Demand is emerging for a more proactive, comprehensive set of advisory services from their accountants, says Joe Damiano, the CEO of Top 100 Firm Sax -- and his firm is figuring out how to provide those.
Transcription (This transcription was created by AI; in case of discrepancies, please refer to the recording):
Dan Hood (00:04):
Welcome to On the Air with Accounting Today. I'm Editor-in-Chief Dan Hood. Accountants quite reasonably love to tout their position as the most trusted advisor to their clients, but that's often by default. I mean, have you seen their other advisors? It's really not that hard to come out on top there, but some firms are starting to see more clients begin to expect real number one trusted advisor style services from their accountants. Now here to talk about that growing demand and what his firm is doing to meet it is Joe Damiano. He's the CEO of New Jersey-based Top 100 Firm Sax. Joe, thanks for joining us.
Joe Damiano (00:34):
Thank you, Daniel. Appreciate it.
Dan Hood (00:36):
So this is an interesting trend. You're seeing more of these, particularly among high net worth clients, looking for a single source number one advisor. What do you think is driving that interest?
Joe Damiano (00:47):
Yeah, I think having somebody that they could trust in and go to with all of their issues and problems and helping them figure out things is really what they want. And at Sax, what we've tried to do is build this holistic approach to servicing these middle market, closely held, ultra high net worth people and giving them the kind of resources that they demand and need to run their day-to-day lives. So I think they like to have the one person that they could go to have that conversation with. I think that's really what's driving it.
Dan Hood (01:17):
Gotcha. Are they looking for a quarterback, like someone to run the whole team of all their different advisors? I mean, people used to talk about that when financial planning first became particularly high profile in accounting spaces. They're like, they want someone to manage all their advisors or is it really they want you to provide the services yourself?
Joe Damiano (01:36):
Yeah, we think it's a little combination of both, but we do think having the advisors here at Sax is the most important thing. So what we continue to do and what we've done over the last five to 10 years is just continue to bring resources to the firm of the needs that client were asking us for. So when they started asking about technology, we started a technology division. When they started asking us that we needed to find an advisor to help us sell our business, we started Sax Capital Advisors and we're investment banking for now. We always had the wealth management shop, but we have all these resources inside of the firm now from international to federal tax credits to the trust and estate division that we have JDLLM, CPAs on staff. All of that was built so that a closely held middle market, ultra high net worth family could come to one stop shop and have us do it instead of us having to go to the outside world.
(02:28):
I have partners that tell their clients all the time, "Listen, if you have a problem, call us. We want to be the number one advisor. We want to be the first phone call that you make when you have a life situation and then we'll figure it out. We probably have it in-house or potentially we don't, then we have to be that quarterback and go to the outside." But in today's world, we probably have 99% of what a closely held ultra high net worth family run type business would need. I was
Dan Hood (02:55):
Saying as you were listing the things you'd built, I'm like, "Well, you pretty much got it all, but you will go outside if necessary." What's a service that someone might, kind of rare niche service that you might not have in-house already?
Joe Damiano (03:08):
So I think obviously if we're doing estate planning, we cannot write documents. We have to go to a law firm to do that. We have our preferred law firms that we will go to for that. We have not had an HR consulting business in-house to do HR outsource, although that's soon to come. But that was another piece. So when we look at a holistic approach, we look at this full circle of services. And that was one that we said, "You know what? Clients keep calling and asking us about that. Let's get that one too." And that's what we're in the market looking for that right now because we're not just building a CPA firm, we're building an advisory firm. And when you build advisory firms, you have more than just CPA stuff and tax and audit. You have all of these other things that a firm like ours needs to have and evolve to.
(03:56):
So we continue to add the resources that we need. That's a good example of something that we might outsource. But typically we have an internal because we've listened to what our clients had to say and were asking for, and then we went out and found the talent and recruited the talent either through acquisition or through lateral partner hire to bring them in and bring the talent into Sax.
Dan Hood (04:17):
Right. So it's safe to assume for a lot of them, I'm assuming the overall majority of these clients are both, they're individual financial situation, but most of them would have some kind of business or have some kind of family owned business kind of thing?
Joe Damiano (04:35):
I think we have both today. So we kind of evolved. We were very much a business focused firm 10, 15 years ago that we did the personal tax returns and the estate trust returns for them. We have evolved that one of our largest niches in the firm right now is what we call private client service group. And that is really for ultra high net worth families. So family office, doing all the personal returns or trust returns, doing some family office, bill pay within that family office for clients. So it has evolved that we will just have personal accounts where in the old days when I grew up in a firm, because I've been at Sax now 32 years, it was a firm that did the business and then we would do your personal return along with that. But now we've kind of evolved into this firm that offers a lot of different things as long as it stays in our lane.
