Offering investment advice and offering guidance with investment issues are two completely different services. In reality, it was always this way. But in recent years, the fiduciary rule, online investment companies, or robo services, and a better understanding of costs and expenses by clients have made this distinction even more germane.

The distinction between the low-cost provider and traditional retail-priced investment advisory services is getting clearer, and it will not necessarily reflect well on all advisors.

Those who charge retail rates but only offer investment advice, or even a less significant asset oversight type of guidance selecting other managers, will likely face tremendous pressure. This may start over pricing, where clients may ask you to defend your retail rates. Many times, this is the beginning of the end as advisors frequently cite performance as their value-add.

Today’s consumer is beginning to look for more benefits to justify the fees that they are paying. The big question for your practice is, just how deeply do you want to get involved in your clients’ asset management?

The answer may be different from firm to firm, and client by client within the same firm. The first question to ask yourself is whether you offer financial planning or not. I don’t mean lip-service planning where you toss a few numbers into a program and tell your client what they need to do to secure a reliable retirement … any robo can do that. I mean planning according to the American Institute of CPA standards or the standards published by the CFP Board — real, comprehensive planning. A service that covers cash flow, risk management, tax planning, investment planning, retirement planning, estate planning and any other issue that impacts your client’s wallet, business or family. My experience tells me that the firms truly delivering a proactive and holistic service will face less fee pressure than the lip-service firm or asset-management-only advisor.


Starting with oversight

Beyond that issue, however, let’s take a deeper dive into the ways that advisors may offer value to a client with their investments.

The most hands-off method for you may be asset management oversight. This may include allocation and performance reviews, expense analysis, tax planning with respect to the portfolio, consolidated reporting from multiple sources, and a number of non-investment manager services like account titling issues or beneficiary elections.

Oversight services can be provided to just about any level of client, but to me it seems most valuable to those with large portfolios and several managers. This review may start with an analysis of who is providing what for your client. Larger clients with multiple managers may feel good about spreading their assets around but often do not realize that they may not be well-diversified. They often end up with similar allocations in several different buckets without good oversight and planning. Your oversight should include assisting your clients with an overall allocation and then helping to construct that allocation using whatever method or combination of managers is appropriate.

Your oversight should also include some sort of performance analysis. Performance analysis must be done within the peer group of the manager you are benchmarking to get a fair apples-to-apples comparison of results.

You can do a deep dive on the expenses that your client is incurring overall and manager by manager. While cost isn’t the only driver, it is certainly a material factor. Unless your client believes that they are getting absolutely stellar, unmatched performance, cost matters. Benchmark the cost of your clients’ managers in a few ways. Look at the fees that they are charging. These should be clear and conspicuous on the statements and performance reports.

Examine trading costs. Are they in line with what your client may be able to obtain just about anywhere? Also inquire about any internal expenses that may be eating up returns. Many investment products offered under the 1940 Investment Advisors Act carry larger, undisclosed internal expenses that may also erode returns.

The cost analysis should also be done for clients who are not paying fees but may have their portfolios managed the old-fashioned way — by a broker who trades and collects commissions for the trades. This way may have fallen way out of favor in the financial planning community, but I frequently encounter situations where clients may be better served by an advisor over their existing broker.

While tax planning is directly in the wheelhouse of most CPA firms, it is not a specialty of most money managers. In general, most clients would benefit from your oversight with regard to their portfolio and having better coordination with their income tax situation. This may be helping to deal with loss carryforwards, loss harvesting, wash sales, or mitigating income from dividends, interest or capital gains — whether long- or short-term. This is something that is time-sensitive and should be added to your service calendar for your best clients in the fourth quarter of every year going forward. You may also use your portfolio oversight to help other parts of your clients’ financial plan, such as for their charitable giving or family gifting programs.

Most investment managers provide reporting for performance — but not all firms do that well. Your client may benefit from a clearer or simpler analysis of their performance. Furthermore, most managers do not have the capability to overlay the performance of all of the managers serving the client in one report. This can be very helpful to your clients who have a hard time piecing together all of the moving parts of the portfolio.


Titling and more

Integrating your clients’ investment accounts with other parts of their financial plan may also be valuable. Most managers pay little attention to how an account is titled. Their first concern is usually to get the account open and generate fees — not to make sure that the account is owned in the most beneficial way to integrate with the other moving parts of their financial plan. Larger clients should probably be using entities such as trusts or LLCs to own their investment accounts.

The same is true of beneficiary elections. Any qualified account of your client should have a properly designated beneficiary election. When their accounts have a spouse listed, followed by children or others, that may also indicate the need for more sophisticated estate planning. Don’t be completely surprised, however, when you take a deeper look and learn that the beneficiary elections may be completely blown. You’ll find certain qualified assets inappropriately going to special-needs family members or to the account holder’s estate — frequently the worst possible outcome. I have even come across situations where the client had a copy of the beneficiary election form originally submitted and the custodian had a different result. Confirm what the records of the qualified account custodian show in their systems, as that is what will matter when your client passes.


How good are you?

For those who want to be more active in their clients’ investment decisions, there is no shortage of ways to get there. The first is to simply manage their money yourself. If you are working with very small clients or have significant history doing so, this may be a good option. But thinking that you’re an investment wizard because you selected a few good companies for the past 10 years of a bull market may be flawed thinking.

As the manager, you are required to build and document the basis of your research and decision for each and every holding under your management. You can’t copy allocations from another manager, you can’t simply set it and forget it, and you must follow all of the rules under the Investment Advisors Act of 1940. Extra scrutiny should be given to trade execution, costs hidden in certain products, and your services as delivered from one client to another under a similar circumstance and service agreement.

Many CPAs got into the asset management business by partnering with other advisors or using third-party asset managers. Any of these may work, but you need to understand that overall cost does matter. I suspect that cost will be a big issue for firms receiving solicitation fees. I never appreciated this way of doing business and think that its days are numbered in this age of full and fair disclosure. What value are you providing for your client by sticking your hand into the pocket of a money manager is the question that a sophisticated client or regulator may ask.

A similar question can be raised for advisors who are a part of an RIA that manages money or simply utilizing third-party managers offered by any of the custodians. What value are you providing? Layering of fees —yours, the asset manager’s and the underlying investment product costs — is losing popularity quite fast unless it is priced very competitively (i.e., low) and your service overall is off-the-charts great.

When the CPA financial planner movement started, many were touting that CPAs should offer investment advice. Today, there are some who have succeeded by building that business infrastructure and others who struggle as managers. Like any other service offering for your firm, it is tough to deliver any type of professional service as a one-off. The service must be scaled with systems and processes to compete in the modern world. Decide how you want to serve clients. Asset management only? Financial planner only? All of the above? But whatever your model is, do it well and be aware that your clients are learning each day what fair pricing is and how they should be served.

John P. Napolitano

John P. Napolitano

John Napolitano, CFP, CPA, is chairman and CEO of U.S. Wealth Management in Braintree, Mass. Reach him through JohnPNapolitano on LinkedIn or (781) 849-9200.