In 1977, Rick Dirksen, an accountant with longtime Detroit-area CPA firm Plante & Moran, persuaded his partners, including co-founder and managing partner Frank Moran, that the firm needed to start a financial planning business. The firm had a storied past. It was founded in the 1920s, served middle market companies in Michigan, a world ruled by car makers. “When GM sneezes, everybody gets a cold,” went the joke.


Dirksen met some resistance, of course; not surprising, since many accountants and tax preparers get squeamish at the advice game. They have much to lose—longtime relationships and their stoic reputations as dispassionate number crunchers. Investing is a game of risk, something many accountants are by nature wary of. Yet in the end, it was simple enough to sell: The clients wanted it.

“Everything that we do, all the businesses that we have started, started because our clients needed that service and asked them to be involved,” says John Lesser, president of Plante Moran Financial Advisors, the now 40-year-old advice arm of the Southfield, Mich., accounting firm.

For many years, the newly formed unit had an awkward phase, says Lesser. In the 1970s, modern portfolio theory was a brand new idea, and the way you forged a financial plan was to write a 30 page report for the client telling him where to invest, how to allocate and what insurance to buy. Then you patted him on the back and sent him away to put it together all by himself.

“At the time, we weren’t able to implement the investment solutions because we weren’t a registered investment advisor,” says Lesser. So the clients would take the plan to a stockbroker or a life insurance agent—somebody who would sell investment products on commission. In other words, whatever the salesperson thought best.

Nine times out of 10, when the client came back to Plante Moran a year later, the actual holdings looked nothing like the blueprint. “In an age where modern portfolio theory was just starting to resonate, the broker would try to fit stocks, unit investment trusts and annuities into places the fund had advised mutual funds—and there weren’t many of those, and the ones that did exist were mainly load funds.”

According to Lesser, the clients finally said, “We want you to be the architect and the builder.” So the firm finally registered as an RIA in the early 1990s.

“This was a different business model,” says Bob Palmer, partner and wealth management practice leader of Plante Moran Financial Advisors. “We were contemplating getting compensated on a percentage of assets, which was very new.” And it took some convincing. The committee in charge of such business transitions had some objectors, he says.

Lesser joined Plante Moran around the same time as the RIA firm started up, right out of college as part of the auditing practice. He moved to the financial planning group in 1995.

Palmer joined the firm in 1988 when he was 24 after a stint at Ernst & Whinney. He didn’t know at the time Plante Moran even had a financial planning area. “I was probably the ninth or 10th person in our financial planning department. It was our 11th year.” At first, there were different business segments focused on software development and educational courses. Palmer flew around the country giving seminars.

The story about Plante Moran’s beginnings is interesting because the firm has not grown the way other firms have. Unlike the big acquirers and firms building a national footprint, much of Plante Moran Financial Advisors’ success has stemmed from its attachment to a large accounting concern that can send clients right over. That’s worked out even though planning firms are almost famously difficult to mesh into accounting cultures.

One reason the cultures clash, says M&A consultant David DeVoe, is that the compensation models are different—as are the profit margins. “It has a lot to do with whether the CPA side of the business is willing to make referrals. A second element is around management and control.” The management teams of accounting firms, DeVoe says, are born and bred and live in a low-growth, low-profit-margin, conservative environment. “That can create decision-making challenges for an organization.”

The advisory business often grows faster, which can rub the accountants the wrong way. The margins are often bigger too. Shouting matches erupt over who deserves more, who gets more, who refers whom.

Meanwhile, accountants worry that if they refer their clients and the advisor’s performance sinks, everybody gets fired.
“Many firms fail,” says Palmer, “because of the conflicts that came in with who’s going to get paid what and how much am I gonna get paid if I refer a client.

“They weren’t in it together.”

“There is no question that’s a constant challenge,” says Lesser, “and if you look at most of the CPA firms, they haven’t been able to get the RIA to a certain size or to a significant size because of many of those tensions.”

Financial advisors in an accounting firm, meanwhile, have a different problem. Clients wonder if they are just unmotivated black sheep in the wrong industry. Wealthy individuals might see them as unserious—unlikely to have great tips on hot hedge fund investments or MLP contracts or a patch of hot distressed debt deals. Lesser admits this is still a problem for Plante Moran.

“Folks will say, well you’re not really in the investment advice business, you’re an accounting firm,” he says. “Or, you’re too conservative because you’re tied to an accounting firm; you’re not the best and brightest financial advisors. Or, this is a secondary business for you.” For every one comment of approval for the CPA link, he says, “we have two folks that say, ‘Really? Are you really in this business?’”

These might sound like tempests in a teapot, but such culture clashes have ripped apart other firms. Yet this same dichotomy has made Plante Moran interesting because the firm has somehow overcome that possibly combustive energy imperiling similar arrangements elsewhere.

Lesser and Palmer say the trick is their “one firm firm” concept. Instead of siloing their many business lines, the partners share profits from a holding company that holds all of them.

“If 80% of our profits were determined from accounting and tax revenue, well I’m a partner in the firm, 80% of my income is determined by that, not from the wealth management side,” says Lesser.

Specialization is also key, he says. Clients are always asking for new business lines, and that tends to drive new growth and defuse tension over which ones are more profitable. “We have an investment banking group, we have a real estate group, we have many different groups throughout the firm that are in the specialty area,” he says.

The culture is also shared because many people come up through the accounting or auditing and assurance sides of the business (as did Lesser) and are CPAs by training. Other accounting firms try to buy their advisor practices; the profit centers are different, the cultures likely misaligned.

Growing Differently
Still, its accounting link means Plante Moran Financial Advisors has had to evolve and absorb changes in the industry in different ways.

