No Accounting For This

While offering more services does not automatically result in more profits–in fact, the opposite is often true–this breadth of offering allows accountants to refer clients from one discipline in their firm to another quite naturally. For example, if a tax compliance client asks the CPA for help with tax planning around a transaction, this creates a natural and seamless segue for the CPA to involve the firm’s estate planning and financial planning specialist in the relationship. Should the business sale occur, the client creates considerable liquid wealth that needs to be managed–ideally by a trusted advisor.

What’s interesting about the CPA-affiliated firms, however, is that it seems most of them are accumulating clients and assets to manage as an outgrowth of their tax practice rather than as a result of business sales. In our strategic and compensation planning work with CPA advisory firms, we find that many are performing tax compliance work and tax planning for very high-net-worth individuals who, over time, become disenchanted with their broker or trust department or money manager. Many of these CPA-affiliated advisors tell us that using a consistent (some might say conservative) approach to investing, either through professionally managed account programs or by using index funds at the core, resonates well with clients who have otherwise been whipsawed by hot investment tips and overly aggressive advisors.

Not coincidentally, the financial advisors and planners who reside within CPA firms find that the key to getting through the accountant, who is the gatekeeper, to the clients is the same thing–a consistent, proven methodology, with a logical investment selection process, relatively low fees, and a reduced dependence on human judgment. Whatever the merits of this philosophy, the concept seems to be working within accounting firms.

Which brings up the final point of why accounting firms in the advisory business may be excelling. When accountants first dipped their toes into the advisory firm waters, there was a tendency for CPAs to get licensed in order to sell investment or insurance products in the “off season.” The consequence was that the industry became filled with dabblers who produced under $50,000 of annual revenue from their financial advisory practice and whose motives were primarily opportunistic. As with the rest of the advisory profession, as CPAs began to recognize both the liability risk and the demand for professional personal financial advice, many of them became financial advisors full time and let go of their accounting practices. Many others hired or merged in financial advisory practices that had already established processes, protocols, and clients. The move toward greater specialization in such firms accelerated both the growth and the quality of personal financial advice one now gets at their accounting firms. Plante Moran, winner of the Schwab IMPACT award, is a good example.

An Evolution in Thinking

As a result of this evolution in thinking, accounting firms have created a new and interesting dynamic for the financial planning and advisory world. They have also created models that growth-minded advisory practitioners may wish to emulate.

First, successful CPA-affiliated advisors have been able to focus on their optimal client and consequently are able to create a consistent client service experience. This means their approach to pricing, reporting, client contact, and service offering is definable, measurable, and effective.

Second, they have stayed true to their CPA roots by maintaining a healthy attitude about managing to profits. They monitor costs, evaluate their business management performance according to benchmarks, observe trends, and price their services in line with their offering.

Third, while most seasoned accountants recognize that cost control is important, most understand that real growth comes by adding the right people, providing them with a career path, helping them develop, and coaching them to effective levels of performance. CPAs who have come from professionally managed organizations have had many years to learn the value of an effective human capital plan on the traditional side of their businesses and are now able to apply this in their new ventures.

Advisors who lack the infrastructure, capital, or management expertise to grow their businesses to the next level might consider accounting firms as a possible place to merge their firms instead of looking to banks, consolidators, and other large advisory firms.

Culturally, it can be a challenge because the way advisors and CPAs look at life can often seem strangely different. If one is explicit about the expectations of such an arrangement, the business and financial benefit is clear by the numbers we are seeing so far, both when we look at our own example and when we analyze our clients’ data.

If merging with a CPA firm is not desirable, advisors can study how the best-managed CPA-affiliated advisors are growing and begin to apply many of the same principles to their own practices.

As for the CPA firms who are in the financial advisory business, they will need to be vigilant about maintaining a strong bond with the advisory side of the house, and vice versa. Fast-growing businesses often lose their sense of purpose. What got them here likely won’t get them to the next level alone. They will need to invest in new expertise, perhaps expand their investment offering, and be careful that their processes don’t break down as they start drawing talent from places other than where they found staff before. As a new generation of accountants and advisors emerges, each will need to be reminded of what brought them together in the first place and why their combined offering gives them a clear differentiator in the marketplace that distinguishes them from other CPAs and financial advisors.