of transactions?

From my perspective there are a number of reasons. First, the selling firms are clearly getting the multiples they want. Second, they are pairing up to accelerate their growth and to survive by getting bigger. But there is another aspect driving the M&A binge that I routinely encounter in my practice: the scarcity of talent in the investment industry.

Over the past few years, executives have hunkered down in their existing positions. The bull market, coupled with the Trump rally, led to richer compensation packages and more opportunity in their current roles. That’s why the number of executives moving to new positions, as well as those open to considering a new opportunity, are at cyclical lows.

Talent Acquisition En Masse

For firms seeking to grow, M&A is a golden opportunity to land the next generation of executives and managers in one fell swoop. In my discussions with CEOs, talent acquisition is an increasingly important part of their justification for a transaction.

That’s the good news. The bad news is that if the combined organization doesn’t have a clear roadmap for both sets of executives at the time of the deal or shortly thereafter, those folks are likely to consider greener pastures. I am seeing this with greater frequency.

To ensure talent stays put, a newly-merged firm should proactively define an executive’s or manager’s career track at the new company. This should include mentoring, professional development or other opportunities that will have a meaningful impact on the future of the combined firm. Doing nothing is a recipe for disaster.

At the same time, it’s important to be cognizant of a deal’s impact on team members who have been patiently waiting for a chance at the C-suite or other senior positions. M&A means this cohort of rising stars must wait even longer. A comprehensive strategy for retaining the best and brightest is spelled out in our 8th annual survey on executive talent in the investment industry, Disruption & Opportunity: Navigating in a Rapidly Changing Market.

Looking for the Spoils

The failure to develop a plan has predictable consequences. These examples from our searches in the past 12 months highlight the dangers.

In one instance, an acquisition to incorporate cutting-edge technology into a leading wealth firm reshuffled the executive suite. When one of the founders was pulled into managing the project integration, the team he was leading was left on their own. Were they productive and self-sufficient without his leadership? Yes. Was there a vacuum created without his leadership that was unaddressed by the firm? Yes. The void allowed the team to drift, and the team members eventually left the firm.

In another instance, a merger created the intended scale and operational efficiencies, but it also resulted in a dramatic change in culture. When the CEO didn’t articulate the combined vison of the firm and failed to integrate the two cultures, the uncertainty drove many accomplished executives and managers to entertain other options and ultimately leave.

In cases like these, many suitors will be waiting in the wings to scoop up talent. They will be ready to make compelling offers because they realize M&A is now one of the rare opportunities to land executive talent in today’s tight labor market.

In our experience, the offers are likely to include very attractive compensation, including equity. The suitors will also entice candidates with a host of intangibles, such as a positive corporate culture, a well-defined brand, the flexibility to attend to family matters, and the opportunity to have a meaningful impact on the future of the company. If an employer can make a strong pitch in these areas, compensation will not be the deciding factor.

All of us should be happy that the investment industry is thriving. However, firms that want to win in this market must be smart and aggressive to engage the talent they need for continued growth.