CPAs find opportunities in financial planning and investment advisory

Adding financial advisory services to your practice is a great revenue enhancer that deepens your client relationships. Thanks to advances in technology, the transition has never been easier for CPAs.

With tax prep and compliance work becoming increasingly automated and fee-compressed, this is really where our value is most needed, observed Rob Seltzer, at a recent California Society of CPAs panel discussion we did together.

Seltzer, president of Seltzer Business Management, said CPAs frequently tell him they’re interested in offering investment advisory services but don’t have the time for IAS. For most CPAs, “it will be the most lucrative thing that you do,” said Seltzer. “If you don’t have time, you should make the time because unlike tax work, which has all sorts of problems with work compression, changes, pressing deadlines and burnout,”

IAS has much more flexibility, added Seltzer. “If I meet with my client about estate planning next week, or in 10 days, it usually doesn’t matter” as long as a meaningful and in-depth planning discussion takes place.

Another panelist, Mitchell Friedman, founder and president of MFAC Financial Advisors, shared that before he made the transition to IAS, his biggest mental roadblock was not wanting to register as an investment advisor, believing it was too much trouble. “Eventually I made the decision to set up a separate RIA firm,” said Friedman, “because as a CPA, we are already regulated by the California Board of Accountancy. I didn’t want to also have another regulator, whether it was the state of California or the SEC, in my accounting firm. So, I set up a separate firm, and I have to be very careful about which hat I’m wearing. I don’t want to be a registered investment advisor in my accounting firm, and I don’t want to be an unregistered CPA in my advisory firm.”

Friedman said there are very clear lines that his colleagues follow when it comes to which firm does the services for their clients. “All things considered, the obstacles weren’t all that great,” he added. “The body of knowledge that had to be obtained was my biggest challenge. And at this point, I’ve overcome that.”

As a CPA, Baker Tilly’s Michael Eisenberg said for many years his client relationships only occurred during tax season when clients dropped off their documents and waited for their returns to sign. “We’d give them back their paperwork, file the tax returns, send them a bill, and they’d say, ‘OK, thank you very much. See you next year.’ But when I started looking into investment advisory and financial planning opportunities through the CalCPA, and “the lightbulb went off.”

The first thing Eisenberg noticed when he suggested financial planning to clients was how interested they were. They knew their CPA already knew so much about them and they trusted him to answer their many questions about their finances. With financial advisory work, Eisenberg likes that it’s more than just transactions like tax prep. “Clients come in, you talk with them about their situation, their family and what they hope to accomplish. Now when they walk out the door, they say, ‘Michael, thank you, that was wonderful. You don’t get that when you do tax returns.’

While there is a learning curve and licensing requirements, just about every CPA I’ve talked to about expanding into financial advisory work has said the effort has been more than worth it. In a minute, I’ll talk about four different ways CPAs can start offering financial advisory services to clients.

Seltzer added that almost every survey in our industry shows CPAs are the most trusted advisor. We can take a more holistic approach than your typical broker at, say, Merrill Lynch or UBS who is really just focused on investments. Who do clients call when they have an important question about their finances? It’s not the guy at Merrill Lynch — it’s you. That’s why it was such an easy transition. I never sold myself as the guy who was going to get the best returns or beat the market by X percent. It was about taking an approach, where I already know your information, I’m going to listen to you, help you meet your goals and have an ongoing conversation.”

4 paths for CPAs to offer investment advisors services

1. Informal referral model: Refer clients to an outside firm without direct compensation.

2. Become a solicitor/promoter: Monetize the relationship formally with an outside investment advisory or financial planning firm that you feel is a great fit for your clients. You’re not doing the actual work, but consistently referring clients to the advisory firm for pre-defined monetary compensation. As discussed in my recent article, CPAs cannot hold themselves out at advisors offering investment advice. There is the burden of dealing with compliance.

3. Become an investment advisor representative at your firm: The firm can likely handle all the heavy lifting aside from either direct client relationship or actual planning levels depending on how the firm’s structure is seen. Just know that investment advisor representatives are limited in what advice they can provide based on which licenses they hold. You could also become an IAR of a comprehensive registered investment advisor or family office like ours. Some firms focus on the financial planning and utilize the RIA for investment management, while others get more heavily involved and do the actual asset allocation. The more you bring to the table the more you can ask for within the partnership. For many firms, this provides the greatest ROI on your time and a pathway to becoming your own RIA.

4. Set up your own RIA: You could set up your own RIA practice so you have control of your entity, but then outsource certain functions such as administration, compliance, technology, handling client wire transfers, etc. Again, as the most trusted advisor, you would handle client relationships and related planning aspects for them – ie, being the chief strategist. But you could hand off a lot of the tactical day-to-day tasks such as portfolio management, tax loss harvesting, required minimum distributions, etc.

Setting up your own RIA involves compliance, operational and administrative duties. There are a number of “build vs. buy” considerations here. From an operational and administrative standpoint, you could hire or train staff, but the latest developments in technology make it possible to automate such tasks as rebalancing, portfolio management, tax loss harvesting and RMDs.

As my colleague, Rob Santos, likes to say, “The easiest way to eat an elephant is one bite at a time.” The great thing about this valuable practice add-on is that you can go at your own pace and test the waters, before diving in headfirst.

As Santos shared on the CalCPA panel: “Both accounting firms and wealth management firms tell me all the time how hard it is to find and retain talent. Well, there is no better future-facing advisor than accounting professionals and CPAs.” According to Santos, they’ve already got the knowledge base, they’ve got the relationships, and they’ve got the technical ability to do it. The value is being given to the advisory work; it’s not being given to the compliance work.

I’ve found that providing a diversified service model, having tax efficient strategies, providing holistic advice and proactive planning is the future of our profession. We call it our modern family office model. It’s really about integrating tax accounting, wealth management, insurance and estate planning all under one roof.

Thanks to advances in technology, you don’t need an army of specialists to offer it. New technology allows you to build a moat around your business, and the business model is recurring revenue. It is low churn and high margin. What’s not to like?

Many CPAs are reluctant to pursue financial planning and investment advisory services for their clients because they fear they don’t have enough time or inherent knowledge to do so. Again, the great thing about this service offering is that you can crawl before you walk, and you can walk before you run. For instance, you could start by partnering with a wealth manager via a solicitor/promoter agreement. After getting comfortable in this realm, you could become an investment advisory rep or obtain the Personal Financial Specialist credential from the AICPA to become an advisor yourself. Less than 10,000 of your peers have obtained the PFS so far, so it’s a wide-open opportunity to really grow your practice and provide a diversified service offering that clients love.

When it comes to succession planning or selling your practice, financial planning is a great way to increase revenue, profit margin and your valuation.

You’ve got the skills and you’ve got the trust. Don’t be afraid to change out of your lane.

You’ll get to know your clients in a whole new way and deliver more value — with less stress — than you ever thought possible.


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