TIBURON, H.D. VEST, AND THE NAEA RELEASE LATEST RESEARCH FINDINGS, HIGHLIGHTING THE TAX BUSINESS PRACTICES OF INDEPENDENT TAX PROFESSIONALS

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Cecilia Rodgers
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1 --- FOR IMMEDIATE RELEASE --- TIBURON, H.D. VEST, AND THE NAEA RELEASE LATEST RESEARCH FINDINGS, HIGHLIGHTING THE TAX BUSINESS PRACTICES OF INDEPENDENT TAX PROFESSIONALS -- Survey of 502 Independent Tax Professionals Conducted at Tax Pro Best Practices.Com Web Site Shows that Tax Return Fees Still Account for Over 50% of the Revenues of Independent Tax Professionals and that the Number of Tax Returns Completed Each Year Exceeds 600. Product Preferences include Lacerte and CCH Master Tax Guide -- TIBURON, CA, January 2, 2002 Tiburon Strategic Advisors, in partnership with H.D. Vest Financial Services, a non-bank subsidiary of Wells Fargo & Company, and the National Association of Enrolled Agents, has released the latest findings from the interactive benchmarking web site where independent tax professionals (e.g., CPAs, EAs, and others) can measure their practices against a database of hundreds of colleagues for free. To give some perspective, there are 450,000 Certified Public Accountants (CPAs) in the US as well as another 40,000 Enrolled Agents (EAs). Approximately 170,000 of the CPAs and almost all of the EAs are in private practice, focused on completing tax returns and doing other tax planning work. These 215,000 tax professionals are partners or employees in over 46,000 firms, which suggests that the average tax professional is not at a big six firm, but rather at a firm with just four licensed professionals (and the median firm is more likely a firm with just one or two licensed professionals). With this background, Tiburon is able to analyze the summary data on the over 500 tax professionals who have entered facts regarding their business practices since Tax Pro Best Practices.Com was introduced in July Given the small firm orientation of the industry, it is no surprise to learn that the average tax professional who has completed the survey has revenues of just $256,000 and the median is a little below $200, survey takers so far have revenues above $500,000. To determine the best practices, the database was designed to divide the survey takers into four segments based on total firm revenues. Tax Services is Clearly the Largest Source of Revenues for All Tax Professionals; Financial Planning is Second Revenue Allocation Across All Tax Professionals Accounting/ Book Keeping 1 All Other 10% Tax Services 51% Revenue Sources Tax professionals earn slightly more than half of their revenues from their core tax business. Financial Planning & Investment M anagement 21% Specifically, 51% of the 1

2 revenues of the average tax professional s business are earned as a result of tax services, another 21% come from financial panning & investment management, 1 come from accounting & book keeping, and the remaining 10% come from a wide variety of other sources. As an aside, while we see evidence of the largest CPA firms entering the financial planning & investment management business through the fee-only advisor route, the vast majority of tax professionals entering the financial planning and investments business are doing so by becoming a registered rep at one of the independent broker/dealers. HD Vest, 1 st Global, and GE/Terra are three firms dedicated to this segment alone. Tax Returns Completed Tax season is a busy time for these tax professionals. The average independent tax professional firm completed 607 tax returns last tax season; this is a remarkable number. As we write this research release at the start of the newest tax season, it gives some perspective of the likely activity level of tax professional over the next 107 days. Completing 607 tax returns in the 107 days between now and April 15 suggests completing about six returns every day, weekends included. Larger firms complete numbers of tax returns well in excess of the average; while the smallest firms (with annual revenues of less than $200,000) complete an average of 404 returns, larger firms with revenues of $200,000-$349,000 complete an average of 620, firms with revenues of $350,000-$499,999 complete 814 returns on average, and the largest firms with revenues of $500,000+ complete an average of 1,568 tax returns. The Average Tax Professional Did 607 Tax Returns in 2000, Increasing With Firm Size There are though two interesting other facts to recognize: The average firm completes 475 tax returns per partner, generally increasing with firm size. This teaches us the power of leverage in people. Using the same four revenue ranges, the average firm in each size segment completes 372, 471, 656, and 649 tax returns per partner. In other words, firms in the two largest revenue segments are able to complete 50-75% more returns per partner. This leads to substantially more revenues per firm and per partner. But larger tax professionals do not increase their number of tax returns completed per employee; in other words, they do not get there by pushing a small number of employees to work harder but instead get there through growing their number of employees. Specifically, the average tax professional does 139 tax returns per staff person (including owners); the largest tax professionals actually do fewer returns per staff member. Using the same revenue segments, the number of tax returns complete per staff member is 148, 138, 141, and $0 - $199,999 $200,000 - $349,999 Tax Returns Completed/ Total Firm Revenue Ranges 814 $350,000 - $499,999 Total Firm Revenues 1,568 $500,000+ 2

