The Opportunity for CPAs You re committed to determining the needs and then delivering the right services to your clients. You play an important role in the lives of your clients and in the success of their businesses. However, there is a very real opportunity in today s marketplace to do more. Industry research tells us that affluent individuals, including business owners, are very interested in obtaining more than tax services from their accountants. 2
Business Models of Financial Advisors Investment generalist: Advisors who offer a broad range of investment products and do not specialize in a single type of product. Conduct brief fact finding sessions and then offer clients a suite of possible products based on their needs. Transaction focused Wealth managers: Advisors take a comprehensive approach to meeting client needs by using a highly consultative approach to construct integrated, personalized solutions. 3
Business Models of Financial Advisors Many Advisors Call Themselves Wealth Managers Few Advisors Are Actually Wealth Managers Wealth Managers 7% Desbribing themselves as other than wealth managers 54% Self described wealth managers 46% Investment oriented advisors 93% N = 2,094 financial advisors Source: CEG Worldwide, LLC., 2007 4
The Two Business Models Compared Investment Generalist Business Model Wealth Manager Average assets under administration $307.8 million $645.2 million Average annual net income $279,000 $881,000 Average number of clients 269.3 101.1 N = 2,094 financial advisors. Source: CEG Worldwide, 2007 5
CPA Opportunity Key Points Substantial numbers of clients would like to obtain additional financial services from their accountants. Despite this, relatively few accountants offer financial services, meaning that relatively few clients obtain these services from their accountants. When clients are able to obtain financial services from their accountants, they report very high levels of satisfaction with both products and service. The interests of clients point to a wide range of financial services needs, including investment management, insurance products, financial planning and estate planning. Only a small percentage of financial advisors are offering wealth management. 6
How to Implement a Wealth Management Business 1. Buy It 2. Build It 3. Joint Venture 4. Strategic Outsource 7
Buy It Advantages Proven talent can be acquired immediately Allows leveraging of existing clientele of both organizations Control over existing client relationship is retained Scale can be obtained quickly Disadvantages Capital requirements make this option suitable only for large firms. Firm assumes all risk associated with the acquisition and new service offerings. Lending in this economy 8
Build It Advantages Allows leveraging of existing clientele. Control over client relationship is retained. Disadvantages Requires substantial commitment to new resources, including additional expertise and expanded infrastructure. May distract from core competencies. Firm assumes all risk inherent in new service offering. Custodian minimum 9
Joint Venture Advantages Requires minimal commitment of resources. Allows leveraging of existing clientele. Control over client relationship and level of client service can be retained. Risk inherent in new service offering is shared with strategic partner. Disadvantages Requires a close match between the firm and the partner in terms of culture and requires significant time commitment to ensure success. Equity left on table 10
Strategic Outsource Advantages Requires minimal commitment of resources. Allows leveraging of existing clientele. Control over client relationship and level of client service can be retained. Adopt best practices through experienced provider Maintain all ownership Quick startup time Disadvantages Some control lost Possibly cost 11
Gross Revenue per CPA Firm from Financial Services Smaller firms with in house financial services (Gross) Larger firms with in house financial services (Gross) Smaller firms using outside financial services providers (Net) Larger firms using outside financial services providers (Net) 2003 Revenue (Average) 2004 Projected Revenue (Average) Projected Increase from 2003 to 2004 $392,000 $546,000 39.3% $718,000 $1,037,000 44.4% $834,000 $1,359,000 62.9% $1,241,000 $2,451,000 97.5% N = 394 CPA Firms 3 or fewer partners= small Source: CEG Worldwide, Capturing the Opportunity, 2004 12
RIA or Registered Representative Options on how form business: Create and oversee own RIA practice Affiliate with an entity as a registered representative Become a broker of a broker dealer This comes down to fee based or commission All have pros and cons, but primary issues would be equity, control, compliance and perception 13
FINRA vs. SEC 14
RIA Formation SEC vs. State Registration $25,000,000 assets under management requirement for SEC Net Capitalization requirements - $12,500 Timing Costs Minimal IARD Filing U4 IARD Example 15
Licensing Exceptions to 65 CFP - Certified Financial Planner Awarded by the Certified Financial Planner Board of Standards, Inc. ChFC - Chartered Financial Consultant Awarded by the American College, Bryn Mawr, Pennsylvania PFS - Personal Financial Specialist Awarded by the American Institute of Certified Public Accountants CFA - Chartered Financial Analyst Awarded by the Association for Investment Management Research CIC - Chartered Investment Counselor Awarded by the Investment Counsel Association of America, Inc. 16
Courses for License www.firesolutions.com http://www.kfeducation.com/securities/ http://pfp.aicpa.org/ http://www.cfp.net/ 17
Compliance Integral part of practice which cannot be overlooked Must have individual overseeing the compliance Chief Compliance Officer Outsource opportunities Email/File Storage/Manuals/Procedures ADV Part I and II Investment Advisory Agreements Privacy Policy Business Continuity Code of Ethics Organizational Chart Policies and Procedures Gift Log 18
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Technologies Portfolio Management, Reporting, Back Office Customer Relations Management (CRM) Document Management Financial Planning Risk Assessment Investment Policy Statement Email Compliance 20
