By its nature, financial planning takes the long view - and so do financial planners. A good plan, and a good planner, should not be completely derailed by market swings or uncertainty in the regulatory environment; instead, they adapt, often using strategies and tools prepared in advance.
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Financial planning clients, on the other hand, are not always so calm in unsteady times.
Challenge and response
When we asked this year's Wealth Magnets to name the most important issues facing financial planners, the majority named volatile markets and uncertain regulation in a variety of areas, from tax and health care laws to the question of fiduciary responsibility.
"Navigating issues associated with turbulent markets and their impacts on clients' long-term financial goals," as Indianapolis-based Crowe Wealth Management put it, is certainly a major challenge facing the profession, as is the undetermined future of estate tax laws.
In many cases, though, planners are already prepared to deal with this kind of uncertainty. Their planning processes, investment offerings, asset allocation models, and scenario-building capabilities are designed to adapt in the face of real-world changes. Cincinnati-based TruePoint, for instance, reported that it is "rebuilding all financial plans under multiple scenarios (increased tax rates, surtaxes, increased medical costs, conservative real returns) to allow the client to understand their financial security under many different assumptions."
This kind of forward-thinking, proactive planning also characterizes the approach of SS&G Wealth Management, in Akron, Ohio: "We help our clients prepare a detailed budget and search for ways to lower expenses. We also perform an insurance needs analysis to identify any potential risk that could derail an otherwise sound plan. Finally, we then recommend investments designed to generate income that they cannot outlive."
With such tools and plans in place, the real issue for many firms is not how they themselves react to uncertainty, but how their clients do: "Keeping clients focused on the journey toward a comfortable retirement and not allowing them to be distracted by the day-to-day ups and downs of the markets" is critical, according to Houston's Hollis Huff Lewis Financial Services.
The need to maintain client discipline in sticking with a financial plan, an asset allocation strategy, or even a personal budget in the face of fears and anxieties has led many of our Wealth Magnets to put a greater emphasis on client communication. "We need to try, as best we can, to redirect our clients' attention away from CNBC, Mad Money and the reckless amount of short-term focus that the media constantly hypes," TruePoint wrote.
In the interests of "keeping our clients from making irrational and emotional decisions that will cause years of potential damage," Denver-based GHP Investment Advisors is taking client outreach very seriously: "In addition to quarterly newsletters and financial statements, we are having our clients come in or engage in a telephone conversation at least three times a year."
Savant Capital Management, in Rockford, Ill., meanwhile, is engaging in "a lot of retirement projections and hand-holding to help people gain comfort in their ability to retire."
The Madoff Effect
San Antonio's Netting & Pace summed up one particular aspect of client communication that concerned many of this year's Wealth Magnets: "Demonstrating trustworthiness to clients."
Few would doubt that, between a raft of Ponzi schemes and the near-implosion of the banking system, financial services have sustained tremendous reputational damage in the last few years. "The issues on Wall Street have caused the average consumer to be leery of the financial industry as a whole," noted Blue Ocean Strategic Capital, in Syracuse, N.Y. "They feel that all people in this business are not working in a fiduciary capacity." As a profession noted for its integrity, CPAs may be in a strong position here: "We are stressing that, as CPAs, we consider the client's objectives and outcomes as the important factor. We are fiduciaries."
Similarly, Boston-based Caturano Wealth Management is putting in extra time with clients to re-assure them of its commitment - and "to make sure they understand where their money is and how we get paid for our services. We are looking to make sure everything is transparent so the clients stay fully engaged in their money and financial plan." (As we went to press, it was announced that Caturano had agreed to merge with RSM McGladrey; see page 1.)
And KMH Wealth Management, in Victoria, Texas, is dedicating time to "explaining the importance of the fiduciary standard to clients and prospective clients."
The Brighter Side
Market volatility, regulatory uncertainty and client anxiety are all serious concerns, not to be taken lightly, and CPA financial planners are giving them the attention they are due, with sophisticated investment strategies, scenario-building and intense communication efforts.
That said, not all is doom and gloom. The numbers in our report, for instance, show some positive trends. Assets under management for the list as a whole have grown to $61 billion ($35 billion of which is held by the top 15 firms), from $40 billion last year. Some of that is due to there being more firms on the list, but even a quick comparison between firms that reported both this year and last reveals that many have increased their assets under management - often significantly. Regardless of whether that stems from rebounding markets, current clients investing more, or new clients coming on board, it means more work for financial planners.
"The single biggest issue we see facing the financial planning profession is growth," Moss Adams Wealth Advisors reported. "Managing that growth created myriad challenges for financial planners. ... The majority of people fully realize they are incapable of managing their financial plans alone anymore, and will seek the help of professional financial planners (much more so than before the market downturn)."
"All of this will cause a bidding war to attract top-quality financial planning talent," Moss Adams warned, noting that it has spent the last 18 months aligning its organizational resources, systematizing its approach, and refining its business model. "The firms that react the soonest will fare the best."
The more unsteady the times, after all, the greater the need for steady hands.
Notes on the report
Much like the field it covers, our Wealth Magnets report continues to grow. For our fourth annual ranking of CPA firms by assets under management, we received submissions from 181 CPA firms with financial planning practices or subsidiaries, against 132 last year. The tiers of firms, naturally, are also growing, with 15 now in the Billion Dollar Club, against 11 last year, and 69 in the $100+ Million Club, a staggering rise from the 40 in that band last year.
Such a large number of firms means, among other things, wide diversity in practice structure and in the information submitted.
In most cases, firm names are those of the financial planning subsidiary, not the overall CPA firm.
For simplicity's sake, we have listed the heads of the planning practices under "managing partner," though many bear different titles.
Many firms gave a date for the AUM figure they submitted; these varied widely, from the date of submission to the most recent quarter, but in no case where a firm gave a reporting date was it earlier than year-end 2009.
For a significant number of firms, we don't have the number of employees or locations, so rather than run an overall (and incomplete) table of staff figures, we have included the figures from those firms that did report them in the list itself.