How would you like to be the primary financial coordinator for the wealthy families in your community? How would you like to be earning a healthy fee for this advice, a fee that goes far beyond completing tax returns? Does this sound too good to be true for small to midsized accounting?
I know CPAs who serve in this capacity.
Granted, they are an elite minority, but their numbers are growing. Research that we completed in June 2004 suggested that many more small and midsized accounting firms, by simply making a few modifications, can dramatically expand their affluent clientele and corresponding revenue stream.
Three statistically significant insights surfaced in our research:
1. The affluent need a primary financial coordinator to provide solutions for the multidimensional aspects of their financial affairs.
2. The affluent are aware of this need for a primary financial coordinator.
3. High levels of dissatisfaction exist with their current financial professionals.
Our research informed us that five types of financial professionals are used by at least 35 percent of the respondents: CPAs, financial planners, financial advisors (stockbrokers), personal bankers, and attorneys. When asked who they use as their primary financial coordinator, CPAs and financial planners were in a statistical tie for first place. Naturally, this makes today's environment ideal for CPAs interested in acquiring a wealthier clientele. But you must be prepared.
So, as you ponder this opportunity, it might help to know:
* 51 percent of our June 2004 respondents use a primary financial coordinator, and yet reported serious gaps between expectations and performance.
What is contributing to this dissatisfaction? Our research helps shed more light on the issue.
* When looking for financial guidance, survey respondents gave the highest credibility to the opinions and suggestions of immediate family and trusted friends. You want them to answer, "My CPA coordinates and oversees all of our family's financial affairs."
* The marketing of financial services has become a billion-dollar industry, with a large number of those dollars designed to assist the distribution arm of major financial institutions in targeting the affluent. This has raised both awareness and expectations. The result, according to our respondents, is sobering: "The gap between my expectations and the performance of my primary financial advisor is wider than ever." Too many financial professionals are not congruent with these marketing messages.
In June 2004, the Oechsli Institute commissioned an independent study to determine how the affluent make major purchase decisions (2004 APD Research). Included were decisions relating to the selection of their primary banking services and their primary financial advisor. Drawing from a sampling across the United States, 400 individuals with annual incomes ranging from a minimum of $100,000 to over $1 million were surveyed.
This study was a follow-up to our 2000 research project on affluent perceptions of financial professionals, and despite a slightly different focus, a simple and consistent truth emerged. Competent financial professionals who can help the affluent integrate and coordinate their multidimensional financial needs are desperately needed.
And, as I have previously stated and our research confirms, these professionals remain in short supply.
Darryl's story sheds light on some of the challenges facing the industry, and highlights your opportunity.
Darryl, a small business owner, and his wife kept their appointment with their CPA, although it was against Darryl's protestations that he considered himself far too busy. But, since his CPA and wife organized the meeting, he dutifully attended.
Ten minutes into the meeting, after his CPA explained the tax advantages that had become available by changing their current profit-sharing plan to a safe-harbor plan, Darryl responded with, "Heck, this looks like a no-brainer." His wife agreed, his CPA concurred and everything was quickly settled.
Because the CPA was part of a three-legged stool that included his attorney and financial advisor, and since they had worked together for years, Darryl asked why the financial advisor hadn't attended the meeting. To which the CPA replied, "Because he's really just a stockbroker and isn't paying attention to these other financial issues."
Further conversation proceeded to a consensus that the financial advisor was a good person and stockbroker, but was receiving fees for advice he wasn't giving. Hello, affluent dissatisfaction!
At this point, Darryl's CPA had neither the licensing nor the additional services/experts to serve as his primary financial coordinator. But the opportunity was certainly there!
What the affluent want
An important part of the 2004 research focused on how the affluent go about selecting a primary financial coordinator. Darryl's story is a perfect example of the CPA advantage that is not being capitalized on.
It is clear that the affluent, like Darryl, are looking for a primary financial coordinator. We were able to glean from our survey respondents the criteria that they use in selecting a primary financial coordinator. The affluent want someone who:
* Is proactive about contacting them when upcoming tax and other changes will impact their investment portfolio;
* Clearly reveals her fee structure;
* Clearly understands the goals and family situation of the affluent when giving investment advice;
* Brings in experts to help with other financial areas;
* Helps the affluent select the best asset mix for their investment portfolio;
* Helps to create a formal financial plan;
* Helps coordinate and organize all financial documents of the affluent; and,
* Coordinates and integrates investment decisions.
When coaching financial professionals, I recommend taking a thorough assessment of their current strengths and weaknesses, using this criteria as a benchmark. The secret is to capitalize on your strengths, align yourself with the necessary experts to fill in your gaps, and put the structure in place for you to serve as a true primary financial coordinator.
The above selection criteria were reported as "very important" by 47 percent or more of our respondents, and yet our research revealed significant gaps between affluent expectations and their primary financial advisors' performance for each criteria.
We know that the affluent cannot fully protect their assets, minimize their taxes or optimize their investment portfolio without the expertise of a trusted advisor helping them coordinate all of these moving parts.
The CPA opportunity does require making some adjustments, such as licensing, allying with additional experts, and mastering the art of selling to the affluent.
The future for CPAs in the world of affluence is now!
Matt Oechsli is president of the Oechsli Institute, a consultancy to the financial planning industry. He is the author of five books, including How to Build a 21st Century Financial Practice, FastTrack Coaching for Improved Performance, and Mastering High Net Worth Selling. Reach him at (800) 883-6582 or info
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