The Role of Firm ‘Culture’ in an Evolving Industry

Art by Brian Stauffer

During 2021, PLANADVISER Magazine devoted a significant amount of news coverage and analysis to the record-setting pace of retirement plan adviser industry merger and acquisition (M&A) activity.

According to Fidelity, registered investment adviser (RIA) M&A deals during the month of November alone totaled some $42 billion in assets under management (AUM), and year-to-date, there had been 182 RIA transactions totaling $304 billion in AUM. These figures were up 61% and 78%, respectively, compared to the year-to-date figure for November 2020.

While no two deals are exactly alike, some clear trends have emerged in the M&A action, including an increased interest in combining wealth management and retirement plan advisory capabilities, as well as an increasing role played by private equity investments. Perhaps more than any other common theme, however, is the constant citation of “complementary cultures” and “cultural alignment” by firms that have made the call to join forces.

For example, commenting on the recent launch of a new joint venture between Lockton and Creative Planning, Ron Lockton, chairman of Lockton, said he has long admired what Peter Mallouk has built at Creative Planning, and that he felt the opportunity to partner with Creative Planning is consistent with Lockton’s goal “to be the best and not the biggest.”

“Importantly, our cultural values around client service and caring for people are in perfect alignment,” Lockton said. “The synergy between our cultures will undoubtedly provide fertile soil for continued innovation and a best-in-class service platform.”

Offering his perspective on the partnership, Mallouk said the battle for scale is an important factor behind this deal and the broader pace of M&A activity, but another key piece of the puzzle is the competition among firms for the best and brightest advisers and brokers.

“Getting the right group of talented and experienced advisers together under one roof is extremely important for long-term success in this industry,” Mallouk said. “In reality, it’s a pretty small pool of practitioners who are experts in this field, so talent acquisition is every bit as important as scale, from our point of view.”

Such comments echo those made by other firms engaged in substantial M&A activity in 2021, among them CAPTRUST, which has purchased multiple advisory practices this year, including the $150 billion acquisition of Cammack Retirement Group back in February. Explaining his firm’s take on the importance of practice culture, David Wahlen, CAPTRUST manager for recruiting and acquisitions, pointed to an internal concept called “One Unified Practice,” or “OneUP.”

“This means that as a firm, we are working together and pulling in the same direction to fulfill our mission to our clients, colleagues and communities,” Wahlen said. “We are able to do this in large part because of our shared employee ownership. More than half of our 1,000 CAPTRUST staff that walk the hallways each day are already shareholders, and everyone is eligible after three years. This fosters a culture that is truly collaborative.”

Due to its growing size and expanding geography, Wahlen noted, the firm has also found it important to identify individuals as “culture carriers,” to help ensure that everyone understands what it means to be good stewards of the firm’s culture and mission.

Regarding the role firm culture plays specifically in the acquisition process, Wahlen conceded it is just one of many factors that come into play—but it is a very important one.

“Economics can and should matter to a degree, however in our opinion, nothing is more important than the cultural fit and compatibility of a potential acquisition,” Wahlen said. “CAPTRUST is One Unified Practice, one operating company under one brand. We are not a collection of independent subsidiaries, and this is for the same reasons that a potential prospect and other successful advisory firms have one culture, a set core of beliefs, and a vision and strategy. Every firm that joins come from a position of strength, with strong brands and very talented people. Together, we are simply a bigger version of what they were on their own. If all of the above makes sense and we don’t have to ‘sell’ our model too hard, that is a pretty good indication we could be a fit.”

Such ideas are not new, of course. Back in 2019, Bob Francis, a partner at Wise Rhino Group who acted as a mediator in the Cerity Partners-Blue Prairie acquisition, repeatedly cited the importance of cultural alignment, highlighting the role culture would play in the M&A market for years to come.

“When you look at the retirement advice space, you have a lot of different cultures,” Francis said. “But one simple way to divide it up is to look at practices that have a team culture and then practices where there is a star leader. That star system is not Cerity Partners—it’s a real partnership system. And that’s the same system at Blue Prairie Group. By the way, when you do M&A in this industry, dollars and cents are important, but they come down the road. The first step is to see if these people even speak the same language. Do they agree on the same principles and ethics of business, and will they get along?”

Josh Itzoe agrees with that take. In a recent conversation with PLANADVISER, Itzoe admitted to taking a few months earlier this year to “sit on the couch and recuperate” after nearly 16 busy years at Greenspring—a firm he helped to found and which he has recently sold out of. Itzoe said he enjoyed the downtown, but he quickly began to feel bored and restless, leading him to consider what might come next. Among his new projects is an industry networking and job search platform called Getre(k)ruited, which is designed to help connect retirement plan services providers (i.e., advisers, recordkeepers, third-party administrators [TPAs], etc.) with talent that shares their personal and professional values.

As Itzoe explained it, the Getre(k)ruited platform allows job seekers to search for opportunities by filtering though some 30-plus predefined company values, as well as according to company type, location, job function (advisory, investment management, marketing, operations, etc.), workplace model (in-person, remote, hybrid, etc.) and work status (full-time, part-time, hourly, contract, etc.). Some of the cultural values coded into the platform include the following:

• Accountability Is Critical
• Apprenticeship/Mentorship
• Awesome Work Environment
• Clients/Customers Come First
• Committed to Personal Growth
• Community Involvement
• Extra Perks
• Fast-Paced Environment
• Flexible Work Arrangements
• Good for Parents
• Long-Tenured Employees
• Open Communication
• Promotes from Within
• Tech-Forward
• We Love Interns
• We Pay Well
• Work/Life Balance

Beyond working with individual job seekers, Itzoe said, the platform is also meant to help employers. In signing up for the platform, employers must select their eight top values from the list of 30-plus. 

“If we can help companies understand their own unique values, and then help top talent to be able to search for jobs and companies that have core values that match their preferences, it’s going to be a win-win scenario,” Itzoe said. “I believe we can help to build out a new type of talent pipeline. The younger generation is really big on values and culture and purpose—even more than us veterans.”

Looking ahead, Itzoe says, firms that have engaged in substantial M&A activity—especially those who have sold into a larger practice—might find that the cultural fit at their new home is not exactly perfect.

“Not every adviser is going to love working for a larger firm,” he suggested. “The dynamic between a smaller independent firm and a larger firm is different. It will be better for some but not so much for others. I think this applies to non-adviser talent as well, especially when they didn’t have a say in the matter. I’m already starting to hear this from conversations related to www.getrekruited.com. People are very open to new opportunities, especially as a result of acquisitions.”

On the other hand, some people, especially those advisers who just want to do their job and serve their clients, are going to really appreciate having additional resources.

“They may not love some of the new constraints of a bigger organization—or the pressure to adopt things or products/solutions that make them change their previous work style—but it won’t be enough to make them want to change,” Itzoe said. “For those folks, working for a larger firm will be great for their careers. … One of the biggest beneficiaries of these changes will be the younger generation of advisers who are in their 30’s and early 40’s.  They’ve got enough experience to have credibility and enough runway left to have tremendous success when the industry turns over.”