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Financial Planning > Tax Planning

Easing the Transition

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Nationwide, there are about 52,000 CPA firms and 190,000 individual CPAs in public practice. Each year, an increasing number of accountants either become financial advisors or add advisory services to their professional offerings. This trend was not lost on a former H.D. Vest executive and CPA by the name of Tony Batman. Back in 1997 he saw that “a huge opportunity” existed in providing these transitioning CPAs with everything they needed to build a successful financial services business–whether they intended to become full-fledged advisors themselves or boost in-house capabilities. In 1997, with partner Jim Ainsworth, Batman co-founded 1st Global, Inc., on the firm belief that, as Batman says, “CPAs and tax professionals could be the future dominant competitor in financial services.” Today Dallas-based 1st Global has more than 1,400 individually licensed professionals working in 700 distinct “practice units”–a mix of CPA, law, and tax firms–and is adding about 300 new financial advisors each year from 100 to 200 firms. As for the rest of the CPA marketplace, “We’re going to get them all,” he says. Senior Editor Cort Smith spoke to Batman by phone in mid-October.

Why CPAs? First, accountants were very frustrated and disgusted at seeing the poor services being offered by traditional financial advisors, especially Wall Street firms. They saw the conflicted transactional business by Wall Street firms that often made no sense from a client’s unique needs or tax situation. The CPA firms thought they could do a better job than traditional advisors. Secondly, there are some economic changes in the accounting profession; as more and more services become compliance type services, there are lower margins. And CPA firms with established trusting client relationships felt they should pursue the higher-margin financial services.

Do accountants who become conversant in advisory services have an advantage over the competition? I believe that they do. The three tenants of comprehensive “wealthcare”–which encompasses investment services, retirement services, cash management, tax services, business succession, asset preservation, and so forth–are wealth accumulation, wealth preservation, and wealth transfer. Each in its own right is rather complex, but the overriding complexity comes from the “tax drag.” CPAs are uniquely qualified to explain how each of these problems can be solved in light of the complex tax issues. CPAs also are uniquely positioned to understand a client’s total welfare: where their assets are held, all their liabilities, and what they’re trying to accomplish in their lives.

What obstacles must CPAs first overcome? Many CPAs erroneously believe that the key to their success is well-developed technical competency, since they view financial services as primarily a technical vocation. The fact of the matter is that it is primarily a sales vocation–not in the sales sense. Rather, it is more about the art of human influence, because Americans left to their own devices will procrastinate forever on taking care of their financial affairs. There is an art [in getting them] to take action. We help CPAs develop and use those necessary skills correctly.

Another deficiency is in basic marketing. CPAs have rarely, if ever, had to market. They may put out a few brochures, but they don’t fight the marketing wars like most other businesses. When it comes to financial services there is no external force that compels clients to get their matters taken care of, as they would in filing taxes. So CPAs must develop those marketing skills that raise in their clients’ minds a sense of urgency [to act].

Technical competency is quite quickly learned by CPAs, as is product knowledge. It’s the basic business skills that seem to be problematic for some firms.

1st Global caters to firms that wish to completely transform their accounting practices into what you term “comprehensive wealthcare practices”–making this a core service– and those who wish to have financial services as a “value-add,” while retaining their traditional CPA strategy. How do you accomplish this? Both attend the same training. The difference is the degree to which they integrate these skills and newfound knowledge into their businesses.

There are firms that do not have the in-house capacity to ever totally develop the necessary skills, technical and business. Keep in mind that the better advisory firms are those that have mastered the ability to build a business. For “add-ons,” we offer a service called Business Management Services (BMS), where we hire, train, manage, and deploy a financial planner inside a client CPA firm, to drive the building of the firm’s financial services business. It’s far different than just bringing in a sales or technical competency, and letting them work the client base, or the CPA firm just availing [itself of] opportunities as they arise to this parachuted-in financial planner.

How many firms are enrolled in the BMS program, and for what size company is it designed? Eighty firms presently use BMS. There’s an economics that’s optimal for making BMS work. Those tend to be larger firms that average five partners and $5 million in traditional accounting and tax revenue, and that process 1,000 or more 1040 returns. Options for smaller firms are to develop the advisory skills themselves, hire their own “‘somebody” with these skills, or use the excess capacity of other BMS advisors to help on an on-call basis.

What about fees? For the BMS firms we get paid a little more than on the traditional broker/dealer grid for our management of the CPA firms’ financial planning processes. As for the firms, they can operate on a commission basis or fee basis, whatever is appropriate for the client. Our system [mandates] full disclosure of compensation in advance of any implementation.

What about accountants wishing to transition completely to an advisory capacity? We have an education company, called the 1st Global Wealthcare Academy, through which we educate on business building skills, technical competency, and products. Our proprietary education curriculum is called the Matrix, which is delivered through 35 regional education centers and at our home office.

In January 1st Global is offering workshops to “help affiliates prepare better for the tax season.” What tax issues will be covered? We’re educating now on the classic harvesting of tax losses. And there’s the complex issue of losses in variable annuities; there’s a lot of misconception about their tax treatment. Even in these down market times there are people who have gotten invested in direct participation programs that have phantom incomes that have to be dealt with. There are also classic estate planning issues and 419 plans–Congress may disallow certain kinds of 419 plans that have been popular over the past 10 years. These are very, very unusual times requiring significant tax advice.


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