CPA firms that have expanded their practice into the personal financial planning market are likely finding that investors may be more optimistic today than they were a few years ago.
Yet they remain uncomfortable with risk.
In light of this, strategies, funds and products geared toward limiting the downside are a particular focus in today's financial planning space. This trend, coupled with recent shifts in the financial services arena, can represent significant opportunities for CPAs.
"The marketplace is ripe for what for we're doing and for CPAs to play a dominant role in helping their clients establish their wealth management goals," said Al Prentice, vice president of strategic firm development at 1st Global, a financial planning company and broker/dealer that focuses on the CPA community, with about 95 percent of its 1,200 registered advisors in the U.S. being CPAs.
According to Prentice, price sensitivity and the commoditization of tax and auditing have hampered the revenues of the average CPA firm, but there's also been significant shifts taking place in the financial services environment. Not only have many financial advisors left the business, but within the last three years several major and mid-tier financial services firms have either merged or shut their doors. To top it off, some advisors within the traditional financial services arena are being forced to move up-market and serve the more affluent and super-affluent clients.
"The typical CPA firm that we aspire to partner with, their clients are being abandoned by the traditional financial advisors and they've also been battered and really almost destroyed by the financial markets and the economy. Now, more than ever, they need objective, non-biased assistance with helping to achieve their financial goals, which have been [set] back by several years because of what has happened in the marketplace," Prentice explained. "The CPA marketplace has an unbelievable opportunity right now to address all of those different issues and help their clients."
Many industry observers agree and have noted that, while clients may be more upbeat today compared with a few years ago, the economic turbulence has left them wary and risk-averse.
Garrett R. D'Alessandro, chief executive officer and president of Rochdale Investment Management, said that "what's new" in the marketplace generally relates to the experiences of the prior two or three years. So, given the recent economic turmoil, risk management and downside protection are key trends, and many of the new strategies, funds and products are geared toward limiting the downside.
Rochdale Investment Management has more than 25 years of experience partnering with financial advisors and CPAs to provide personalized portfolio management for private clients. When partnering with Rochdale, D'Alessandro said that CPAs are encouraged to remain involved after referring a client, as it provides additional value to that client, and he suggests that CPAs be thinking of contributing to the risk management discussion. "They help us understand the client," he said.
Michael Abramowicz, vice president of advisor recruiting for Genworth Financial Investment Services, said that within the financial planning space he's seeing a back-to-basics approach. In other words, sitting down with the client and taking a re-assessment of where they are and where they want to go, and setting the appropriate expectations, whether it relates to retirement, long-term care, life insurance, etc.
Genworth specializes in helping tax and accounting professionals integrate wealth management into their practices. Abramowicz said that the firm has about 2,000 advisors, of whom roughly 80 percent are affiliated with a tax and accounting office.
The company announced in October that it had broadened its wealth management platform through the acquisition of Altegris, which provides a platform of alternative investments, including hedge funds and managed futures products. Abramowicz said that this acquisition will mean more choices and an expanded set of offerings for financial advisors.
A MENU OF OFFERINGS
Among 1st Global's offerings is a fee-based asset management program, which Prentice noted is attractive to the CPA community, as it more resembles how they've always dealt with clients. About two years ago, 1st Global rolled out adjuncts to the program, such as classes of principal-protected notes, to add a different level of service and utility to the overall performance of accounts.
"This is a method of mitigating volatility [and] reducing downside risk for risk-averse clients. Essentially what it is, is a percentage of their assets in this platform will be in regular equity or debt-type exposure, stocks and bonds, but some of it might be in these principal-protected securities that we've developed with some Wall Street firms," explained Prentice. "It's really a fairly simple but rather sophisticated approach to mitigating volatility and trying to make sure that our clients are getting some type of assurance that at least a portion of their asset base has some level of downside protection."
Last year, another component of the fee-based platform was developed to enable sophisticated clients to gain exposure to international private equity.
While such products geared toward sophisticated clients are areas of growth, Prentice said that the firm is seeing a tremendous surge in long-term care; more specifically, a hybrid product known as asset-based long-term care.
"The idea behind asset-based long-term care is let's take some of that money that is sitting in that money market fund and let's move it into this bucket that is really a life insurance policy with a long-term-care rider," said Prentice, who noted that in 2010 it experienced nearly a 250 percent increase in the asset-based long-term care business.
Oppenheimer, through its Professionals Alliance Group, supports selected third-party CPA firms in providing financial services to their clients. According to Michael Parness, national director of the Professional Alliances Group, newer initiatives include, but are not limited to, working to enhance its investment banking capabilities. For example, Oppenheimer recently announced that Riparian Partners and Riparian Management Solutions, which offer investment-banking services to private middle-market companies, have joined Oppenheimer to create the new Riparian Management Division. The deal provides further assistance to CPA affiliates working with the business owners of companies with up to $100 million in capitalization.
Mont Levy, chief executive officer of BAM Advisor Services, a service provider for independent registered investment advisor firms, believes that one important area of focus on the horizon is the 401(k).
