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Building the CPA Alliance

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In the early 1990s, Jay D’Meza Jr., then a young advisor, met a group of accountants and they began to cross-refer clients. In 1994, they formalized the agreement. As D’Meza puts it: “We really started to conjoin our practices. We worked with similar clients. We worked hand in hand. And we built a practice model around it.”

In 1996, D’Meza moved into the same six-story building in Alpharetta, Ga., as the eight CPAs. In 2001, the Wachovia Securities advisor and his team moved to the same floor.

Today, 65 percent of their clients are mutual. Under a revenue-sharing arrangement, 25 percent of the client fee goes directly to the CPA firm. And it’s been a nice, steady referral stream for D’Meza, 42, whose team manages $250 million in assets for just over 125 families.

How sweet is this? During the fourth quarter and tax season, the CPA firm’s receptionist asks every client who calls her to schedule an appointment: “Do you want to schedule time with Jay and [partner] Ray [Suplee II] as well?”

When it comes to professional referrals, CPAs fall into that coveted “as good as it gets” column. They are trusted advisors and they have long-term relationships with largely affluent clients. In fact, a research study last year from CEG Worldwide, called Cultivating the Middle-Class Millionaire, showed that 54.2 percent of affluent individuals found their primary financial advisor through a CPA or an attorney.

But accountants, notoriously conservative and sales-averse, can be difficult to cultivate. In a best-case scenario, according to experts, it typically takes six months to a year, and sometimes longer, to gain a CPA’s trust.

As John Bowen, CEG’s founder, notes: “Most advisors have all kinds of challenges forming strategic relationships because they don’t have a clear, compelling value proposition to bring to the CPA. They may have a really good business model but so often what they do is come up to the CPA, as they would a client, and try to impress them with their investment or technical knowledge. Much like clients, CPAs can’t tell the difference between advisors. What they want is an understanding of how the CPA does business and how the advisor can provide them with a coordinated financial offering. They are looking for people who can provide insight, who can be looked at as a business partner. This is more than just a good-old-boy referral network.”

Among wirehouses, Smith Barney has the oldest CPA referral program. It launched in 1997. Today 600 advisors have alliances with a CPA firm.

“We’re looking for [CPA] firms that really demonstrate some level of commitment to incorporate this into their organization. I constantly talk to CPAs and financial advisors and these relationships tend to be long-lasting. The other thing that happens is that when you have a CPA involved, clients are more likely to say right up front: ‘This is what I have and this is what I need to achieve.’ They don’t hide their assets. They lay it all out on the table,” according to John Riina, director of Smith Barney’s Professional Alliance Group.

“The advisor benefits from the rapport the client has with the CPA. The advisor benefits because they are leveraging prospecting time, getting in front of the clients who need and want their help and doing it more efficiently. The CPAs are benefiting because they are broadening their menu of services and gaining an additional revenue source,” adds Riina.

“And none of that would work well if the client wasn’t benefiting. They truly benefit because they end up with a more coordinated strategy than if they were dealing with multiple professionals trying to figure out where the common ground was.”

Consider D’Meza’s experience. He meets with clients four times a year, twice with the CPA in the room.

“The relationship becomes very symbiotic. And what happens is our clients begin to depend upon this communications network, where if they tell us something, we’re talking to the accountants. If they tell the accountants something, they’re talking to us,” he says. “It’s a very creative process. You begin to really add value to the client. You really see what’s being done for the client.”

Creating the Ideal Alliance

Here’s an encouraging statistic: According to Tiburon Strategic Advisors, 77 percent of CPAs want to form strategic alliances with investment experts.

So the desire is there — but, somehow, the outcome is not.

“I’ll bet 80 percent of brokers and advisors would say, ‘CPA alliances are part of my marketing strategy.’ What happens is they end up signing up a lot of CPAs and not doing a lot of business with them,” says Chip Roame, Tiburon’s managing principal.

Why such a high failure rate? It’s simple: the lack of a systematic approach.

