by Melissa Klein
San Ramon, Calif. -- The effects of the Sarbanes-Oxley Act aren’t all bad.
Armanino McKenna, a Bay-area CPA firm, has joined the legion of regional accounting firms that are seizing the opportunities that have been created by the Big Four firms’ resulting shifts in strategy.
Based here, Armanino McKenna has set its sights on serving the employee benefits consulting needs of clients that are being overlooked or underserved by the Big Four. The non-traditional niche is part of the firm’s strategy of becoming a one-stop shop for its middle-market clients.
“We found that our clients don’t have a cohesive oversight program for employee benefits,” said Joe Moore, managing partner of the 17-partner, $19 million firm. “Clients are calling us and asking if we know someone they can talk to.”
Rather than starting the practice from scratch, the firm brought on board two former Big Four CPAs to head up the employee benefits practice. John Matsuoka, who was with Deloitte & Touche for 17 years and most recently headed the firm’s Northern California employee benefits practice, joined Armanino McKenna in August as a principal, along with David McDaniel, who joined the firm as a senior manager after three years at Deloitte.
With audit and compliance work for publicly held companies keeping the Big Four busy and conflicting them out of providing consulting services for audit clients, Matsuoka and McDaniel decided that it was time to move to a firm with clients who could use their services.
“We saw the market changing in terms of interest by clients being served by the Big Four,” Matsuoka said. “Most of the firms that came to us saw us as not being dedicated to providing the service, and have shifted their focus to firms that are doing this full-time. We saw a need to shift our focus to a client base that still had an interest in what we offered. The middle market is still interested. They need help with
traditional employee benefits, retirement plans, executive compensation and welfare benefits.”
When Matsuoka and McDaniel decided to look at middle-market firms that could benefit from the types of services they specialized in, they saw Armanino McKenna as a good fit.
“They have a large client base of traditional middle-market clients with from 20 people to 300 people and a need for traditional benefits services,” Matsuoka said. “Those firms don’t go to the bigger benefits consulting firms. They look to their accounting firms for that advice. They’re a good fit with our line of services.”
According to Moore, the firm’s 3,000 accounting clients include 2,500 businesses that run the gamut from small shops to Fortune 500 companies.
“We’re very much service-oriented. We like to get a client and keep them for 25 or 30 years by providing good service,” said Moore. “We want clients we can provide services to throughout the year, year after year.”
“The type of clients Armanino has usually have limited financial and people resources in the human resources and benefit areas,” added McDaniel. “They tend to have a hodgepodge of benefit programs, and they tend to put out fires. What they want us to do is to look at their existing programs to see where they’re integrated and where they’re not. Are they wasting money? Do they have things employees don’t want? Where are their dollars going? How can they improve their programs? We can also help design the programs, help with compliance and help them implement programs.”
Three months after Matsuoka and McDaniel’s arrival, Armanino McKenna had landed employee benefits engagements with nine clients, including a private university and a law firm, and was in discussions with another 25. In terms of dollar weight, Matsuoka says that about half the business is from existing Armanino clients, while the other half is from clients from Deloitte.
“We’ve met with more clients in a few months than we typically would in a year at a big firm,” noted McDaniel. “Before, we spent more time telling people in the CPA firm what we do than we did telling clients what we could do for them. To say it was gate-keeping was putting it mildly. Here, things are totally different. They want to know what we’re doing.”
In addition to employee benefit plan consulting, the group will offer retirement plan consulting, employee compensation and succession planning services. But Matsuoka and McDaniel expect the bulk of their work to be in employee benefit and retirement plan consulting.
“With increased compliance and fiduciary responsibility concerns after Enron and the downturn in the market, clients are concerned about what their responsibilities are, and want to make sure they’re fulfilling them,” said McDaniel. “Pricing is also an issue. We’re finding that companies get more sophisticated as time goes by. They look at what they’re spending for insurance, and they want to know: ‘Why did I buy this? Is it doing what I bought it for, or is there something better that can do it cheaper?’ They don’t have the ability to independently assess these products, so they come to us with questions.”
Matsuoka noted that 401(k) plans are also giving clients headaches. “Most companies have violations in their plan operations,” he noted. “Almost every time we talk to a client about their 401(k) operations, there’s a violation. We help them correct the violations through a voluntary correction program.”
And Matsuoka noted that, with employer health benefit costs soaring, clients are taking a closer look at their benefits programs. “Pricing for premiums has gone up so much, there’s a lot of concern that it’s getting out of whack,” he said.
