As the founder of Tannenbaum Capital Group — a group of affiliated asset managers specializing in credit-based strategies such as real estate lending, opportunistic credit, and private credit — as well as the steward of my own family’s investments, I’ve watched the changes in the wealth management industry from a front-row seat. Wealth management firms clearly are undergoing a major transformation as they strive to improve efficiency, invest in technology, and recruit a new generation of advisor talent, among other pressures.
For wealth management leaders who are grappling with these challenges, my advice is this: Bigger isn’t necessarily better — and one size doesn’t fit all.
The need to cope with powerful forces of change has led to a wave of wealth manager M&A activity in recent years, with an estimated 200-plus significant deals every year since 2022. Partly as a result of this consolidation, the industry’s assets under management, or AUM, have become concentrated in fewer, vastly larger firms. Today, the 13 largest firms in the industry are estimated to manage anywhere from $330 billion to $8.2 trillion in AUM. The forces behind all this deal activity are unlikely to abate anytime soon.
Multiple Managers vs. the One-Stop Shop Model
One often-cited justification for the industry’s merger mania is that greater scale allows a firm to deliver the full spectrum of services required by high-net-worth clients. However, it’s not entirely clear that a “one-stop shop” approach is really the best way to serve these needs. Large, diversified firms have a vast array of capabilities, yet they may lack the intimacy of relationships that clients value. Smaller wealth managers often promote a client-first culture but may not possess the scale to comprehensively address the complex needs of family wealth.
The fact is, the financial needs of wealthy families run the gamut, from investment management to tax strategy, business exit events, estate/legacy planning, philanthropic giving, and a host of other demands. Many clients solve this problem by working with multiple firms — with complementary capabilities — to access the full range of services they’ll need across their financial lifecycle.
To Merge or Not to Merge
For this reason, leaders of RIA firms today face a difficult decision: whether to maintain their boutique status or consolidate into a larger entity. If your inclination is to merge with another firm, the desire for scale, in and of itself, shouldn’t be the only deciding factor. The issue of how best to sustain a client-centric culture while at the same time building a larger organization with a complementary range of capabilities must be paramount.
One of the most important factors in a successful merger of wealth managers is avoiding “buyer’s bias.” Rather than imposing the acquirer’s operations, systems, and policies on the acquired firm, it’s best to start with a clean slate and adopt the best practices of each partner — or even novel approaches that neither party has previously tried.
Client-Centricity, Culture, and Communication
A merger between wealth managers clearly can’t succeed unless the resulting firm is able to maintain its client relationships. As a firm grows in scale and complexity, it’s easy to lose touch with a client-first ethos. It will therefore be critical to view any merger-related changes through the lens of how they’ll impact clients — and to listen closely to colleagues “on the front lines” to get their read on how those changes are being received by clients.
Maintaining a firm’s culture is a related and equally important issue. RIA firms that have managed a successful merger think carefully about the core values of each of the merging entities and often form internal groups to consider ways to promote and sustain a positive culture. Investing in mentorship and career development is another way to inculcate the firm’s culture in the next generation of advisors. Regular communication with clients and colleagues will be important in ensuring that any changes are understood and accepted.
Most importantly, merging wealth managers need to clearly understand — and focus on — their core value proposition. For example, one firm may be exceptionally skilled at advising clients on succession planning or financing options, while another is adept at managing family-office operations. If it’s true that high-net-worth clients prefer to work with multiple wealth managers, focusing on your firm’s unique strengths is the path to delivering value and ensuring a continuing role as a trusted advisor to your clients.
Leonard Tannenbaum W93 WG94 is the founder of Tannenbaum Capital Group (TCG), an alternative credit investment firm focused on real estate lending, opportunistic credit, and private credit strategies. A macro-oriented credit investor with more than 25 years of experience, he has underwritten more than $15 billion in loans and taken four investment entities public. Tannenbaum previously founded Fifth Street Capital, building it into a national alternative credit platform managing approximately $5 billion across private vehicles and publicly traded companies, including two business development companies.
