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Financial Planning > Tax Planning

What Do CPAs Really Want?

By Ellen Uzelac

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When consultant Libby Dubick wrote a column recently on getting referrals from certified public accountants, she was deluged with calls and e-mail from frustrated financial advisors.

Their question to her: “Do you have the answer?”

Not surprisingly, given the caliber of CPA referrals, a lot of advisors are eager to form alliances with accountants. The sad truth: Most don’t have the staying power to make the relationship work.

As Dubick, a New York City financial services consultant, puts it: “They’re on two different planets. Everything about them is kind of oil and water. I don’t have the silver bullet. I don’t think there is one.”

It’s a disconnect that presents a huge challenge for advisors who want access to wealthy clients — and their gatekeeper, often the CPA.

In fact, new research from CEG Worldwide shows that the most successful financial advisors — those with the highest income and a small base of 150 or fewer clients — use referrals from other professionals (53 percent) and joint ventures (23.8 percent) far more often than do other groups.

And a recent Cerulli Associates survey of registered investment advisors turned up a common characteristic of growing and successful practices: the development of a repeatable referral source.

“In some cases, it might be the human resources department of growing companies or an estate planning lawyer, but in a lot of cases it’s the CPA,” according to Bing Waldert, associate director of Cerulli. “They can deliver a higher-end client. A client seeking out that level of tax advice is going to have significant assets and he’s going to have a more complex financial situation. By definition, that client is going to be in need of assistance.”

No one is closer to the issue than Daryl Logullo, author of “How to Grab CPA Referrals by the Dozens” and founder of Strategic Impact, a consulting firm in Vero Beach, Fla.

Typically, when Logullo asks advisors how many of them have relationships with CPAs, as many as 30 percent to 40 percent will say that they do. When he digs deeper — Are the relationships productive? Do they generate conversations and dollars? — that number, he says, is “really, really low.”

Part of the problem is the culture gap that exists between the CPA and the financial advisor. They have little in common when it comes to two of the basics: their business model and how they are paid. And even if they do develop a relationship, it can take months, even years, to yield results.

Chip Roame, managing principal of Tiburon Strategic Advisors, says most advisors lack the doggedness that the relationship-building requires.

“In my opinion, this is a stagnant space,” according to Roame. “Advisors, in all honesty, lack the tenacity as a group for building CPA alliances. You see a lot of quick starts: a seminar, a mailing. But I don’t see much tenacity. If you really want to work with CPA firms over time, you have to ride the relationship.”

The good news: When it does work, the results can be astonishing.

CEG Worldwide founder John Bowen currently has 300 advisors in coaching programs and 40 are developing CPA alliances — raising billions of dollars in the process.

“What we’re seeing is that when it works, it’s unbelievably successful. But what happens is CPAs by their very nature are skeptical and a lot of them have moved from being skeptical to cynical. Because of that, we’re finding they’re taking even longer to get ready,” says Bowen. “Unless you have an extremely compelling value proposition, you fail. The thing is you can make this work. When we look at advisors netting over $1 million a year, on average they have five strategic alliances. If you’re going to be successful on purpose, this is one of the elements you need.”

Building BlocksWhat do CPAs want? The answer might surprise.

As Logullo frames it, “Every CPA wants this: They want to move away from tax counselor to comprehensive business advisor. They want to be re-branded. They want to be involved in all aspects of a client’s life. And herein lies the problem. They don’t know how to do that. Who does? The financial advisor.”

According to Logullo’s research, CPAs greatly admire the way financial advisors bond with their clients and become involved in their lives and life choices.

“It’s something CPAs want to do more of. They tell me over and over again if we had that form of bond, we would be absolutely remarkable at what we do. Yet when you talk to financial advisors, they think CPAs don’t want to have anything to do with them,” Logullo says. “There are ways to take that first step.”