“Everybody wants to meet more clients through referrals; they all know it’s the best way. But most don’t have a systematic approach to it,” according to Bill Cates, president of the Laurel, Md.-based Referral Coach International, which helps financial professionals build business through referrals. “There’s a lot of fear and mistaken assumptions that keep them from developing that business. And the solutions are pretty simple, really.”

First, a rule of thumb. Alliances tend to work better with small to medium-size firms, 20 partners or less. And it’s prudent to single out the younger partners, who are generally more enthusiastic about forging such relationships.

Another important consideration: Most advisory firms treat the CPA as their client — and the chief relationship manager when it comes to the clients themselves.

As Jason Oldroyd, national director of market access for Lincoln Financial, notes, “In our culture, we always view the CPA or the CPA firm as the client, and we have the opportunity to bring a service to their client. We see the CPA as maintaining that relationship. Our role is to enhance it.”

Among Oldroyd’s tips for developing a successful revenue-generating relationship: Have a clear understanding of your partner’s business. Demonstrate your own value proposition. Key to it all: a written shared business plan with a tactical plan to implement.

“This is a very sophisticated type of market access. For it to work, everyone involved needs to stay focused on long-term relationships over short-term gain, and serving the client first,” he adds.

Cates has developed several strategies to help financial advisors connect with CPAs. [He suggests asking clients and other CPAs to facilitate the connection.] His blueprint:

Become “referable.” Don’t appear “salesy.” Demonstrate your desire for a long-term relationship with both the CPA and the client. Articulate your value proposition.

“One of the conversations an advisor needs to have down pat is what they do and who they do it for. If you hem and haw and can’t articulate that profile quickly and with confidence, you’re going to lose credibility in the CPA’s eyes. What makes you different?,” adds Cates. “Most advisors haven’t thought it through.”

And don’t even bring up referrals initially, unless the CPA does. Get to know each other first and see if there’s any business chemistry.

Nurture the relationship. An alliance can take months, even years, to establish. Don’t become impatient or expect quick results.

Ask the CPA, “What do you need to see from me that will help you feel comfortable introducing your clients to me?”

According to Cates, the question is rarely asked.

“A lot of advisors seem to think they can take a CPA out to lunch a few times, send them a few referrals and the floodgates will open. No. You need to find out about the CPA’s practice and clients and position yourself as a resource for them,” says Cates. “How can you help them: marketing ideas; serving as a knowledge resource; leading seminars for the partners or their clients or both. Advisor and CPA need to have a conversation about the CPA’s client base and how it fits with the advisor’s ideal client.”

Launch the alliance. Talk about the actual mechanics of giving referrals: What kinds of licensing and registration are required? What is the revenue-sharing fee? Are there quotas? Whose office do client meetings take place in? Does the CPA wish to have an oversight role, and if so, how deep? What can the financial advisor do to ensure success in the form of introductory letters, brochures, seminars?

“The CPA needs to know they can trust the advisor to do what’s right for the client, to trust their capabilities as well as their relationships. What’s the best way to do that? To work together on a client they have in common. I personally believe the best way to start out is for the advisor and CPA to be sitting in the CPA’s office or a conference room when the client walks in. They are perceived as being a team,” says Cates. “The important thing is to do your homework, formalize the relationship.”

Reflected Trust

Every week, Jay D’Meza or someone from his team joins their CPA partners at their regular Monday business lunch. Years into their alliance, these are folks who know one another well.

“I’ve talked to so many people who find out about our model, tried to set one up and it didn’t work. What I tell them is that we didn’t try to set up relationships with 50 CPAs in Atlanta. We picked one mid-level group,” says D’Meza. “We all approach things pretty much the same way. We enjoy each other. We know each other’s families. We choose to have a life together — that’s the key. There’s truly a relationship there. Instead of trying to set up 50 of these things, we did it once.”

And the quality of referrals has been what D’Meza calls amazing.

A few weeks ago, one of the CPAs asked D’Meza to review a client’s investment account: $5 million held by a competing firm.

