by Melissa Klein
Fees may be the talk of the town, but commissions still reign supreme among many accountants who offer financial services. A lack of time to commit - not a fear of losing clients - is the prime obstacle to accountants integrating financial services into their practices.
Those were among the highlights of a co-branded survey by GE Independent Accountants Network and Accounting Today. The poll gauged the financial planning landscape of 284 GE IAN reps.
The majority of respondents (60 percent) were CPAs. Ninety-seven percent described themselves as in the accounting business (see Figures 1 & 2).
While the CPA community has been paying a lot of lip service to the trend toward offering financial services on a fee or fee-only basis, nearly all of the survey respondents said they offer the services on a commission basis or a through a combination of commissions and fees.
Of 276 GE reps responding, 64 percent offer financial services on a commission-only basis, while 35 percent said they use a combination of fees and commissions. Only 1 percent said they offer the services on a fee-only basis (see Figure 3).
There are a few reasons that commission-based products are more commonly used than fees, according to GE IAN president David Reedy. "Smaller investment amounts don’t lend themselves well to fees," noted Reedy. "Our fee program starts at $250,000. In order to get the bang for your buck in a fee-based program - to do justice for what clients are paying - there needs to be enough money to properly diversify it. Most people don’t have $250,000. So what do you do with the rest of your clients? You handle their investment needs with various forms of commission-based products," said Reedy.
"Another reason often overlooked is that clients don’t all want to be in a fee relationship," he added. "Some clients don’t want to be charged year after year. They prefer to buy and hold investments. The assumption is often made that clients all prefer to be in a fee relationship - that that’s the only way clients want to deal with their advisor. It just isn’t so."
Another factor, more so this year than in previous years, according to Reedy, is that many investors have moved into fixed annuity products because of the volatility of the stock market.
"People have realized that, while fixed annuities are not very glamorous and the rate of return is not very high, they don’t lose any money. They’ve become very popular," he said.
According to the report, accountants may be missing a huge opportunity to cross-sell financial services to their accounting clients. More than 90 percent of those surveyed reported that fewer than 50 percent of their accounting clients are also financial services clients. Roughly 2 percent said more than 90 percent of their accounting clients were also financial services clients, and another 2 percent said between 70 and 90 percent were financial services clients (see Figure 4).
"That tells me that there’s a lot of untapped potential," Reedy remarked. "That probably means that the reps have just not adequately communicated with many of their clients the full range of services that they offer."
He added, "Many accountants prefer to run their business almost on a passive basis. They will wait for their clients to raise their hands and say, ÔCan you help me?’ rather than proactively try to get the client involved in financial services," Reedy said. "Many CPAs are not extremely aggressive with respect to offering financial services to clients."
"Cross-selling works when you actually offer the services to clients and proactively reach out," he added. "Clients love getting financial services from their CPAs."
"Of the 1,200 registered reps we have, the ones who are very successful - those who make a six-figure income from their financial services practice - they’re proactive in offering the services," he continued. "They’re probably doing financial services work with 75 percent of their clients. At the bottom end, they’re reactive. They only do financial services work when the clients ask them to do it."
"The other thing going on is a change in the way reps are positioning themselves," said Reedy. "The more successful CPAs are positioning their CPA practices as wealth management practices, not accounting practices where they’re just adding on some other additional service. They’re bundling the services as one and calling it wealth management."
According to the survey, time is the biggest obstacle to CPAs integrating financial services into their practices. A lack of time to commit was cited by 64 percent of respondents.
And according to Reedy, the most successful CPAs deal with time issue in two ways: They either hire additional staff to work on the accounting side or find a good assistant to help them on the financial services side, or they reduce the overall number of clients that they’re serving.
Reedy recommends doing both. "Review your client list, keep the clients you enjoy working with the most and reduce the bottom end of your practice. Then use your time to perform more services with your remaining clients. That, combined with a good assistant, is the most successful way to do it."
"During the last two years, which by almost any one’s definition has been one of the deepest bear markets we’ve seen in years, our revenues per rep have gone up. That’s probably almost counter to what the rest of the broker/dealer market is experiencing," said Reedy.
"That tells us that, if done correctly, there is always a need for people to get financial advice and buy financial services. Even though the market is awful, the basis of the business is not hung on the market," he said.
A lack of understanding was the second most common obstacle, cited by 17 percent. Risk of losing accounting clients was cited by only 6 percent, followed by a fear of diluting their practice, which was indicated by nearly 3 percent. The remaining 10 percent cited "other" obstacles to integrating financial services into their practices.
"An objection that we commonly hear is, 'I’m not comfortable doing financial services because I feel like I don’t have a good knowledge base in this area.’ These are very important issues," Reedy said. "One of the things that makes CPAs such ideal advisors is that they really aren’t salespeople in the traditional sense. The client’s interest is absolutely first. If they’re not sure about what the right thing to do is, they prefer to do nothing than to do the wrong thing. In the financial services world, that’s unique."
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