(05:25):
We don't do SEC work, we don't do the PCOB stuff. We do closely held middle market family run businesses and ultra high net worth people. And that's kind of where we've stayed in our lane to do.
Dan Hood (05:34):
Gotcha. Okay. So regardless of whether they have on either side of that fence, they could be just without a corporate or family interest or business
Joe Damiano (05:42):
Interest.
Dan Hood (05:42):
Correct. Interesting. All right. But let me ask you something. You talked about that evolution and it sounds like that you've been working on this move towards this approach to being the number one trusted advisor for a long time. Has it involved any kind of mindset shifts? I mean for a lot of firms, accounting firms talk about one, the sort of mindset shift of how do we get people to talk about our other services? How do you get a tax partner to talk about the planning services you may offer or whatever the case may be. But also there's some, what I'll call an advisory mindset that I don't think is necessarily natural to a lot of accountants. Has that been a big shift for you all?
Joe Damiano (06:23):
I think Sax is an entrepreneurial firm. So we look at we want to be entrepreneurs first and then CPAs and tax people second. And I think that has always been the mindset of Sax in the old firm we used to be called Sax Macy Fromm. And the reality of that, I grew up in that environment. So I evolved into an audit partner that did some taxes, but I was very good at advisory and advising clients on how to help them run the businesses and deal with the situation, the business situations that we were dealing with. Because a lot of our clients are closely held middle market family-run businesses. They might not have higher level CFOs or higher level people that they go to inside of their organization and they need to lean on this entrepreneurial mindset that we have in dealing with multiple clients and dealing with different situations.
(07:10):
So I think Sax, although it has evolved because the resources that we had 10 years ago are much different than the resources that we have today, but all the various things that we've added to the playbook. But I think we were always this entrepreneurial firm and we were talking about number one advisor being the first phone call that a client made seven years ago. We did a strategic retreat with my board. I was pretty new to the managing partner CEO role, probably two years into it. And we always talked about being trusted advisor and we kind of wanted it to evolve into something more than just trust advisor because everybody says they're the trusted advisor. How do we be a true advisor to the clients and be that number one call that they make when they have a situation? And we've been driving that now for the last seven, eight years.
(07:56):
And I think that really has played well with our client base because the client base is entrepreneurial too. They may not know the business side of it sometimes. They know how to build something or they know how to sell something and they rely on us to be that entrepreneurial spirit to show them the way of what it means to be successful as a business owner and help them through those processes to be that. And quite frankly, I think that's the future of the profession and the future of all of these CPA firms. They all have to become advisory and they all have to start thinking like entrepreneurs. They can't just be tax folks and audit folks anymore. That was the old model. Today it is to truly drive advisory.
Dan Hood (08:36):
Fascinating to hear you say that because I think this is a fascinating topic. As you say, I think the profession is moving towards, I think most people think the profession is moving towards this advisory role. And it's interesting, I sort of joked about it at the beginning, accountants have always made the point of being the trusted advisor, but I would say that their mindset has been not really an advisory mindset, but a helpful mindset. Accountants always want to help their clients. Whatever a client calls, you always want to help. We always want to do whatever they need, no matter how much work it means. But there's a difference between saying, yes, I will help you. I'm always ready to help you and I will be professional and intelligent about how I help you. There's a difference between that helpful mindset which says I'll do whatever you need and the advisory mindset which says I know what you need to do.
(09:22):
Do you know what I mean? And I think you're talking about for the last seven years building that up, I think that's a mindset that a lot of accounting firms don't, they think they're being advisors when really they're just being helpful. I don't mean to disparage being helpful. There's a reason why clients call the accountant first because they know their accountant will take care of one way or another, but it's different from the sort of entrepreneurial mindset that you're describing bringing to your clients. So I think it is.
Joe Damiano (09:49):
Yes, 100%. We even talk to the more technical partners in our environment and say, listen, AI will probably help you do the technical side of it at some point. It's evolving, getting better and better and better, better. You need to evolve from a technical partner into a more entrepreneurial partner. You might not get all the way there, but you need to be able to go have a conversation with clients. You need to be able to peel back the onion. You need to be able to figure out what that client may need to help them run their business, to help them deal with their family situation, to help them run their lives. And that is a skillset that a lot of CPAs right now are struggling through because a lot of them made partner becoming really good technical people. And now we're saying, you know what?
