The Writing on the Wall: Midwest Flooding and Financial Consolidation

financial consolidation, Carson, Omaha, Nebraska

As a native Nebraskan, I appreciate the aura this state has. It demands determination, innovation and humility – and all in a day’s work. In return, you have the opportunity to live out your dreams and impact your community.

Sadly, Nebraska recently experienced one of the worst natural disasters in its history. Massive flooding in mid-March caused catastrophic events across the state: the Niobrara River broke a 90-year-old dam in northern Nebraska and swept away homes and businesses, destroyed roads and flooded towns and fields. The damage was mirrored in other parts of the state that surrounded rivers – a tough thing not to do, as Nebraska has more miles of river than any state.

Carson’s headquarters are in Omaha, Nebraska – the eastern part of the state very near the Missouri River. Although the Omaha metro didn’t receive much flooding, many neighboring towns did, and some of our employees and their friends and families were affected. If you want to put a number to the flooding damage, it would be over $1.5 billion. This includes cattle and crop losses combined with road and infrastructure damage and other costs. It doesn’t include the more than 2,000 homes and businesses destroyed and countless livelihoods and dreams wiped away.  

Our state has pulled together to help one another – whether we were directly affected by the flooding or not – because in some way, the flooding affects all of us. It’s also made me stop and reflect.

Writing on the Wall

People lost their livelihoods and they couldn’t do anything to prevent it. Snowmelt and heavy rainfall combined with underlying factors – an unusually cold winter plagued with above-average snowfall trapped precipitation from a wet fall in 2018 in the frozen ground; quickly-rising temperatures over a 10-day period and a heavy rainfall thawed the ground and melted the existing snow.

Literally, the factors below the surface were the powder keg waiting to be lit. I can’t help but compare this to a situation we’re facing in the financial industry. Massive consolidation is making its way through the industry – an event that, when combined with underlying factors, will leave many advisors shocked and devastated. After the flood, a lot of people point to the high temperatures and heavy rainfall as the causes of the flood, but they miss key factors responsible for the level of devastation.

The same rings true for consolidation. Industry professionals can see the trend toward consolidation – turning to inorganic growth, otherwise known as mergers, acquisitions and consolidation. But it’s the underlying factors that might speed up the process and create the “perfect storm” that will leave advisors out of business overnight.

Cost of Business in Consolidation

Firms consolidate for a variety of reasons. They might consolidate for succession purposes, partnering with a similar firm that’ll carry on the entire book of business in the planned or unplanned exiting of one party. The cost of running a business in consolidation is another reason.

Firms might join forces with other firms that offer a technology or service they don’t. It’s like rock stars from different bands joining to form a supergroup. Resources, assets and manpower all increase, whereas a small firm likely doesn’t offer every service or technology their clients need and have to outsource. This makes it hard for a smaller firm to compete cost-wise.

Increased Competition

Four percent of RIAs control 60% of all client assets in the RIA market, according to a report from Cerulli Associates. Large RIAs are the fastest-growing size segment in the industry – a result of increasing M&A activity and consolidation. This leaves little room for smaller firms to carve out market share. It comes down to an advisor’s ability to adapt and embrace the unknown – and the known – and their ability to respond – not react – to events. The former requires planning and intent. The latter results in rash decisions.

Are you setting your firm, your clients and yourself up for success in the future? Do you have processes implemented and actions detailed out for the unexpected and unplanned? The financial industry – like Nebraska – demands hard work. And in return, you get to live out your dreams and help your clients in the pursuit of theirs.

Succession planning isn’t a want – it’s a need. Learn more about setting your firm and your clients up for success in the future by downloading Carson’s succession whitepaper.

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