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FORMULAS FOR SUCCESS- Not Your Father's Bean Counters

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It’s no secret among independent financial advisors that accounting firms–a traditional source of client referrals–have been steadily making inroads into the advice business themselves. The AICPA has been seeing a mad rush for the PFS designation by accountants; broker/dealers dedicated to the CPA market such as First Global are growing; many advisory B/Ds, like FNIC and Raymond James, have successful CPA partnering programs; and platform providers like Buckingham Asset Management (BAM), based in St. Louis, and SEI continue to attract high-end CPA advisors.

Until recently, however, their progress has been slow. Many CPAs have found that branching into financial advice isn’t the slamdunk they originally anticipated. In response, many accounting firms have been adding units to do financial planning staffed by–you guessed it–real financial planners. This new approach promises to be much more effective, but still presents considerable challenges to both the CPAs and the financial planners with whom they partner.

The effectiveness of CPAs in financial advice can clearly be seen by looking at the results of the most recent Moss Adams research that compared the operating performance of the financial advisory profession with CPAs:

  • CPA advisors on average generate $234,000 in revenue per professional, compared to $391,000 by elite ensemble advisory firms.
  • CPA advisors on average generate $120,000 in revenue per staff person, compared to an average $244,000 by elite ensemble firms.
  • CPA advisors on average generate $3,890 of revenue per client from wealth management, compared to $6,690 for elite ensemble firms.
  • CPA advisors on average generate $109,000 of income per partner from wealth management, compared to $327,000 per partner within elite ensemble firms.

While there are exceptions, such as Plante & Moran in Michigan, which has more than $2 billion in assets under management, our figures show that most CPA firms that have gotten into the advisory business have done poorly. Their numbers are below elite ensemble firms in all regards, and the tension that builds up between the accountants and the “non-traditional” practitioners in their office often becomes acute. Those accountants who have not brought financial advisory professionals into their practices are for the most part merely harvesting opportunities now that the “busy season” has passed, and not sustaining a focus on the business.

Why haven’t accountants been more successful in financial advice? For one thing, when the CPA profession started entertaining the possibility of getting into the advisory business some decades ago, most of the interest came from firms with client bases comprising mostly business owners. After all, these were clients who had substantial net worths and complex planning issues that would challenge, and therefore reward, advisors who could combine expertise in tax and estate planning with business finance and classic wealth management.

As things turned out, most business owners had neither the liquidity nor the inclination for detailed wealth management. Consequently, most of the relatively few wealth management clients that accounting firms have attracted have come almost accidentally from their tax preparation databases. In those cases where business owners finally did become liquid through the sale of their enterprises, they often had difficulty viewing their CPA as a wealth manager and tended to look elsewhere for help allocating their investable assets.


I don’t mean to sound pejorative, but when I look at the operating performance of CPAs who have entered this market, it would appear that most have taken what might be described as an opportunistic approach. That is, they view the sale of insurance products, annuities, or mutual funds as an opportunity to make a quick buck at little cost to them while capitalizing on their existing relationships. This approach creates many problems, but I’ve narrowed them down to these:

Lack of a coherent strategy. When a CPA firm and advisory practice do not commit to the development of a coherent vision for the business, and do not have agreement on a timeline and accountability for implementation, the relationship usually falters or fails completely. Do you have a strategy or a written tactical plan as to how to proceed?

Incompatible culture. There are three types of accountants when it comes to non-traditional business: the Early Adopters, the Wait-and-Seers, and the Never Wills. The optimal mix in a CPA firm is one where about a third of the partners is in each camp. Often, however, you get a preponderance of Never Wills because they see financial advice as being all risk, the rewards as being pie in the sky, and, in their minds, pursuing non-traditional lines of business only dilutes the focus of their practices. I would disagree with this view, but I’m not the one that needs persuading.

Lack of agreed-upon benchmarks for success. Measures of success often become a moving target–with both parties feeling confused and misled. The measures might be related to the number of referrals from one side to the other (this should be reciprocal, not one-sided); additional fees generated from tax-preparation clients; gross profit margin and operating profit margin, and a variety of productivity measures.

Lack of linkage between the advisory side and the accountants. How integrated are the two practices? Do both take a comprehensive approach to serving the clients, or is the advisory side viewed merely as an asset collector? Do you have a process for involving professionals from both sides with your clients? A good example of this would be if both were focused on the closely held business market. There are estate planning and business transition issues that naturally fall within the realm of the CPA; and there are personal financial planning, liquidity, and wealth management issues that naturally fall within the realm of the financial advisor.

Failure to systematically harvest the tax database. In our experience, the real opportunity in this arrangement lives in the data from the firm’s tax return database and the opportunity that data creates to go back to these clients to discuss their situation. Most accountants do not go back to the tax returns once they have been filed, though those returns are chock-full of insights and opportunities.

Failure to systematically survey the firm’s clients on their wants, needs, and perceptions. Firms that regularly survey their clients in a structured way tend to build longer-lasting relationships and harvest many more opportunities than those that don’t. There is an excellent firm based in Toronto–Advisor Impact–that conducts surveys inexpensively and effectively.

Failure to view non-CPAs as equals. The non-traditional practitioner within a CPA firm will not be valued at the same level as a practicing accountant because CPAs are not naturally inclined to do so. But that doesn’t mean financial advisors cannot demand respect for what they do nor assume that the burden of success rests solely on themselves. An elevated view of the financial advisor will only come through demonstrations of excellence, which may have to be proved with the first clients the advisors bring in.


What should CPA firms in this business do to create a more integrated, strategic approach to wealth management? I suggest taking the following steps:

Redefine strategy. The nature of a joint venture is that there is a shared commitment to the success of the enterprise. You must create this shared commitment. To start, get key partners to agree to a structured process of strategic planning on the advisory business, then jointly commit to an action plan. If they cannot agree to this, they are not serious about the business.

Make a commitment. If you’re in it part-time just to make a few extra bucks, stop it. Get in or get out. To do otherwise is a disservice to clients who should demand that their advisor have a full-time commitment to the discipline. It’s also questionable from a sound business practice standpoint for the accounting firm.

Define the optimal client. Instead of being opportunistic, the CPA firm should identify which clients would best be served by a wealth management practice, then build a needs-based approach to serve them. This should include a protocol for approaching them, a process for advising them, and a system for communicating with them.

Create a leveraged business model. If CPAs are serious about making this a meaningful business line, they need to get away from making it a “hobby” that is dependent on one or two people. They should build an organization that allows them to serve clients systematically and that provides a career path for the individuals who are working within this side of the practice, much as they do with an audit or tax practice. The leveraged model could either be multidisciplinary, integrating all of the services of the firm, or vertical, drawing on other resources as needed.

Align compensation to support the vision. The right compensation model should be aligned with the rest of the firm’s reward structure. It should also resolve the questions as to how much compensation is variable versus fixed; how much is paid for sales or referrals versus service; and how much is tied to the profitability of the overall enterprise.

The opportunities for CPAs in the advisory business are enormous. They often have many clients who would be great candidates for a comprehensive approach to financial planning and wealth management. With an integrated approach, CPAs can drive billable revenue up when they link planning and wealth management to their existing service offering. Planning and wealth management can drive tax planning, estate planning, ownership transition planning, and management consulting for business owners. Economics dictate that sooner or later CPAs and advisors will get this model right. The firms that get it sooner will have a tremendous advantage.

Mark Tibergien is a nationally recognized specialist in practice management for financial services firms, and partner-in-charge of the Securities & Insurance Niche for Moss Adams LLP, the 10th largest CPA firm in the U.S. He can be reached at [email protected].


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