The majority of tax professionals who enter the financial planning business do so by hooking up with an independent broker/dealer firm, according to a report by market research and consulting firm Tiburon Strategic Advisors.
According to the report, "A Synopsis of the CPA Industry & Highlights of their Models for Entering the Investments Business," CPAs use five models to provide financial planning and investment management services: hourly planning; informal, non-revenue-sharing referral relationships; formal, revenue-sharing referral relationships; setting up their own registered investment advisory firm; or becoming reps at independent broker/dealers.
Among tax professionals surveyed by Tiburon, 82 percent use an independent broker/dealer, while 6 percent offer referrals for no compensation, 2 percent offer referrals for compensation, 1 percent have their own RIA , and 9 percent don't offer financial planning.
The report noted that at least 90,000 -- or 30 percent -- of the 340,000 members of the American Institute of CPAs provide some type of financial planning services to their clients. Of those offering financial planning, about one-quarter are licensed to collect fees and commissions. Specifically, there are 13,900 CPA RIAs and 9,000 CPA Series 6 and 7 reps, while 67,000 CPAs are neither RIAs nor Series 6 and 7 reps, and are only able to collect hourly fees, Tiburon reported.
Only 11 percent -- or 10,000 -- of the CPAs offering financial planning have qualified for one of the financial planning or investment management designations. According to the report, the CFP is the most popular, held by 59 percent of CPAs with professional financial planning designations, while 31 percent have the PFS designation, and 6 percent have the CFA designation.
CPAs who act as fee-only financial advisors have an average account size of over $350,000, significantly higher than the $225,000 average account size for all financial advisors. But the majority of CPAs have less than $25 million in investable assets, which Tiburon says may be explainable by the part-time nature of the business for most CPAs. Six percent of CPA financial advisors don't have any assets under management, 47 percent have less than $25 million, 6 percent have $25 million to $49 million, 13 percent have $50 million to $99 million, 19 percent have $100 million to $249 million, and 9 percent have $250 million or more.
While CPAs, like all financial advisors, rely primarily on mutual funds and individual securities, they're even more dedicated to mutual funds. According to the report, CPA advisors use mutual funds 59 percent of the time, individual securities 29 percent of the time, and other investment products 13 percent of the time, compared with all financial advisors, who use mutual funds 50 percent of time, individual securities 39 percent of the time, and other investment products 11 percent of the time.
According to the report, almost 40 percent of all CPAs are expected to offer financial planning services by 2006.
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