(10:33):
Okay, well that's good, but AI is going to be smarter than you at some point. So you got to do this other stuff and you have to evolve into what the profession wants and what the clients demand, which is a 24 hour a day, seven day a week relationship of being an advisor. I think to me, the big thing for being an advisor is being available to these clients when they need you. And a lot of people don't like to hear that, but that is the reality. The phone is not calling the office anymore. The phone is calling the cell phone these days. Yeah. And
Dan Hood (11:04):
Your cell phone's
Joe Damiano (11:05):
Office phone to be honest. I don't use it. I don't use the whole line. Everybody calls my cell phone. That is the future of where the profession is going and what people and clients expect from their advisors is that person that's going to pick up that phone but make themselves available.
Dan Hood (11:19):
That makes sense. I want to dive a lot more into that and I want to get a little more deeply into one, how you, you talked about talking with technical partners and being like, you got to be more of an advisory approach to things. I want to talk about that and how you encourage that, how you develop that, get your partners to do that. But we're going to take a quick break first. All right, and we're back. We're talking with Joe Damiano of Top 100 Firm Sacks about the rise of demand for advisory services from specifically high net worth and business owner clients and the sort of number one trusted advisor set of expectations they're developing for accounts and how you guys are meeting them. And you talked a little bit about talking with partners who were particularly strong technically and explained to them that they had to change their approach, that the technical skills, while I think we all agree they're always going to be important, it's the advisory attitude is going to be more important.
(12:23):
How do you develop that? Are there courses? What's the approach to it? I think you talked about the need to be able to ask the right questions. How do you teach people to ask the right questions or think that way?
Joe Damiano (12:34):
Yeah, I think what we do at the firm is we have leadership training that we do throughout. So there's training right now going on, especially with the younger generation because we want to make sure they start on the right foot. So as they become young partners, maybe we even have some senior managers and directors in that program to really teach them the other stuff, not technical. We're going to teach you the technical, you'll get your CPE, you'll do that. It's how do you deal with the other stuff, the soft skill stuff, the things that make you the advisor to the clients? And we're constantly having meetings about that at the partner level, giving examples of how we service the client on an advisory side, what resources that we added. That's been a little bit of a challenge for us is we keep adding resources. I get lateral partners that come into the firm with a different skill set.
(13:22):
We merge in a firm or acquire a firm and we have now a different skillset. Now getting them to the front of the room in these monthly partner meetings that we have and having them explain how they service a client and how we added a new advisory part of the practice. And I think it's just that repetitive nature of having this entrepreneurial spirit of driving it through, just constantly talking about how do we add value to a relationship? And I say all the time, they're expecting a firm like ours, top 100 in the country right now, to be able to do their taxes and to do their audits efficiently and effectively. They're looking for the other stuff. So if all we're doing for them is doing tax returns in audits and financial statements, then we are probably a vendor and not a true advisor to them.
(14:08):
We have this slide that I put up at the beginning of each partner meeting that we talk about the right side of relevance. If you're on the left side of that, that is a vendor. We try to push people to the right side of that relevance line and say, all right, we want to become like family at some point in time and really be a true partner with these clients so they have an advisor to come to. And by the way, we have all of these services that a client may need. We're only dealing in the closely held middle market family run ultra high net worth. We're building a firm holistically around having all of these various services that we think they need based on our years. We've been in business 70 years now. This is our 70th year. So we think we know what they need and we're driving that to all the partners now and saying, here's what we did with this client.
(14:52):
Here's what we did with this client. I think this would be a great value add to this client. So we're constantly preaching that entrepreneurial spirit of adding value to our relationship and driving that throughout the entire firm and driving it down to the next generation because that is still important to us about succession. We still got to drive succession plan and we still got to drive the next generation to be business advisors because they're at a different crossroads. When I first started as a partner 20 years ago, whatever it was, I was a young partner that was probably more technical on the audit and tax side than I was a business advisor. And I kind of evolved into that and I think that they have to start there. And quite frankly, the younger gen, the ones that are coming in the firm that we're hiring as seniors out of college, they have to learn how to become advisors with less technical stuff that they're doing because the AI component of it might be doing a little bit of that mundane stuff that you did when I was a kid, I did it and I learned it through doing this mundane stuff.
