Accounting firms frequently offer wealth management services and products. They either hire experts to work in-house or set up joint ventures or strategic alliances with other wealth managers (or do some combination of the two). But as we have studied these firms over the last decade, it’s clear to us that more of them are missing out on an opportunity rather than seizing the day.
That might be a cultural problem. Some accounting firms simply aren’t concerned about wealth management as part of their businesses. They see it as marginal to their core activities—maybe something just nice to have when clients ask for it. Yet the wealth management pieces of their business could be a much bigger part of revenues if they wanted it to be.
The Accounting Firm Advantage
Accounting firms boast two advantages. One is that they already have a lot of great clients that could be potential wealth management users. And individual accountants generally have good relationships with clients who are ripe for that kind of help.
It’s also very likely that accounting clients already have wealth management relationships with other firms—ones who aren’t serving them very well. Because accountants already have these clients’ ears, they are well positioned to capitalize on any unhappiness the client is feeling toward another professional.
One of the fastest and easiest ways to seize on this situation is for the wealth management practice to stress-test those potential clients at the firm. This means evaluating what the clients are currently doing to achieve their desired goals and objectives. The test allows the accounting firm to discern whether there are better solutions that their clients could be using to achieve their agendas and make sure they are not missing out on anything.
There’s both a formal and informal way to go about this. Informal stress-testing tends to get much faster results in winning wealth management business (and more accounting business). A more formal process can initially be more profitable when fees are charged for the service. However, the client must make the decision to engage, which often takes time and does not always happen. But in many cases, such tests will uncover ways the accounting firm can add value quickly.
As part of the stress-testing, professionals need to develop a deeper understanding of clients than many wealth managers and accountants are used to. This understanding, coupled with the greater value provided to clients, can easily translate into more high-quality client referrals.
Supercharging An Accounting Firm Wealth Management Practice
How lucrative is wealth management for accounting firms? Well, when we take out the attestation and strict tax compliance work, we have found it’s reasonable to generate between $1 million and $3 million annually in new wealth management revenues for every $10 million in annual accounting revenues.
Depending on the circumstances, CPA firms charge accounting services fees in addition to wealth management fees to facilitate certain wealth management strategies.
Most wealth management revenues are recurring (and potentially growing) because clients regularly contribute additional monies. And if the investment performance is good, those revenues go up.