Artificial intelligence (AI), which has been growing for many years in capability and use cases, including wealth management applications, reached a fever pace after ChatGPT raised awareness of it broadly across the general public. While far from a mature technology, wealthtech firms have busily incorporated ways for AI to augment the work of advisory firms across every conceivable function.
At the same time, wealth management M&A continues to flourish. According to ECHELON Partners’ most recent RIA M&A Deal Report, the second quarter of 2024 showed the second highest number of transactions on record, at 75, and average deal size reached historic levels of approximately $2.3 billion.
With the continued success of M&A in wealth management, industry players large and small need to know if use cases have been developed for AI to aid in the M&A process, a question that we took to Gabe Rissman, Co-Founder and President of YourStake, a provider of AI-based solutions for the wealth management industry.
Rissman discusses how firms can leverage AI in the M&A process in due diligence, risk management, identifying and analyzing cross-selling opportunities, and more, as well as practical tips for buyers and sellers looking to deploy AI in the M&A process.
WSR: How can AI streamline the due diligence process in M&A transactions?
Rissman: AI can significantly streamline due diligence in M&A transactions by automating document analysis and extraction. It can quickly process large volumes of contracts and regulatory filings like ADVs. Some firms are using AI to extract key information from client agreements and create comprehensive due diligence reports.
In post-acquisition integration, AI can help match client portfolios to new investment options or map existing portfolios to the acquiring firm’s offerings. This automation accelerates the process, reduces human error and allows dealmakers to focus on strategic decision-making.
WSR: When it comes to risk management during the M&A process, are there particular risks that AI is especially good at addressing?
Rissman: AI excels at analyzing data, so this use case of risk management is one of the best applications of the technology. AI can review vast amounts of historical records to identify potential regulatory issues or red flags that might have been missed in previous audits, addressing compliance risks.
AI can predict which clients are at risk of leaving post-merger.
Gabe Rissman, Co-Founder & President, YourStake
Additionally, AI can be used within a CRM to analyze client data and behavior patterns, predicting which clients are at risk of leaving post-merger. This allows your team to prepare strategies for keeping them engaged and retained after the deal closes.
WSR: What are some common areas between a buyer and seller where AI can reveal opportunities that might otherwise be overlooked?
Rissman: Through client segmentation, AI can analyze combined client bases to identify optimal segments for targeted services or products. It can uncover cross-selling opportunities by analyzing client portfolios and preferences, suggesting suitable products available to the acquiring firm.
WSR: What practical tips would you offer to potential buyers or sellers looking to leverage AI in their M&A strategies?
Rissman: To leverage AI effectively in M&A strategies, start by defining clear objectives and identifying specific challenges you want any solution to address before applying the technology. Focus on solving your pain points and problems instead of just trying a popular new product.
Focus on solving your pain points and problems instead of just trying a popular new product.
Gabe Rissman, Co-Founder & President, YourStake
Additionally, prioritize data security by implementing robust measures to protect sensitive information during the M&A process, and select providers with transparent data privacy structures, especially ones that carry a SOC 2 Type 2 certification.
Michael Madden, Contributing Editor & Research Analyst at Wealth Solutions Report, can be reached at mmadden@wealthsolutionsreport.com.