(15:51):
So they have to now learn how to do things differently and we need to teach them differently. So the firm and the people have to evolve into what this new role at these advisory firms are going to be.
Dan Hood (16:05):
I just want to say I love the distinction between being a vendor and being an advisor, that's a great way to put it. But also it sounds like it's a pretty intensive set of training and education and endlessly repeating the need to. And I think it's important for people to realize, I think that a lot of accountants look at the move to advisory and sort of say, "Oh, I can't do that. That's just not me." But they can be. You can be trained in just about anything, but it is a mindset that you can train into people, but you got to recognize the importance of doing that actual training.
Joe Damiano (16:37):
They have to want to do it and you have to continue to offer it to them and continue to coach them through the process. We actually rate our partners as part of our standard evaluation process at the end of the year. We rate our partners on whether they are being the number one advisor to our clients. And that is an important thing. Yes, we know we do rate your team member development. We do rate your technical component of continuing to evolve as a professional, but we also want to know whether you're acting as a true advisor to your clients and that is important to us. And sometimes we go out and ask the clients. I actually have dinner meetings we've set up, which we call meet the CEO meeting and we go there and I just open up on how has Sax evolved? We went from 10 years ago when I took over, we were a $25 million firm.
(17:25):
Today we'll probably run rating at about 180 million. And how did that happen in that 10-year period of time that we were able to grow at the pace that we were growing, but continue to keep the level of satisfaction with our clients so that they still feel that we're evaluated proposition. We're still servicing the same clients, it's just at a bigger scale with more resources. And when they hear me just talk to that, then a lot of questions come about and then I get to know some of the clients and know who their advisors are and then talk them through. And if I hear something, I'll go have a conversation with that specific partner specifically, whether it's good or bad. And I think that all these things, you have to do all of it. You can't just do one. It's everything. And I think it's a very difficult thing.
(18:07):
It's a difficult profession to be in, and it's a challenging profession, which is what I love about it. And it consistently, it's changing and evolving faster than I've ever seen it over the past six to 12 months. It's just amazing to see what's happening in our profession. And really, it's shifting away from this CPA tax mindset to now this advisory mindset and truly driving more than just tax and audit through the organization, which is why we continue to add the resources that we do.
Dan Hood (18:34):
Let's talk a little bit about that. You talked about the sort of evolution of the set of services oftentimes that will be driven by clients saying, "Hey, we need this," or you would see a need and a client respond in that way. From a services perspective, from the things you have in-house, how has that gone on? Is it still ongoing? Are you still looking around and saying, are you trying to get ahead of what clients need or how do you bring all those different services in-house?
Joe Damiano (19:02):
How
Dan Hood (19:02):
Do you determine when you need them and then how do you bring them in-house, I guess?
Joe Damiano (19:05):
Yeah, I listen to my partners. We consistently have meetings to talk about what we think we need for the future. We'll get opportunities for lateral partners sometimes that they have a skillset that I didn't even think about. And I'll go to my partner group and say, "Hey, we're thinking about bringing in a lateral partner that does X, Y, and Z. Would that be beneficial to our client base?" And I'll talk to them and see whether they think that that would be a beneficial person to bring into the organization. And nine times out of 10 it is, as long as it's servicing that closely held middle-market family run ultra high network practice. I actually have an interview with somebody that has started a trust company because I know a lot of our clients ask us to be trustees on the business and we've talked about having a trust company.
(19:52):
So I'm interviewing this woman on Friday to really talk about, what does that look like? How do I set that up? How does that evolve? So that just becomes another layer of bringing a client to the firm to be that number one advisor that we don't have to go to the outside to get trust services. So sometimes it evolves that way where I get an opportunity and I get to speak to a lateral partner and I'm like, wow, I think I'd like to have that. It sounds like something that the firm could use and add value to a client relationship. And sometimes the partners come to me and say, I've got two or three clients that have asked me about this. How do we get a person that does that in-house? And then we'll go try to recruit that from the outside.
Dan Hood (20:34):
I think we were talking a lot about that gets to my next question was we talk about your team, the building of your team. You've mentioned lateral hires a lot. It sounds like that's a thing you guys do, but also you're obviously developing people internally, people that might've been more technically focused getting them developed. When you look across your team, what's the composition you're aiming to get? Is it in terms of either advisory leaders, you're like, "Yeah, these are the people who really are advisory, sort of the same way firms used to talk about rainmakers. There's a small cadre of rainmakers or are you really expecting the whole firm to be on the advisory mindset playbook?
