"By undertaking strategic alliances with financial advisors, CPAs can make more money, with less hassle, in a way that serves their own clients better."

Partnering with CPAs

By Patricia J. Abram

Great professionals do what ordinary professionals won't: They work not just in their business, but consistently work on their business. As a financial advisor, probably the single most important step that you can take to work on your business is to truly understand, embrace and then communicate your core value proposition—working closely with clients to uncover and systematically address their long-term wealth management needs. The second most important step? Build strategic alliances with other professionals, especially attorneys and Certified Public Accountants (CPAs).

Developing strategic alliances with CPAs represents an outstanding opportunity for advisors. First, industry research shows that 56.6 percent of individuals and 47.1 percent of small-business owners desire financial services from their CPAs. Second, many CPAs have affluent clients who fit well with advisors’ ideal-client profiles.

Third, it turns out that between lawyers, financial advisors and CPAs, it is CPAs who on average are most trusted by their clients. Thus, when CPAs refer clients to financial advisors, these clients are likely to go along with the recommendation and give the advisors a more-than-fair opportunity to prove their worth. Finally, we know that most CPA firms still do not offer financial services to their clients. That’s a lot of market share just waiting to be cultivated.

What about from the CPA's perspective? To begin with, CPAs must recognize that they are not serving their clients in a vacuum, and that if they don't provide the financial services that their clients desire, they may lose not only their clients’ attention, but the clients themselves. Clients—especially affluent ones—want their lives simplified, and prefer a single point of contact for all their financial concerns. As their most trusted advisor, CPAs who do not offer a full complement of services are at risk of losing their clients.

Considerable revenue is also at stake. CEG Worldwide research has found that gross revenue for CPA firms offering financial services and products has ranged from an average of $392,000 for small firms with in-house financial services to $1,241,000 for larger CPA firms allied with outside providers. Projected revenues are even higher, showing expected increases from 39.3 percent for smaller CPA firms with in-house financial services to 97.5 percent for larger CPA firms allied with outside providers.

Note these two critical points: First, both smaller and larger CPA firms generate substantially more gross revenue when they used outside providers. The projections show both larger and smaller firms using outside providers as having more than double the gross revenue of their counterparts with in-house financial services ($2,451,000 vs. $1,037,000 for larger firms, and $1,359,000 vs. $546,000 for smaller firms).

Second, since setting up and maintaining in-house financial services takes considerable effort and expense (salaries, office space, IT systems, etc.), the bottom-line net profit differential for CPA firms using outside financial-services providers is even greater than the chart suggests.

Why are the numbers so much lower for those CPA firms, large and small, with their own in-house financial services? Essentially, by moving into an area where they lack true expertise, they are forced to create systems and procedures from the ground up as they reinvent the financial-services wheel. Moreover, CPA firms often assign junior staff to their in-house financial services, and these relatively inexperienced individuals may be unable to offer the broad range of financial services, products and wealth management strategies required to meet the needs of affluent clients.

By undertaking strategic alliances with financial advisors, CPAs can make more money, with less hassle, in a way that serves their own clients better. Still, many CPAs initially hesitate to enter into these alliances, in part because they are a relatively new phenomenon (20 years ago such alliances were quite rare), and partly because CPAs and financial advisors have very different cultures. CPAs live backward in time and do their best to minimize or completely eliminate risk, while financial advisors live forward in time, helping their clients to minimize risk and maximize return through asset allocation and comprehensive investment strategies in alignment with life goals.

You can address these concerns of CPAs through clear upfront communication. Let the CPA know what your value proposition is providing world-class wealth management services that always puts clients' needs first. Also, give them a sample copy of an investment policy statement developed by your firm.

Next, listen carefully as you inquire into how the CPA does business, making sure there is a good fit between you. Is the CPA’s clientele in alignment with your ideal client profile? How about the overall firm culture and world view? If the fit is good, let the CPA know that in a strategic alliance, as part and parcel of who you are and how you do business, the clientele will receive superior financial services and will be happier and better financially cared for in the long run.

Strategic alliances need "economic glue" to work; in fact, virtually all CPAs will expect a well-articulated revenue sharing agreement (frequently near a 25-basis-point revenue share). Be careful in negotiating these arrangements so that you balance first year and on-going revenue sharing.

After systematically finding and interviewing the most likely CPA alliance partners (remember to ask your best clients who their accountants are), you will need to negotiate an agreement that is in compliance with all necessary industry regulations, state laws and federal requirements. Make sure that the CPAs involved understand that they will be making a real commitment, that you will have joint clients together, and that they are expected to make warm personal hand-offs of their clients, not just casual recommendations.

The hardest part of creating strategic alliances with CPAs is picking up the phone and making the initial contact call. You may not do it perfectly the first time. But if you ask informed and intelligent questions, very few professionals will pass up the opportunity to meet with you to see how they can serve their own clients better while also making more money. Creating strategic alliances with CPAs is a great way to work on your business, a triple win for you, your CPA allies, and most importantly, for your joint clients.

Reprinted from: RESEARCH MAGAZINE