Among the strategies to consider:Be patient. Understand that these relationships are built over time, on the CPA’s schedule and not the advisor’s. “I think advisors often run out of steam, but yes, it can be done. You have to show up repeatedly,” notes Dubick. “It requires a lot of handholding.”

Think like a CPA. A lot of advisors mistakenly focus on how to create revenue sharing for the CPA, according to Dubick. “That’s not what they care about. They don’t mind if the FA makes money, but what they really care about is making their job easier or serving the client better,” she says. “That’s what they really want.”

Unlike the financial advisor, a top concern of CPAs is liability. Talk to them about it. “Empathize,” advises Logullo. “Advisors can talk about what it was like in the 1970s when limited partnerships went in the toilet, or more recently, the fallout from the mutual fund scandal. Show that you understand what they are concerned about.”

Involve the CPA in your work. Figure out how to let the CPA experience your work. As an example, suggest to a client that you meet together with the CPA to share thoughts and exchange ideas. “The CPA is going to fall over, of course,” Logullo says. “And it’s a simple step you can take to show off your experience.”

Other tactics: Invite the CPA to sit in on an investment policy committee meeting. Ask the CPA for input on a client proposal. “The biggest problem financial advisors say they have is differentiation,” he adds. “You’ve never gotten them inside your well. This does that.”

Create economic glue. The relationship doesn’t have to be about fees or revenue-sharing. Among the options here: providing a full-time assistant to support the relationship and allocating funds to market the partnership. “CPAs tell me over and over it’s not about revenue,” says Logullo. “They’re not motivated by financial issues. They’re motivated to do the right thing.”

Best PracticesOne need look no further than Justin Hardesty, a Raymond James Financial Services advisor, to see best practices at work.

Hardesty’s firm, Greenport Financial Advisers in North Canton, Ohio, has 120 client relationships. Over the last 10 years, Greenport Financial, with three advisors, has developed alliances with a dozen CPAs in the region.

“Oftentimes in someone’s life, the first advisor a person gets is a tax person, followed by legal counsel. It’s not unusual for the financial advisor to be the last one to come into the fold,” according to Hardesty. “We recognized early on that we needed to know who the CPAs are and that we needed to be referred into situations.”

Greenport Financial has grown exclusively through referrals, mostly from “trusted advisors” in the community.

“It’s about getting out and telling people our story — and we tell it more often to advisors than to a potential client,” Hardesty says.

Hardesty has used a number of different strategies to build the CPA relationships. “One of the things you always do is try to make the CPA’s job as easy as possible,” he says. To that end, he has lent himself out as a resource — offering, for example, to offer advice on odd required minimum distributions from an IRA, to explain an annuity contract (though he doesn’t sell them), and to track the cost basis of assets.

“It’s a way they can see us in action without actually referring a client to us,” Hardesty adds. “It’s basically saying: ‘If you come across an issue and you need help, I’ve got tools that you don’t necessarily have in your toolbox. Let me help you.”

Hardesty has also flown some of his best CPA referral sources to Raymond James headquarters in Florida to showcase the depth of his own offering and expertise. During the visit, Hardesty introduces the CPA to the executives of four or five different departments — including, routinely, investment banking.

“It’s something that’s not a part of our core practice, so we want to make them aware of the full scope our offering,” he says. “While we may appear small, in areas where we hold ourselves out as experts, let us show you the massive amount of firepower at our fingertips.”

It’s not unusual for a CPA to refer one client — and then watch how that single relationship develops over a period of two to three years.

“Like anything else, it starts small and grows,” Hardesty notes. “At this point, this is our bread and butter.”

—

Back in 1999, CPA Robert Curtis started picking up chatter from clients.

“They were knocking on our door, asking for more integrated help,” says Curtis, a CPA for 30 years. “They were asking for a one-stop shop. They’re entrepreneurs and busy executives who wanted to make just one phone call. Clients were saying: Make it simple for us.”

Curtis did just that.