Technologies Must Work Together Portfolio Reporting Position Analysis Solution Custodian Independent Entity Your Practice Rebalancing Solution CRM Financial Planning Software 21
Portfolio Reporting Portfolio Center Black Diamond Advent BridgePortfolio Custodian New Requirements Fidelity Charles Schwab TD Ameritrade Scott Trade Rebalancing Tamarac I-Rebalance TRX Solutions Financial Planning Naviplan Money Guide Money Tree CRM Client Relationship Management Outlook Sales Force ProTracker Retdtail Junxure Position Analysis Morninstar Advisor Workstation Principia 22
Strategic Action Plan for Implementing a Wealth Management Business Define the Vision Identify Needed Resources and Support Create a Marketing Plan Bring it All Together: The Business Plan 23
Reasons Why CPAs Fail at Implementing a Wealth Management Business Too Busy with Core Tax Practice Not Willing to Risk Losing Clients in Order to Transfer Their Practice Are Not Able to Change Their Mindset to That of A Financial Planner Do Not Achieve Full Partner Buy-In Champion??? 24
Business Plan Interview partners asking: What have we done in the past? What will stop you from referring? When a client asks for a referral, how are you handling? Worked out? Your approach to managing money? In looking at your client base, what is the approximate net worth of your top 15 clients? 25
Quantify The Opportunity Extract the following from Lacerte/Pro Systems into Excel: Interest Dividends Capital gains distributions With this information, assign a relevant interest rate to extrapolate the potential assets under management opportunity. Compare to partner responses for largest 10 clients. Taking the potential assets figure, multiply by an advisor fee rate 1% is a good approximation. 26
Present findings With your partners why / why nots and revenue potential, have an offsite meeting to discuss if this truly warrants an opportunity for the practice. Are the dollars enough? Can the practice be of the same quality? Cost to start? Can the why nots truly be overcome? 27
Should You Even Be in the Business? 28
Champion Each firm needs a champion to head up the new offering. Will need to obtain their Series 65 or CFP. Any partner sharing in fee revenue will need to have a Series 65 or equivalent. Critical area to discuss with compliance for structuring. 29
Company Kick Off Host an event at a local establishment and invite all potential clients XYZ University. Purpose is to announce new service, but must be educational. Do not make a commercial. Invite local attorney to present on estate planning issues. Be very clear on topics and client level of sophistication. Invite independent insurance agent to discuss relevant insurance topics Tax partner to discuss tax planning Champion of wealth management offering to discuss new approach 30
Wealth Management Offering Be very clear in your approach and the value of having a CPA maintaining your portfolio Knowledge of taxes Coordination with other tax professionals Independent and unbiased Conservative Most trusted advisor Offer clients a second opinion analysis of their portfolio. Explain your process of working with clients. 31
Essential Strategies of Elite Financial Advisers Focus on Affluent Private Clients Use the Advanced Planning Consulting Process to Differentiate Yourself From the Competition Manage Your Practice Like a Business Partner with Financial Institutions Make a Lifelong Commitment to Learning 32
Focus on Affluent Private Clients What Type of Clients Do You Have Today? Are They Suitable For Your Services? How Would You Qualify Affluent Clients? How Would You Approach Them and Position Yourself as an Expert? How Would You Communicate With Them? How Would You delight Them in Order For Them to Become Your Marketing Apostles? 33
Use the Advanced Planning Consulting Process to Differentiate Yourself From the Competition How Do Affluent Clients Buy Financial Services? What Can You Do to Eliminate Client Turnover? What Should Your Investment Policy Statement Look Like? How Can You best Demonstrate to Your Clients the Value You Bring to Them? 34
Manage Your Practice Like a Business Which Financial Services are Affluent Clients Looking For? How do You Spend All Your Time on Revenue- Generating Activities? Where Can You Grow Income, Even With the Downward Pressure on Fees? What Do You Need to do to Sell Your Practice For Significant Value? How Do You Find the Right Balance In Your Personal and Professional Life? 35
Partner With Financial Institutions Where Can You Get Extensive Practice Management Support From Financial Institutions? How Can You Leverage the Technical Support Available to Advisors? Where Can You Get Advanced Sales and Marketing Training? 36
Consultative Client Process Discover Meeting Complete Discovery Process Investment Plan Meeting Presentation of Investment Plan Mutual Commitment Meeting Confirmation of Commitment 45 Day Follow Up Meeting Organization of Account Paperwork Regular Process Meetings Review of Progress and Wealth Management Investment Plan and IPS Diagnostic of current situation, our recommendations for moving forward and details on our investment approach Wealth Management Plan Evaluation of financial needs with recommendations 37
Discovery Meeting Record meeting Thorough and detailed questions Always allow both individuals to answer Do not focus on the assets focus on: Goals Values Relationships Process 38
Create Investment Policy Statement Create your own or use an off the shelf solution: IPS Advisor Pro Mind Map Mind Mapper Goals analysis Looking at where client is and where they want to be you are there to help them fill in the gaps Monte Carlo Analysis 39
Financial Planning Two approaches depending on solution: Goal Based Cash Flow Based Need to address clients major concern: Do I have enough? Should have what if functionalities Asset allocation models built in 40
For a consultative conversation on the concepts in this presentation or questions about TPBS Capita Management, please contact: Michael Tate Michael.tate@tpbscapital.com 916.929.1006 x103 41