Advisory practices operating inside of certified public accountant (CPA) firms are a paradox. They are growing faster than the advisory profession on average, but many do not seem to be capitalizing on the power of their local brands and relationships with accounting clients as well as they could. According to the AICPA/Moss Adams 2007 Personal Financial Planning Practice Study published earlier this year, CPA advisory firms have shown a year-over-year growth in revenue of almost 35% since 2004. CPA advisory firms are also more profitable than their counterparts in the rest of the advisory profession. But while advisors within accounting firms are showing dramatic growth, they seem to express a growing frustration that their CPA partners regard their advisory practices as an afterthought relative to CPAs’ total business. (To request a copy of the study, send an e-mail to [email protected].)
Last year, the average firm in this study generated $460,000 of gross revenues, which is the revenue of a good-size solo practitioner, but not of a truly leveraged practice that is typically the business model of an accounting firm. Of course, there are behemoths in the CPA advisory space, such as the two Michigan firms Rehmann Financial and Plante Moran Financial Advisors, which have done a much better job than most of leveraging oft-cited data that suggests accountants are “the most trusted advisors” by integrating financial advice into their overall accounting practices.
According to the AICPA and Moss Adams study, there were four ingredients that resulted in a recipe for success for the most profitable CPA advisory firms:
- Develop a plan and goals;
- Develop a process for monitoring the performance of the planning and advisory service offering;
- Formalize the compensation system;
- Devote time and resources to marketing.
These steps seem intuitively obvious and fundamental to any good business. But sometimes the obvious is too hard to see amid the struggles of making sure clients are served well while adapting to a culture that sometimes seems in conflict with rendering personal financial advice. For example, many CPA firms have not resolved whether their advisory practices should be integrated into the accounting practice’s overall client experience, operated as a standalone entity, or treated somewhat at arm’s length as a referral partner.
The survey also exposes issues for the wider advisory profession, especially as more accounting firms are looking at personal financial planning and investment advice as potential offerings. But the challenge is not just within accounting firms. More and more independent advisors are merging their practices into other entities, such as banks, credit unions, law firms, trust companies, and other financial advisory businesses, and are finding that each has a different way of viewing the world. The misunderstandings around the value of personal financial planning and a systematic approach to investing also has implications for those advisors who continue to see CPAs as centers of influence and sources of referral for clients.
The Challenge of Integration
The study cites a number of integration challenges for CPA financial advisory firms. Among the top challenges (see table on page 107) are allocation of resources, gaining access to clients, and general lack of support among CPA firm partners. In my experience, I often found it remarkable how infrequently these issues are addressed prior to merging or joining a firm that does not have a history of supporting a new business concept. Language, culture, values, and approach present consistent barriers to success when introducing a “nontraditional” practice into a structured business organization like a CPA firm or bank.
For some bewildering reason, CPA partners are often wary and unaccepting of the interloper yet become quite irritated when the new advisor in their midst fails to contribute sufficient revenue and profits. Without strong leadership by a cadre of CPA partners, the venture into personal financial advice is doomed to fail. Further, an overreliance on the managing partner of an accounting firm as the sole sponsor of the advisory business will result in this practice fading into the sunset as soon as that partner leaves.
Like most service businesses, CPA partners can be grouped into three categories: the Early Adapters, the Wait-and-Sees, and the Never Wills. An extraordinary amount of effort is exerted by the financial advisor trying to convert the Never Wills, but like a supernova, these financial advisors have a brief explosion of light that outshines the entire galaxy of other partners only to collapse into a black hole within a short period of time.