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Q:
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Why should a CPA consider offering investment advisory services to tax clients?
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A:
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CPAs offer investment advisory services to:
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Increase client retention. Investment advising is a value-added service that clients are requesting. Offering investment advise allows you to offer a total package of financial services, so you can maintain better control over your clients financial affairs and enable them to better achieve their goals.
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Generate a new revenue stream. Accounting, auditing and tax return preparations are quickly becoming commodities. An investment advisory practice offers a new and recurring revenue source.
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Remain competitive. Many practitioners already offering personal financial planning are expanding their practices to include financial services. Outside our industry, other professionals, including financial planners, bankers, lawyers and insurance agents are encroaching on what traditionally has been a CPA area of practice, resulting in their becoming a one-stop-shop for their clients' financial needs.
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Q:
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What are the negatives?
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A:
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The negatives include:
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Your clients' perceptions. You may feel compromised, wondering if clients think you are "just trying to sell them something."
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Your peers' perception. Other CPAs may infer that you are pushing a product, and are not truly independent or objective with your advice.
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The regulatory process. Determining what are the applicable registration and filing requirements, as well as meeting and maintaining them properly, can be confusing and time consuming. The investment advisory and securities businesses are highly regulated, and laws are constantly changing. The SEC and the state securities administrators are empowered to inspect any IA at any time, so you must always be prepared for that audit.
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Learning new skills. "I'm a CPA, not a salesperson" is a common reaction for those considering investment advisory services. You will need to be able to determine your clients' investment needs, educate them about the risks of the financial markets, analyze their current portfolios and make investment recommendations.
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Q:
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What is the AICPA's position?
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A:
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The CPA Vision Project, published as CPA Vision 2011 and Beyond in the December 1998 issue of the Journal of Accountancy, cites financial services as being among CPAs' core services (defined as work performed for a fee or salary). The definition of financial services states, "Provide a variety of services to organizations and individuals that interpret and add value by using a wide range of financial information. These include everything from tax planning and financial statement analysis to structuring investment portfolios and complex financial transactions." The implications of this service as noted in the vision statement include, "Creates investment management opportunities", and "Expands opportunities to provide investment services".
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Q:
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Who else is moving into the investment advisory business?
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A:
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The Big 4 accounting firms and H&R Block have already entered this field. Many states have enacted laws allowing CPAs to accept contingent fees or referral fees and participate in investment advisory services, and the policies being set forth by the State Boards of Accountancy in most of these states allow this practice. In Florida, the state CPA society conducted a membership survey revealing that 600 of 4,000 respondents were highly likely to enter the investment advisory field. Others entering the investment advisory field are Merrill Lynch, Salomon Smith Barney, American Express, GE, ADP, and a number of Insurance and Financial Service Companies or Corporations.
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Q:
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How much revenue can I expect?
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A:
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Depending on your level of activity, providing investment advisory services can serve as a supplement to your practice or a substantial focus. Therefore, providing asset management services can create a revenue stream representing anywhere from 10 percent to as much as 100 percent of current annual revenue, with only a small increase in overhead. This could lead to tens to hundreds of thousands of dollars annually, even for the solo practitioner.
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Q:
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How much work will this be? Do I need staff?
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A:
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Generally, providing investment advisory services requires your time and labor for client meetings and administration. This is chargeable work, billable on a fee basis. There will also be some increased clerical and filing work, which may be done by your existing staff if you have the capacity.
If you choose to perform IA functions within your firm, you will need to make a commitment to establishing and keeping the required books and records, client lists, agreements, disclosures, policies and procedures and documentation required by the regulations governing investment advisers. You must also be prepared to analyze your clients' existing portfolios, create asset management proposals and client statements, frequently monitor client accounts and perform other client service functions.
Most of these functions are now supported through software packages designed specifically with your needs in mind, or online through web-based delivery services.
One of the key building blocks for a successful investment advisory practice is a strong custodial relationship. It must be a relationship you can depend on, one based on trust, as well as a commitment to meeting your unique needs.
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