Building the CPA Alliance

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.”