He got his securities licenses and formed Clayton & McKervey Financial Group, a fee-based financial advisory firm — today a Raymond James Financial Services affiliate with $140 million in assets under management. The firm is strategically allied with Clayton & McKervey, one of the largest CPA firms in southeastern Michigan with 60 people on staff.

“We decided right from the beginning it had to be very, very cohesive. It couldn’t be the guy down the street, or even the guy in the building next door,” says Curtis, whose advisory firm rents the office space it shares with its CPA partner. “It’s more or less like the end of a whip. You move this end a little bit, that end moves a lot. We knew we wanted to be very, very close.”

There’s no revenue-sharing in the arrangement, only referrals. The person who has the strongest connection with the client serves as the relationship manager. Curtis says he built the financial services division on the two core values that made him successful as a CPA: communication and trust.

“It’s not as much about the money as making sure we have happy clients. If we’ve got happy clients, the CPA side does so much better — and we do better because the client is being taken care of on both sides,” says Curtis, 53. “That’s where a lot of alliances fall apart. People are more concerned about who’s going to make how much money as opposed to: If we both work as hard as we can for the client, we’re both going to make more — and the client is going to do much better in the process.”

Clayton & McKervey Financial Group, seeded with Curtis’ CPA clients, hooked up with Raymond James in 2003. At the time, the firm had $25 million in assets under management. Its five-year goal, going forward: $500 million.

In Curtis’ conference room, there’s a world map with pins in it — representing the 20-plus CPA firms around the globe that have copied his business model.

“We keep scratching our heads and keep wondering why more CPA firms don’t set up this model,” says Curtis. “It’s not like flipping a light switch. It takes time. But when it comes down to it, clients want quality answers to their issues. This is a highly successful way to deliver that.”

Two words drove LPL wealth advisor Bob Mauterstock into a CPA alliance: succession planning.

Mauterstock, now 61, was a sole practitioner in 2000 when a client asked him what the outcome would be if anything happened to him. “I didn’t have a plan,” says Mauterstock, who oversees $192 million in assets for KR Wealth Management in Farmington, Conn.

Through contacts, Mauterstock connected in 2001 with the managing partner of a CPA firm, Kostin, Ruffkess & Co., that was interested in building an investment business. Mauterstock’s suggestion to simply refer business was rebuffed in favor of the joint venture, KR Wealth Management. Today, the two firms have separate offices on the same floor with a common reception area.

“I own half, they own half,” he says. “I brought my existing clients into that business and they started working with me to introduce me to theirs.” And, through a separate entity, a dozen of the 20 CPA firm partners are now licensed with LPL. Importantly, Mauterstock adds, managing partner Dick Kretz, whom he describes as “100 percent on board,” has strongly encouraged his CPA colleagues to refer their best clients to the wealth advisory firm. Mauterstock also now manages many of the CPAs’ personal portfolios.

“Before I got started, I thought: This is going to be a slam dunk. I’d just sit back and not do any marketing because they’ll bring me all their clients. It doesn’t happen that way,” he says. “They test you with a couple of small clients first to see if you’re going to screw up and gradually, over time, they introduce you to top clients. It took three years to get there — and the momentum is still building.”

Meanwhile, Mauterstock and his staff are paid salaries and he shares in the joint venture’s profits after expenses. After a number of years, the firm will buy Mauterstock’s practice and he’ll retire.

In the works: the establishment of wealth advisory components at the CPA’s two satellites in Springfield, Mass., and New London, Conn. There is also talk of expanding the business model to Florida.

“We have the model now. I know there’s a whole group of people between 55 and 60 who are financial advisors like me who are working on their own and don’t have a succession plan. They don’t have a way to turn their business into ultimate retirement income,” says Mauterstock.

“In the long run, those people who are most successful are those who share their expertise and group together. Just know that it can take a good five years of development to make it productive and profitable for everybody. If you give up before then, you really haven’t given it a chance.”

—

Freelance writer Ellen Uzelac is based in Chestertown, Md., and is a contributing editor of Research

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