The continuing economic crisis offers accountants an opportunity to reach beyond their normal compliance work and benefit their clients.
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"Financial advisors who aren't CPAs have taken a brutal beating in the last several years," said Mark Merenda, president of Naples, Fla.-based Smart Marketing. "Whether they charge on a fee or an asset basis, it's been a tough couple of years."
Moreover, a fair amount of clients want to blame their financial advisors for the tough times, he indicated: "People who are unhappy with their investments will be more willing to consider making a change in their advisors. Accountants are respected as being cautious and prudent with their clients' money, which is exactly what most investors want today."
CPAs start with a number of advantages, he said. "They're absolutely in a position of trust with their clients. Most people will not have complete trust in their lawyer or financial advisor, but it's hard to find people that don't have trust in their CPA."
"And they start with an advantage that my lawyer clients would love to have," he said. "That is that the end client has to engage with the CPA at a minimum of once a year at tax time, with people who are more affluent probably engaging quarterly. It's a big advantage if the customer has to come to you."
At a minimum, that's where the accountant can bring up current opportunities and pitfalls, according to Merenda. "This year's obvious example is the opportunity to gift large amounts without tax consequences. It expires at the end of the year, so it's a good reason for the accountant to touch base with the client to remind them of this."
Everything in the world of insurance and investments has some tax effect, and the frequent lack of communication between CPAs and investment professionals means that the clients will suffer, according to Kansas City, Mo.-based CPA John Azodi.
"As a CPA, I'm doing their taxes and investments, I'm aware of what the consequences will be and I can take that into consideration. For most individuals, what they think of their tax bracket and what it really is, is a mile apart," he said. "Every individual thinks they pay 30 or 33 percent, but in reality the majority are paying 15 percent on their federal, plus state. ... When they tell their financial advisor their bracket, the type of investment he makes will be different. He may be buying municipal bonds where it's not necessary."
The biggest reason and the one that drove Azodi to get licensed for his own clients was his discovery that clients often ask their CPAs about investing, but will not follow up with the actions because they have to deal with another person that they do not know or trust. "I explained the advantages of the Roth IRA to my clients in 2008," he explained. "People said it sounded great, and 40 said they would do it, but only two of them actually took the step and went through with it. When I asked them why, they said it was too much trouble to get to know someone else. So I got my license that summer, and the next year I opened up more than 50 accounts. ... For many of them it created a new habit, because they were able to see how $50 a month over time adds up. So I am doing my clients a favor, and I am creating more revenue because I get paid commissions or a fee. But the best part is that my clients are more financially stable."
It is also more convenient for the client to have everything done in one place, he said. "They see me at least once a year. It's convenient to do their investments on top of the tax returns, because I already have their tax brackets, and how the income was generated. If they were at another advisor, the advisor may just ask the client to give them a ballpark figure, and the client will take a guess."
CPAs that decide to provide financial planning, investment and insurance services to their clients can choose to do it on their own, or associate with one of the firms dedicated to helping tax and accounting professionals integrate financial services into their practice. David Hajek, a CPA and attorney, left a regional CPA firm to set up a financial practice that partners with Raymond James. It's a natural fit for an accountant to add or transition to financial planning, he indicated.
"CPAs know the clients' financial and tax situations backwards and forwards," he said. About 3 percent of his business is product-based, while 97 percent is fee-based. "We may provide an annuity once or twice a year if the client needs a guarantee as far as performance is concerned," he said.
The tax professional is uniquely qualified to provide financial advice to the client, agreed Roger Ochs, president of H.D. Vest Financial Services. "The financial information on the return is the Holy Grail. And they also have a personal relationship with the client - we call it the unfair advantage," he said.
And the need for financial planning and advice will escalate in the years ahead, according to Ochs. "As Baby Boomers retire, they're looking to satisfy their cash needs," he said. "They're transitioning from being accumulators to being distributors, and they're making decisions that require more advice than when they were accumulators. The tax professional is uniquely qualified to provide this."
The typical accountant/financial advisor is not a salesman, emphasized Enrique Vasquez, president of Cetera Financial Specialists (formerly Genworth Financial Investment Services). "They are running a successful accounting and tax practice. They want to listen to their clients, solve their needs, and provide solutions. What we do is make it as easy as possible for them to do that."
A new platform, Premiere Portfolio Management, gives advisors flexibility to create client portfolios the way they want. "They don't have to know about every type of product - we help them with that," said Vasquez. "And we help them on getting licensed, setting up their practice, and advise them on hiring staff and marketing their services."
A SHORT LIST
There are five reasons driving the move of accountants into wealth management, according to David Knoch, president of broker-dealer 1st Global. "Many CPA firms are already in wealth management without realizing it, by transitioning business out to a local practitioner," he said. "If you think about a professional services firm, it's valued on a multiple of gross revenues. If that's the case, giving up revenue to a local provider amounts to giving up enterprise value for nothing in return. No CPA would coach someone to freely give up enterprise value."
The second reason is utilitarian, Knoch observed. "It's practical for the CPA to get into the business. They're already familiar with financial statements and concepts. It takes a CPA about 30 percent of the time it takes anybody else to get the necessary licenses. They don't have to study very hard, and their pass rates are high. They're already involved."
Then there's the third reason -- being in wealth management is a strong addition to the CPA firm brand, he noted. "The more breadth they offer to clients, the stickier the relationships will be and the more resilient they can be against the competition," he said. "It's important to strengthen the brand, and wealth management is the way to do this."
For many, it comes down to an emotional reason -- the enjoyment CPAs get from solving complex problems and doing good for people, he explained.
But the most important reason for CPAs to get involved with their clients' finances is a moral calling, according to Knoch. "The CPA is going to see the client's financial statements as part of the relationship they have today," he said. "The CPAs we have talked to asked themselves, 'What is this financial advisor doing to my client?' They say they could no longer sit idly by and see the financial statements and do nothing about it."