For years, many accounting firms have established wealth management practices, and more continue to do so. The aim is, first and foremost, to better serve their clients. Also, the revenues and profits from wealth management are appealing. The complication is that most accounting firm wealth management practices fail to achieve their potential.

In a survey of 328 senior partners at accounting firms with 10 or fewer partners who had wealth management practices, 55% reported that these practices were unsuccessful because they failed to meet the firm’s expectations (Exhibit 1). Meanwhile, 31% of the senior partners reported that their wealth management practices were moderately successful, and only 14% said their wealth management was very successful. For more on this study, see Why Few Accounting Firm Wealth Management Practices are Successful.

As these are smaller firms, what about mid-sized accounting firm wealth management practices? It turns out they are also underperforming.

Mid-Sized Accounting Firm Wealth Management Practices Success Criteria
Successful mid-sized accounting firms have ten to 20 partners and revenues ranging from $15 million to $50 million. Usually, a few hundred people work at the firm. Because of a deep understanding of wealth management best practices, defining a base level of success is possible. Before achieving potential, few accounting firm wealth management practices can avoid the ramp-up period.

There is usually a ramp-up period where accounting firm partners begin to refer clients to the firm’s wealth management practice. A year or two ramp-up period is common. Along the way, clients are periodically referred. However, by the end of the second year, there will certainly be a steady stream of new high-quality clients from accounting firm partners.

At the same time, within two years, the accounting firm wealth management practice is starting to generate new client opportunities from current wealth manager clients and other professionals, commonly lawyers. For example, a sophisticated retirement plan is very appealing to smaller, successful business owners because of the tax and asset growth benefits. Very likely, there are many solid candidates for this wealth management solution among the business owner clients of the accounting firm. The accounting firm's wealth management practice can easily garner two more prospects for wealth management and other accounting firm expertise for every business owner who implements such a plan.

Another outcome is that the wealth management practice will help produce more revenues for other accounting firm practices during the two-year ramp-up period and escalate afterward. For example, wealth management practice is a robust business feeder for valuation, cost segregation, and tax planning practices.

For mid-sized accounting firm wealth management practices at the two-year mark, two solid metrics of success regularly overlap:

• Adding $100 million or more in assets under management annually. Moreover, this level of additional assets repeats for the next two to three years before growing by 25% to 30% annually. This increase does not include any appreciation in clients’ investment portfolios.

• Delivering, at a minimum, 15% to 20% annual revenue contribution to the accounting firm sans attest revenues. Therefore, if the accounting firm makes $20 million in yearly accounting revenues, the wealth management practice adds, at a minimum, $3 million more. Also, as the wealth management practice is not as labor intensive as accounting and far more profitable, a large percentage of this money tends to go to the partners and the partnership.

It is very possible to improve these numbers significantly. For example, increasing assets under management by substantially more than $100 million in year three is often very doable.

Falling Short
A deep analytic assessment of 109 mid-sized accounting firm wealth management practices found that 10% of them met the best practices success criteria (Exhibit 2), which is adding $100 million or more in assets under management or delivering a 15% to 20% revenue contribution to the accounting firm sans attest revenues in year three onwards. Not surprisingly, all the accounting firm wealth management practices that meet one criterion meet both.

Because of the sample size, the results are directional. Nevertheless, the findings, reinforced by experience, indicate that most mid-sized accounting firm wealth management practices are not reaching their low-end potential. While there are likely many reasons for them falling short, the following are impactful.

Failure #1: Wealth management is not a strategic initiative. The accounting firm must make wealth management a critical endeavor. In some accounting firms, the wealth management practice acts more as an accommodation when clients explicitly request such services. Maximizing value for clients and consequently seriously adding to the accounting firm’s bottom line requires a targeted, proactive approach to business development, the most effective being “talking clients.”

Another aspect is the need to compensate accountants for making referrals to the wealth management practice. While compensation arrangements vary among many accounting firms, there must be a direct connection between making a referral and being remunerated for doing so regularly. Otherwise, referrals are rare, even when clients insist.

Failure #2: The accounting firm lacks high-potential wealth management clients. To achieve the best practices success criteria, business owners and high-net-worth families are usually the preferred clients for wealth management. Because of the complexity of their professional and business lives, their goals and concerns, and the range of wealth management solutions, they are usually exceptional clients.

At the same time, the accounting firm has to provide these cohorts with more than attest or tax filing services. Delivering tax advice—broadly defined—to 50% or more of these clients is critical to the best practices success criteria.

Failure #3: The wealth managers in the accounting firm’s wealth management initiative are not consummate professionals. Most wealth managers are not consummate professionals who can develop a deep understanding of their clients and have the expertise to help them make smart decisions. Many wealth managers are focused on making a sale rather than finding ways to help optimize the lives of the accounting firm’s clients.

This failure is rampant in the wealth management industry and is usually the primary reason for the underperformance of accounting firm wealth management practices. Furthermore, wealth managers' ability to work effectively with clients and accountants is uncommon. For example, the approach to wealth management must align with the approach followed by the accountants.

There is tremendous potential for mid-sized accounting firms with wealth management practices to help their clients further excel and profit accordingly. But less than one in 10 are coming close to their potential. Most significantly underperform.

Accounting firms can make their wealth management practices stars and significant contributors to their success, especially in this changing environment. Because of the nature of wealth management, the benefits of getting it “right” are enormous for all involved, especially the clients.

Jerry D. Prince is the director of Integrated Academy, part of Integrated Partners, a leading financial advisor firm. Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.