Money management mergers and acquisitions that result in incomplete integrations lead to more costs instead of generating savings, said a new white paper from Casey Quirk, a business of Deloitte Consulting.
According to the white paper, the changing economics of the money management industry has removed much of what it defines as "air cover" that tailwinds have provided M&A transactions in the past.
The paper says organic growth for money managers is shrinking because individual investors have failed to match the savings gap as retirement plans move to defined contribution from defined benefit models as well as unrelenting fee pressures from the rise of passive investing and increases in fixed costs.
This has increased M&A activity in an effort to increase assets under management, but the paper says that will not increase profitability.
"Simply acquiring more assets under management will not make a firm more competitive," said Jeffrey B. Stakel, principal at Casey Quirk and co-author of the white paper, in a news release. "True integration will yield competitive advantages, but it requires making tough decisions to realize the value of the combined organizations."
The paper said the focus on four core functions can unlock the value of integration: reducing layers of senior leadership, which can result in the related costs of senior headcount dropping by 60%; revamping distribution groups and moving spending toward new talent and technology and away from sales compensation, which can decrease functional costs by 13%; centralizing core business functions, which can cut costs in legal, fund accounting, outsourcing and risk management by 10%; and reducing duplicate costs in applications, data, infrastructure and people, which would cut costs by 14%.
The white paper is available on Casey Quirk's website.