“Basically, the CPA said to the client: ‘If you’re not thrilled, why don’t I have my guys review it?’ You know, we’ll probably get the account,” D’Meza says. “People have, for whatever reason, this feeling that their CPA is their guy, their gal. Now, we’re their guy too.”


Two Advisors, Two Models

Ten years ago, advisor David J. Petoskey signed up two CPA firms to partner with him. His referral source: the alumni catalog of Walsh College, a business school and his alma mater. Today, he has six CPA alliances. He’s about to get his seventh.

“In my mind, they are my clients. Whoever comes referred from them, whether it’s a $20,000 account or a multi-million-dollar account, they are the client. I service everyone the same way.”

Petoskey, president of Wealth Management Services and a top producer for LPL, developed the pilot CPA network program that now serves as the template for the national LPL partners program.

At the start, Petoskey, based in Birmingham, Mich., helps one or two CPAs at each firm get their Series 7 and life insurance licenses. It is those folks who receive a revenue sharing fee, ranging from 25 percent to 35 percent.

The fee is predominantly for the referral. [Notably, if a client referred by a CPA refers another client to Petoskey, the advisor will split the fee with the accountant.]

“The CPA will sit in meetings, but we do the planning and follow-up. They’ve already built that trusted relationship and they help facilitate filling in information about goals and tolerance,” he says. “On day one, the CPA is viewed as the trusted advisor. But within two to three meetings, it’s a total team approach. If the CPA introduces me, I am now a part of the practice.”

With over $115 million in assets under management, Petoskey operates on a needs-basis-only marketing plan. “They only call me when they see a match with the client,” he says.

During tax season, Petoskey is a first responder.

“If a CPA needs a 1099 or a copy of a statement with the pension plan, my staff e-mails it within three minutes,” he says. “You will never hear that they called us and we didn’t call back.”

Petoskey’s goal: 10 strategic CPA alliances.

“Every time I sign up a firm it takes about 18 months to get going — to get through the licensing plus to get comfortable with me as an individual and to have me educate them on what’s out there. They’ve got to understand that you’re a decent guy, a good person. You’re not there for a quick hit,” he says. “But once you’re there, once you get it, it’s solid.”

No Fee-Sharing for this Advisor

Back in the early 1990s, Mark Thompson identified CPAs and tax attorneys as key to his business plan. Why? Clients trust them.

Early on, Thompson, a Raymond James & Associates advisor in Melbourne, Fla., purchased a $3,000 turnkey marketing program that allowed him to become a continuing education expert to CPAs on financial products.

Over time, he targeted the top 10 CPAs in his five-county area.

“I became a source for them. In talks over the years, I asked what other services I could provide. They needed pricing on securities, which turned out to be a huge benefit for us. They needed to understand complex financial products so that they didn’t look stupid. If a client was asking about alternative investments or annuities, they could call us,” says Thompson, who has $150 million in assets under management. “And regularly getting in front of them on a stage in a classroom format heightened my credibility.”

Thompson sought out what he calls “advanced market CPAs” who offer multiple services, including tax and financial planning advice. Not a single one wanted to split a referral fee. Most already had a securities license. They wanted what Thompson calls “a Chinese wall.”

As he puts it, “They did not want to be receiving income by referring someone to me. It’s the old fox in the hen house story. So there’s no fee-sharing with my strategic CPA alliances. We decided to keep it independent.”

That’s not to say it hasn’t been lucrative.

Ninety percent of his new clients come from CPAs and tax attorneys. [He works regularly with 10 tax and estate attorneys.]

Thompson credits two ongoing strategies for his success: responding immediately when the CPA or attorney calls with a question and regularly updating them on industry issues or advanced investment concepts that could impact their mutual clients.

“Many are hesitant to refer until they develop a lot of trust. It took me four years to get one attorney to trust me,” says Thompson. “Most advisors in my business don’t take the long-term view of how those two professionals can help. They don’t put enough time and energy into it.”


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