In the beginning, it got 100% of its business from the accounting arm, and the automobile industry was the sun that shone on their good fortunes. A decade ago, that sun was not shining—the automobile industry was in crisis, whipsawed by high fuel prices, declining car sales and high debt that prompted a government rescue. But by that time, says Lesser, Plante Moran had diversified.

Today, the firm’s fortunes are swayed by different kinds of weather—mostly the business upheavals taking place in the middle market companies that are Plante Moran’s mainstay clients.

“Right now, private equity is buying many middle market companies, and so many of our clients who are in the middle market in closely held businesses … they are having record liquidity events.” This is occurring across the country, he says, in areas where the company has fanned out,  and in sectors such as health care and technology, beyond automobiles. The wealth management practice now has offices in Michigan, Ohio and Illinois and clients in 40 different states. (The accounting firm also has some international offices.)

Over time, the accounting firm has gone upstream, and the advisory firm has followed, says Lesser, and “gotten access to larger companies selling to private equity, gotten access to C suites, gotten access to boardrooms of public company executives, public company CEOs.”

There is another downside to the accounting link, though, and that’s the firm’s national branding and acquisition strategy—or lack thereof.

“We would like to do an acquisition,” says Lesser, “and we have tried many times and have been unsuccessful at doing that. … We haven’t been able to acquire any other advisors because they do not want to be a partner in an accounting firm. So we’ve been able to grow in double digits—great!—on an annual basis. But will that get us to a national brand? No. Because we can’t acquire enough firms in the RIA space.”

He says the firm has talked to probably 80 firms in the last decade. No luck.

That means Plante Moran must continue its focus on organic growth. The good news is that it can continue to do so with the upstream move into C suites, Lesser says.

(The firm has $13.2 billion in assets under management and $17.8 billion in assets under supervision.)

Breaking Down To Build Up
Also, because the firm needs to grow organically, it has had to think about scale and efficiency differently. The watch words are “specialization” and “segmentation”—dividing up clients by asset size and demographics. “Today we have four strategic business units,” says Lesser. “We have the emerging affluent, high-net-worth, ultra-high-net-worth/family offices and institutional.”

Plante Moran has enjoyed enough scale, say Palmer and Lesser, that five years ago it started to take segmentation more seriously. In a dramatic gesture, it even lowered its account minimums from $1 million or so to $350,000, bringing in mass affluent clients and millennials under a program it calls DRIVE.

The new project is being overseen by Ryan Linenger, who began his career at Plante Moran 16 years ago and recently rejoined the firm as a partner after running his own firm with 85 households.

“I ended up starting my own firm in the Chicagoland area, trying to create what I would call a next generation of wealth management offering, a combination of technology with personal advice and detailed financial planning. And then Plante Moran started to build something very similar for a much broader market. … They needed a leader.” Plante Moran moved into Chicago and absorbed his business, since the mass affluent market was poorly served.

Linenger says the Drive initiative is not a robo-advisor (Plante Moran bristles at that term). The firm calls it the bionic advisor; the idea was to bring in the best of all the fintech and create a virtual environment for the client that ties everything together in the company’s portal. Linenger thinks that robo-advisors will serve clients in some capacity in the future, but that clients will still need human advice, and he doesn’t feel the firm is competing with those digital offerings.

The firm needed to specialize and become more nimble and efficient after reaching critical mass, says Lesser, especially since it can’t simply grow through acquisitions. In the past the firm would hold three-hour committee meetings where only 10% of the people in the room needed to attend. With more people and resources, the business needed to be broken down.

“Back in the day you went to the family doctor and they would set a broken bone, they would do all the general work, they would probably act as the orthopedic surgeon, the oncologist, the nephrologist. By the end of the day, as you get bigger and bigger, the hospital has enough doctors so you can specialize.

“One of the ways to grow faster is to break a bigger business into smaller businesses,” he continues. “You know Apple can’t quadruple from here. But even Google, they break up their divisions to try to grow them at a faster rate so they are not tied to the parent company. At the end there are folks who are solely focused on just that and they are driven to do just that instead of having to worry about 12 other things that don’t apply even to them.”

He says the big firms will also have to build out services to be one-stop shops and offer cradle-to-grave help to clients. “We do have an insurance agency which is a broker-dealer, we have a trust bank, we have a wealth-transfer group.” Smaller firms will eventually have to merge to cover the cost of compliance, regulation, specialization and technology. This will drive consolidation, as will the number of firms without succession plans, Lesser says.

On the high end, the firm started a personal CFO service in 2000. Lesser says that was a pivotal point.

“I think what happened in the marketplace is that the asset allocation based on modern portfolio was the latest and greatest in the early ’80s and ’90s. That was a key to the kingdom. Then from ’90 to 2000 that became a commodity.
Index funds started to come around. Hedge funds came on the scene. Alternatives. Venture capital. Real estate. Folks didn’t care as much about the asset allocation anymore.”

Personal CFOs came on the scene after that, he says, to maximize the after-tax value of personal balance sheets for multiple generations. “That’s when you’re doing the holistic planning, looking at liquidity, leverage, investments, income taxes, estate taxes, life insurance, health insurance, property/casualty. You’re connecting the dots.” Robo-advice is simply the new evolution for the industry, he says.

Those changes mirror the firm’s evolution, he says.

Despite the disadvantages of the accounting firm, some clients see security in it—the accounting practice breeds instant trust among clients because they are not paying commission or referral fees.

It doesn’t hurt that the firm has a “jerk free” culture, and the kind of perks that have landed Plante Moran on Fortune magazine’s 100 best places to work list.

“It feels good,” says Lesser. Clients “are with an accounting firm because it provides a conservative nature, comfort, peace of mind.”