"The laws are now changing, which would demand greater disclosure by providers to plan sponsors and participants with regard to what fees are actually being charged to them," said Levy. "I think with this coming transparency, the opportunity for the investment advisor, the one with that fiduciary responsibility, to offer a program where costs are much lower will be an area where advisors who pursue it can really provide some excellent service to their clients."
BAM Advisor Services works with about 130 firms nationwide, of which between 85 and 90 percent are affiliated with CPA firms.
TOOLS FOR SUCCESS
For CPA firms that have branched out into the financial planning arena, it isn't simply about the product offerings, whether it is stocks and bonds, mutual funds or life insurance. Following successful strategies and leveraging the tools necessary to educate themselves and their clients are what help pave the path to success.
"We are not in the business of manufacturing products, that's not what we do. We leave that up to the insurance providers, the mutual fund companies and other product manufacturers. We are really in the advice business, so we leverage technology and give advisors the tools that they need to educate themselves and educate their clients, and then they can choose what the right solutions are based on what other people 'manufacture,'" said Roger Ochs, president of H.D. Vest Financial Services, which helps tax and accounting practitioners integrate financial services into their practices.
Among the tools available through H.D. Vest is a process called "8 Wealth Management Issues," which is designed to help advisors take a more comprehensive and holistic approach with their clients. Some of the issues include investment management, family risk management and education planning.
"At the end of the day, it is really about providing the client with the right advice so that they can meet their overall goals, and we use that 8 Wealth Management Issues approach to be much more comprehensive in the approach," said Ochs. "As you go through this process, it gives the CPA a roadmap to have a more broad-based discussion with the client about all their goals, dreams and desires."
H.D. Vest, a non-bank subsidiary of Wells Fargo, also developed the Vest Forward initiative, which is designed to leverage its relationship with brokerage firm Wells Fargo Advisors. "[Wells Fargo] has a very comprehensive technology product offering that can allow us to provide advisors with tools. One in particular is called Envision, which is an investment management tool that not only helps with the investment plan itself, but also reports back to the client as to how they are doing relative to their overall retirement planning goals. We just introduced this in January of this year," Ochs said.
Through the initiative, financial advisors also have access to proprietary stock and bond recommendations and a larger bond inventory.
In recent years, 1st Global has developed several solutions for clients, such as its Sustainable Income Solutions. This customized model is a way for advisors to be able to talk with clients about the unique risks in retirement, such as a relationship risk due to a potential divorce. An SIS team is dedicated to working with advisors, running client data through a financial planning system and then presenting a plan for advisors to implement. CPAs can then compare the plan against their own planning and develop a list of solutions to help clients reach their financial goals in retirement.
Since its launch less than two years ago, SIS has grown and today there are marketing materials for advisors to conduct client seminars on SIS and a host of planning materials to help advisors in conversations with clients.
With regard to strategies or advice, Levy of BAM said, "We are in a very low-rate environment and many investors would like to get better yields on their money. The problem is that investors fail to equate demand for greater yield with taking on greater risk, and in the environment we are in, we think that the most important thing practitioners can do is to really help their clients think about the levels of risk they're taking. You can't control the markets. We are not going to stop the reality that there is risk and we live in a risky world. The most important thing you can do is really focus on the amount of risk that not only your client is willing to take but really the amount of risk your client needs to take."
PROVIDING CLIENT ASSISTANCE
In an effort to assist advisors with client communication and advice, Raymond James provides various materials such as white papers and "cheat sheets." For example, there are white papers that relate to the 2010 Tax Relief Act and its implications, and there's also a campaign "cheat sheet" to help advisors manage fixed-income risks for clients.
When asked what makes CPAs an ideal representative for personal financial planning, Pat Daxon, vice president of the financial planning group at Raymond James, said, "CPAs are already advice-driven."
Raymond James Financial Services has a couple of programs available for CPAs, including its Professional Partners Program, which enables CPAs to form a strategic alliance with a Raymond James Financial Services financial advisor. Within the program, affiliates may become an Investment Advisor Representative, whereby they would refer clients to Raymond James Financial Services for financial services on a fee basis, and would then be compensated based on the advisory fees generated from the account. Or if the CPA is a Raymond James Financial Services financial advisor or a branch owner, they can access all of Raymond James' products and services.
Oppenheimer's Parness cautions CPA affiliates - namely those that are in a non-exclusive relationship and are working with a variety of advisory firms - against being too objective in their approach. "Our understanding is that some firms have as many as 12 brokerage firms they are working with, and that could be confusing to the client, as well as for the CPA," Parness said.
"CPAs, generally by nature, are planners and understand the importance of creating a plan before action is taken, and we think that is an essential ingredient to being a really good wealth advisor. ... This is a relationship business and it is a business that, done correctly, is based on trust and earned trust. Certainly in this post-Madoff era, investors are very wary, I think, of whom they want to trust," added BAMe_SSRqs Levy. "The CPAs have earned that coveted level of the most trusted advisor because they have been very cautious in protecting their clients and nurturing those trusted relationships."
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