When you think of the building blocks of a successful financial planning practice, it doesn't really matter whether it is attached to a CPA firm or not. What is needed to elevate your clients' experience when dealing with the financial professionals in your office is no different from what is needed in any successful financial planning practice.
The first building block is the simplest. In terms of an existing client base for financial planning, are you entrenched in the right market? Is your client base comprised of not-for-profit audit clients, or closely held businesses that look to you for guidance on nearly everything financial? If the majority of your clients are not-for-profit attestation work, you do not have a built-in market for financial planning. But if your clients are largely high-net-worth individuals and successful business owners, the answer is yes, you are in the right market.
Being in the right market by having a client base full of successful business owners and high-net-worth families alone does not guarantee success. Witness all of the CPA firms that have left the practice of wealth management and the scores of others whose revenue is immaterial to the entirety of the firm.
If your practice is one such firm, or one where you are just getting serious about financial planning, think about this building block exercise the same way you would if one of your better business clients came to you with an idea for a new division or an acquisition. The topics of revenue generation, costs and anticipated benefit to your clients and then ultimately to the firm must drive your discussions.
START WITH MONEY
Your first decision, however, is capital. How much capital will be needed to properly build this division so that it has the greatest chance at success? While this is not a capital-intensive business, it will take capital to properly launch or re-launch.
How much capital you may need depends on what type of infrastructure you choose. To build out each division from scratch will require a far greater investment than affiliating with an existing firm that can help with the infrastructure and back office in exchange for a revenue share.
Starting with revenue generation, you must decide what type of revenue you are looking to generate. In the financial planning world, the various methods of earning compensation each come with their own requirements for compliance and licensing.
Financial planning and asset management revenues may be earned by either registering your entity as an investment advisor with the state or affiliating with another investment advisor. Unless your assets under management are in excess of $100 million, it is probably more efficient to become an affiliate of another registered investment advisor entity. In fact, the trend is now such that many RIAs, both small and large, are folding their RIA entity and independently affiliating with another registered investment advisor.
The advantages may include a reduction in overhead, access to better platforms and custodians, subject matter expertise, marketing and branding, and a compliance staff. The benefit to you is that you'll have more time to spend with your clients.
If you desire to generate commissions from securities, you'll need to get a securities license and affiliate with a broker-dealer.
Should your business plan include commissions from insurance sales, you will need licenses, expertise and a source for shopping the companies. Most CPAs choose to stay completely independent with respect to insurance sales, and should therefore avoid proprietary agencies or distribution systems.
The decision regarding what types of services you should offer should be made after conducting primary research. You need to learn about your clients' appetite for you in these roles by asking them in a non-threatening way. A third-party research firm may be the best route here, allowing your clients to speak their mind without offending you.
GET THE WORD OUT
Now that you know what types of services you'd like to offer, it is time to convert these wishes into reality and actually generate revenue. As we've discussed in several articles here over the years, keeping your financial planning division a secret from your clients and other professional centers of influence is a fatal mistake. If you do not plan to assertively and professionally communicate your financial planning capabilities to your clients, you may be doomed from the start.
A thorough marketing and communications plan can help. Having a plan where regular, tasteful communications are delivered to your clients will begin to build awareness among them that you can be a resource in the financial planning area. This may include a new Web site, collateral material, newsletters, events, signage and internal meetings.
Internal meetings are very important. Firms frequently have problems building the wealth management practice when all of the partners are not on board or not communicating these offerings to clients. Consider making financial planning meetings a part of the compensation formula for partners if you want ubiquitous buy-in from them. Communicating these capabilities to your staff as well will help them identify those clients who need your help.
Now we can plan for the expense side of the entity. Just like any business start-up, the FP initiative in a CPA firm will fail if there isn't the proper allocation of capital and resources. The first expense that needs to be forecast will be for the leader or champion of the FP division. The firm's likelihood of reaching or exceeding its revenue and service objectives is greatly enhanced with a leader, someone personally responsible. This champion should be a partner, someone with authority and skin in the game. The cost for that person can be displayed in terms of actual compensation for the hours devoted to FP or by the lack of billable hours in their traditional practice.
The next cost is that of administrative and para-professional type of help. Paperwork and input of data is hardly a good use of a partner or senior staff person's time, yet it still happens in many firms that haven't properly staffed the FP division. Smaller firms usually fail miserably in this department, and the partner/sole practitioner ends up doing $12-per-hour work. This unwillingness to get the needed staff can be a huge distraction to building the FP division.
The cost of expertise is next on your forecast. While your partner-in-charge of FP may be technically competent, are they willing to give up everything else that they do for the firm to get the FP division to be as prominent as your tax division? For many the intention is yes, but their actions speak no and they continue to bill hundreds of hours in traditional CPA firm services. Therefore, in most firms a financial planning professional is often added to the roster of employees or hired as an independent contractor. The employee side isn't as common as going the independent contractor route. This actually makes sense to me in that your costs are variable and will only be incurred when there is work for the contractor to do, but be careful in how you execute this. Make sure that you have legal agreements that include non-solicitation and non-disclosure language.
Many firms try to short-cut the entire registration and licensing process and simply become solicitors for a firm, and receive a solicitor's fee in exchange for the client referral. When you do this, you are sending a very clear message to the client. That message is that your firm is not in the financial planning business, and that you are merely a sales person for another firm. This may add revenue to your firm, but it will not increase the firm's value nor will it make your FP division marketable to a buyer. The clients will be under the control of the other advisor and their firm.
PROCESSES & PROCEDURES
One of the more important building blocks toward a sustainable and valuable FP practice is that of systems and processes. Your FP engagements must be run as thoroughly and efficiently as any other engagement of the firm. To do this in FP will require some serious thought, and as well as some additional tools.
The first process to design is your firm's client service model. The most common reason why clients change advisors is lack of communication. You'll need a documented service model so clients know how often they'll see you and hear from you, and what to expect from you.
Workflow should also be documented and manageable. Just like you have an established process to process tax returns or audit reports, you need an established process to complete a financial plan or to complete a rollover IRA application for a client.
Technology tools are also a significant building block of your service model. You'll need many different technologies -- one for financial planning, a customer relationship management system for managing relationships, an aggregation tool, portfolio analysis and whatever other services you'll perform in house. This can be a full-time job, and may be another area where a good FP affiliation partner can save you time and money.
Once you know that you have the right client base for a successful FP division and begin to properly and tastefully communicate these services, the business will grow. This last component of creating the service plan and staffing it with competent professionals will eventually be the economic glue between your clients and your firm. Don't be short-sighted here. It's OK to be cost-conscious, but not cost-averse. Unless you nurture the FP business just like you do the accounting side, you may be in the same place this time next year.
For more on the building blocks of a successful practice, see our video interview with John.
John P. Napolitano, CFP, CPA, is CEO of U. S. Wealth Management in Braintree, Mass. Reach him at (781) 849-9200.
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