Joe Damiano (21:14):
Yeah, I think what we try to do at Sax is we try to put people in a power position. So if they're business entrepreneurial partners that are business development partners, we're going to let them do that. We try to take a lot of the work away from them and allow the more client-centric partners and the more technical partners to help them handle that book of business. Although they typically have to stay involved in a relationship, the entrepreneurial partners, because they're very good at really adding value to relationship by this entrepreneurial spirit advisory that we talk about. I think at the end of the day, what we're consistently doing, we have never stopped that we want to continue to make partners at a younger generation. We make four to five new partners every single year that grew up in the firm just like me. I started at the firm when I was 22 years old, made partner when I was 30.
(21:58):
That's the same model that I want to give to everybody. That's the opportunity of coming to Sax and working at Sax that because the firm grows at a disproportionate pace than most CPA firms. I just saw the statistics of the IPA 100 survey and it came out and it was 7% organic growth for top 500 firms, 7% organic growth for top 100 firms. Sax grew at 13.7% last year organically. So we are a different animal when it comes to that, and we are creating young partners maybe faster than we need to because we have a lot of business that's coming in the door because the clients see the entrepreneurial spirit and the clients see this generation of partners that want to be truly advisory and not just a tax or audit partner. So I think that is driving a lot of the growth and it creates the opportunity for the younger staff.
(22:46):
At the lateral partners side, what we've seen is because that message has gotten out and because they see Sax moving up the ranks at a lot faster pace than some of these other firms and they see the organic growth and they see the opportunity of these young partners being made, we're getting a lot of lateral looks, people coming to us. I don't even go out to the market anymore to find. There's always one or two positions that I'm looking for, but I get more opportunistic lateral partners that come to me through the recruiters every day. I had actually hired, we have a few internal recruiters just to handle the lateral partners that come at me so that they could do the interviews first because I just don't have. I used to do it all myself and I just don't have the time to do it all.
(23:25):
So we brought in two individuals that helped me through that process to. They know the questions to ask, they know what kind of people that we're looking for, more entrepreneurial, more people that looking to grow, and they'll do the initial interview and then I'll get it if they think that it's somebody that's a good candidate for us. But I think I talk about the three-legged stool of growth. Growth is very important to any CPA firm and any advisory firm. So we have organic growth, which Sax does better than 99% of the firms out there of where we've been headed. Then you have the lateral partner growth, which typically is either finding talent that you don't have so you could cross-sell into that talent or talent that wants to leave another firm, potentially bring some of their clients with them, and then you have the merger and acquisition growth.
(24:07):
So that three-legged stool has to continue to evolve and grow together. You can't have one of those legs fall because then the stool's going to fall. So we continue to just drive all three of those components.
Dan Hood (24:20):
I think a lot of people are going to be looking to you guys as an example of how to make this move to advisory on that. Any final advice for a firm looking to follow your path? Yeah,
Joe Damiano (24:33):
I think a firm that's looking to follow our path needs to think entrepreneurialism spirit. I think it has to be entrepreneurial first. That's really what drives advisory. That's what really drives the value add to a client, and you have to have that mindset. You have to get away from. It's interesting. I keep trying to shift the firm to a 60 / 40 model, 60% compliance, 40% advisory/consulting, and we continue to shift it that way, and then we'll do a few acquisitions that are purely compliance-driven firms because that's what they do. They're smaller firms than we are. And then it drives that number back to maybe a 70 / 30, and I got to start bringing it back the other way as we cross sell and some of the various resources. So I think that entrepreneurial spirit is really the thing that I think just is going to change the model going forward, and you have to evolve into that because that's where the growth is going to be.
Dan Hood (25:26):
It's interesting. We talk to a lot of firms, and regardless of how far advanced they are in terms of advisory work, a lot of them talk about, I'd love to do more advisory work, but people keep bringing compliance work to me. There's so much work to be done. There's so much.
Joe Damiano (25:41):
It's a great market. It's a great career.
Dan Hood (25:44):
Wherever you work, there's lots of work. Whatever you're looking at, there's lots of work to do. So excellent. All right. Joe Damiano of Sax, so thanks so much for joining us.
Joe Damiano (25:52):
Pleasure. Thank you, Daniel. Thank
Dan Hood (25:54):
You all for listening. This episode of On the Air was produced by Accounting Today with audio production by Adnan Khan. Rate or review us on your favorite podcast platform and see the rest of our content on accountingtoday.com. Thanks again to our guests, and thank you for listening.
