Carry-through vital on deals

The financial planning industry has seen numerous one-night stands, but so far none have proven they can manage a long-term relationship.

Typically, the problem is that the transaction that makes a great deal of sense on paper falls apart in the execution because the partners fail to wring the maximum merger logic out of the deal.

With that in mind, reps caught in the latest deals have their fingers crossed that their executives don’t drop the ball.

The industry has seen dramatic consolidation yet very little integration. Firms have been focused on grabbing assets, not doing anything with them after the purchase. Winnipeg’s Assante Corp. was the first out of the blocks, consolidating the fund distribution business back in 1995. It quickly picked up a string of firms, culminating in 1999 when it closed its deal for Financial Concept Group. However, the firms have yet to be integrated; they maintain their own operations, relying on head office for little more than minor support. The firm says it allowed the firms to function independently so it could focus on further acquisitions.

Much the same situation prevails at the other major consolidators, Montreal’s BRM Capital Corp. and IPC Financial Network Inc. of Markham, Ont. They are a few years behind Assante in the consolidation game, but their acquisitions have been left to their own devices for the most part.

But now the consolidation game is very near its end, with the crop of potential targets dwindling and the competition ramping up, particularly from the banks. The usual cost pressures of technology and regulatory compliance are also growing.

With shrinking marginal returns to be gained from concentrating on further acquisitions, the consolidators are now looking to squeeze some synergies out of their deals.

The problem of focusing on the initial merger, rather than the long-term marriage, is not uncommon. Albert Viscio, of Virginia-based consultant Booz-Allen Hamilton, warns that “too often companies view the merger itself as the strategic end game. This is particularly true in consolidating industries such as banking, in which every company seems to be competing just to get big.

“But successful companies understand that the deal is a means to an end and not an end in itself.”

Assante’s acquisitions in the financial planning arena ended with FCG, just before its initial public offering in May 1999. The firm now says it has achieved critical mass, with assets under administration in Canada of $21.2 billion, and is looking to step up the integration of its dealer subsidiaries.

It’s much the same situation at BRM, although the timeline has been compressed. Almost immediately after it made its big splash with the near-simultaneous acquisition of Regal Capital Planners Ltd., Balanced Planning Investments Ltd., Heritage Financial Services and The Investment Centre, it said it was setting to work on integrating them. It later added Gestion Courvie to the mix, and declared it was definitely finished with acquisitions and focusing on integration. Jean Morissette, managing director with Cartier LP, BRM’s parent, says the firm is going through a rigorous process of identifying best practices and implementing them across the firm, a move he expects to take two years.

IPC is still looking for deals, expecting to double its current size within the year. So the push to integrate hasn’t quite captured attention the same way.

Assante has been promising improved integration for more than a year. In the past year it has made halting progress, launching Assante Estate and Insurance Services Inc. to provide the firm’s advisors with the ability to offer insurance and estate planning services across the firm.

Assante has since embarked on a more ambitious program it says will reduce duplication and costs, provide economies of scale and help the firm manage its risks. So far, it has realigned management, centralized its operating policies and eliminated some duplication. The firm intends to centralize the human resources, purchasing, and sales and marketing functions, bring in common operating platforms and consolidate some operations. The firm has established a project management office to implement the integration.

A rep from Equion Group in Ontario rates the firm’s back office “a seven on a normal day,” but gives it a two during integration. Another Equion rep from the West, who is otherwise pretty happy with the firm, has one complaint: “I just wish they’d speed up the Assante process,” he says.

For fiscal 1999, Assante spent about $1.3 million on its restructuring program, a charge it took in the fourth quarter. It currently expects to take a $23-million charge in the quarter ended March 31, the total expected cost of the integration. The firm doesn’t expect the process will be completed until sometime next year.

However, it hopes the expenses will be recouped through efficiencies, economies of scale and improved product development.

“We are seeing savings immediately, but we are unable to quantify them at this time,” says Deana Allen, Assante’s manager, communications. Assante projects costs will be recouped by 2003. In the meantime, advisors say there is still plenty of uncertainty about the integration.

For reps, one of the more important issues is name recognition. Assante says it also intends to start introducing its brand for all its products and services. The distribution side is now known as Assante Advisory Services. The branding strategy is intended to create recognition and loyalty among the firm’s advisors, its other employees and clients. Until that new branding is rolled out, though, advisors say there’s no point in marketing or other initiatives involving a firm name when a change is imminent.

“We are all looking forward to the [integration] but we don’t know for sure what is going to happen,” says one rep from Ontario. “This time next year you should see some very interesting things being said. We’ll just have to wait and see.”

Assante’s reps may be taking a wait-and-see approach to integration, but at least they’re aware of the process. Reps at BRM generally claim ignorance of their firm’s strategy. “I have no idea what it is,” says one. “Needs some clarification,” comments another.

Clarity and focus is exactly what’s needed to make an acquisition work. The planning firms have made many acquisitions, and made hardly any attempts to make them work. Now that they are facing up to the need to integrate, they are entering a make-or-break phase of their corporate lives.