3 As an aside, tax professionals complete mostly individual returns. Of the 607 returns completed on average, 544 or about 90% are individual returns while just 63 are other types of returns. Tax Product Preferences There are at least two key products used by these tax professionals tax software and tax research & alert services. Lacerte is the most popular tax software across all tax professionals with 32% utilization. The next two products are also Intuit products Pro Series (Turbo Tax) with 19% utilization and TAASC Force with 12% utilization. Intuit plans to retire the TAASC Force product and shift users to one of the other two products. Other popular tax software packages include CCH (Pro System fx) at utilization, Ultra Tax (), Drake (), and Tax Wise (Universal) (6%). CCH Master Tax Guide is the most popular tax research & alert service with a substantial 44% utilization. Other popular products include Kleinrocks (2), Quick Finder Handbook (TMI) (2), IRS CD-ROM (20%), and CFS (1). The next tier of products includes Tax Analyst One Disc (11%), RIA Checkpoint (9%), PPC Federal Tax Compliance Services (), RIA Tax Alerts (7%), and BNA Tax Practices Series (7%). Lacerte is the Most Popular Tax Software Across All Tax Professionals Note: Intuit, which owns Lacerte and Pro Series, also recently acquired TAASC Force and plans to retire the product Marketing Methods The majority of clients come to tax professionals through referrals. Passive client referrals (where the tax professionals does not proactively seek the referral) account for 49% of new clients and proactive client referrals account for another 17% of new clients, suggesting that client referrals account for 2/3 of all new clients. This has some positive and negative aspects; it is great that tax professionals receive all of these referrals but it may signal some complacency in a market with increasing competition coming from a variety of new market participants. Other less popular, but more proactive, sources of new clients include yellow pages ads (7% of new clients), networking (6%), direct mail (6%), and all other methods (15%). La ce rte Pro Series (Turbo Tax) TAASC Force CCH (Pro System fx) Ultra Tax Dra ke Ta x W ise (Unive rsal) Tax Software Utilized Across All Tax Professionals 6% 12% 19% 32% CCH Master Tax Guide is the Most Popular Tax Research & Alert Services CCH Master Tax Guide Kleinrocks Quick Finder Ha ndbook (TMI) IRS C D-RO M Tax Analysts One Disc RIA Che ckpoint PPC Fed Tax Com pliance Services RIA Tax Alerts BNA Tax Practices Series 7% 7% 9% 11% Tax Research & Alert Services Utilized Across All Tax Professionals CFS 20% % 3

4 Strategies for Serving Independent Tax Professionals Tax professionals are rapidly entering the financial planning & Investment management business and the segment provides many opportunities for mutual fund and annuity companies. However, this segment does present some unique issues. There are a variety of best practices in serving independent tax professionals. Three that are key: Mutual fund and annuity companies must recognize that many tax professionals are new to the financial planning & investment management business. Many have had success in building their tax business but have not focused on financial planning & investment management concepts. Mutual fund and annuity company wholesalers who help them in their learning processes will likely be rewarded with loyalty Mutual fund and annuity companies must recognize that the core business of tax professionals has a significant seasonality to it. Calling tax professionals for a visit regarding your products in January-April is probably not a wise move. Remember, they complete 600+ returns in average! Tax professionals are swamped in the first quarter of each year in meeting tax deadlines for their clients. Financial planning & investment management are often put on the back-burner at this time of year Finally, mutual fund and annuity companies should realize that for many tax professionals, financial planning & investment management may always be their second priority behind their tax businesses. As a result, when they turn to investments, they will look for programs that are turnkey and easy to understand and explain to their clients Overview of the Tax Pro Best Practices Tool All of the data in this release comes from TaxProBestPractices.Com. The TaxProBestPractices tool, unlike traditional surveys of tax professionals, encompasses all aspects of a tax professional s business and is interactive, allowing users to revisit this site and compare their practices on an annual or even more frequent basis to those of other leading practitioners. The tool allows tax professionals to benchmark their businesses in five key areas: Clients & Marketing Strategies Business Economics Tax & Accounting Business Practices Financial Planning Business Practices Business Policies & Industry Views Tax professionals are able to compare their business practices on dozens of dimensions to similar-sized tax professionals and/or larger or more successful tax professionals they wish to emulate. In explaining this benefit, Tiburon s Managing Principal Chip Roame said, One of the difficulties of operating as an independent tax professional is the fragmentation of the industry. There are very few forums in which to share and compare data and business practices. This free tool allows tax professionals to compare their business practices to those of other tax professionals of various sizes. It will allow tax professionals to access the data from their offices and make business decisions on the spot. To use the TaxProBestPractices tool, tax professionals should visit There, they will register and need to answer 38 4

5 questions (it takes about 45 minutes). In return, tax professionals will receive a free copy of Tiburon s latest research report regarding this data. Sponsors Tiburon Strategic Advisors, based in Tiburon, CA, was formed in 1998 to offer market research, strategic consulting, and venture consulting services to financial institutions and money managers. The firm has served over 150 corporate clients and completed over 350 research and strategic planning projects in that period. The firm s knowledge base ranges from mutual fund distribution to wrap programs, alternative investments, the fee-only financial advisor market, and bank/broker mergers. Executives at mutual fund and annuity companies, and other vendors hoping to serve the tax professionals market segment, can gain a strong appreciation for common traits and best practices in this industry segment by purchasing Tiburon s research report and/or scheduling a one-day market seminar with Tiburon. H.D. Vest Financial Services, a non-bank subsidiary of Wells Fargo & Company, is dedicated to assisting tax professionals in serving the financial planning needs of their clients. The firm supports over 6,000 tax professionals. H.D. Vest has a proud history of supporting tax professionals and was the initial sponsor of this research. The National Association of Enrolled Agents is a national association of over 10,000 independent, licensed tax professionals called Enrolled Agents. The NAEA is dedicated to helping its members maintain the highest level of knowledge, skills, and professionalism in all areas of taxation, so that their members may most effectively represent the needs of their clients. CONTACT: Krista Jenssen, Director of Client & Media Relations at Tiburon Strategic Advisors (KJenssen@TiburonAdvisors.Com or ). 5

TIBURON STRATEGIC ADVISORS ANNOUNCES UPDATED RESEARCH FROM ITS INDEPENDENT REP BEST PRACTICES BENCHMARKING TOOL

--- FOR IMMEDIATE RELEASE --- TIBURON STRATEGIC ADVISORS ANNOUNCES UPDATED RESEARCH FROM ITS INDEPENDENT REP BEST PRACTICES BENCHMARKING TOOL -- Research reveals most recent usage and satisfaction statistics