learning from experience: benefits trump concerns …...“starting up a financial services practice...
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LEARNING FROM EXPERIENCE:
Benefits Trump Concerns When Tax Professionals Offer Financial ServicesSurvey shows tax professionals offering financial services have gained notable benefits that outweigh any potential concerns.
When it comes to tax and financial guidance, clients look to accountants and tax professionals like you for a full solution. Yet many tax professionals still do not offer financial services such as retirement and estate planning. They are missing out on the opportunity to boost client satisfaction and revenue/growth and bolster their firm’s value.
In a recent survey conducted by the research unit of SourceMedia, publisher of Accounting Today, in partnership with financial services firm HD Vest, accountants and tax professionals who have added a financial services offering to their business said that they not only increased profitability, but that a large majority of their tax service clients were also financial services clients. By offering these extended services, they’ve improved customer loyalty and satisfaction and increased the value of their business.
“Every wealth management decision is a tax decision,” says HD Vest Wealth Management Strategist Chad Smith. “Helping clients save for their kids’ college, plan for retirement and set up their estate all involves taxes.”
So why aren’t more accountants and tax professionals broadening their services to offerings beyond tax preparation? In this paper, we’ll look at the concerns accountants and tax professionals have about offering financial services, which include the belief that it’s a conflict of interest, needing an assurance of profitability, and attaining the necessary skills and expertise. We’ll weigh these worries against the actual benefits many tax professionals who have implemented these offerings are experiencing.
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A CONFLICT OF INTERESTFor tax professionals not offering financial services, managing a perceived conflict of interest is a major concern, which rates within the top 10 concerns.
As one survey respondent replied when asked what could convince him/her to take on financial services, he/she said, “Nothing. I think it is incompatible with public accounting. The client starts to worry if I am working for him/her or me.”
Smith acknowledges that there are indeed instances where a financial services offering would be a conflict of interest. “For clients where the CPA is providing audit and/or attestation work, a CPA should not be doing financial services work,” he says. “However, I find that only a small percentage of CPA firms consist entirely of audit or attestation work. This leaves clients where the CPA is providing outsource CFO or tax work available for financial services work.” He adds that HD Vest trains its Advisors on key documents such as IRS Section 7216 and 6713 to ensure clean and transparent disclosures when working with tax clients.
For accountants and tax professionals who’ve actually taken the plunge into offering financial services, managing conflict of interest turns out to be one of the lesser challenges when it comes to starting or continuing these service add-ons.
The bottom line: Unless you fall into the small percentage of firms that do only audit and attestation work, a perceived conflict of interest is just that—perceived.
ASSURANCE OF PROFITABILITYSurvey respondents were not shy about voicing their need for profitability if they were to offer financial services. Not surprisingly, profitability ranked in the top three among potential benefits of offering financial services. One respondent voiced: “[I need] demonstration of high profitability with minimal resources.” Another remarked that financial services would have to be a “substantial revenue opportunity.”
The good news is that accountants and tax professionals already offering financial services point to a profitable future for those who decide to pursue this opportunity:
• 16% said that 50% to 100% of their individual tax clients were also clients of the firm’s planning/wealth management services• 55% of firm’s individual financial planning/wealth management clients have investable assets of $500,000 or more• 25% report gross profit margins of 31%-100% for financial planning/wealth management services
Source: SourceMedia Research, August 2014
Q: In thinking about preparing for or starting your firm’s financial services/wealth management practice, how challenging were each of the following?
Managing conflict of interest Managing conflict of interest
Q: How challenging are each of the following in the ongoing operation of your firm’s financial services/wealth management practice?
Very challenging Somewhat challenging Not very challenging Not at all challenging
37%
15%
29%
19%
37%
18%
33%
12%
46%
1%
35%
18%
IncreasedDecreasedRemained the sameDon’t know
17%
35%
28%
11%
9%
6% to 10%
11% to 20%
21% or more
1% to 5%
Don’t know
Very challenging Somewhat challenging Not very challenging Not at all challenging
37%
15%
29%
19%
37%
18%
33%
12%
46%
1%
35%
18%
IncreasedDecreasedRemained the sameDon’t know
17%
35%
28%
11%
9%
6% to 10%
11% to 20%
21% or more
1% to 5%
Don’t know
Very challenging Somewhat challenging Not very challenging Not at all challenging
37%
15%
29%
19%
37%
18%
33%
12%
46%
1%
35%
18%
IncreasedDecreasedRemained the sameDon’t know
17%
35%
28%
11%
9%
6% to 10%
11% to 20%
21% or more
1% to 5%
Don’t know
Base = 100 (Tax professionals with a financial services offering, excludes “don’t know” responses)
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Indeed, one respondent commented, “Bookkeeping services aren’t profitable. Tax preparation has never been profitable. Wealth management is always profitable.”
Smith says that many accountants and tax professionals associate profitability with start-up costs and are terrified that traditional methods of adding on financial services would impact their bottom line. “Starting up a financial services practice on your own can cost $50,000 to $75,000 and many tax professionals don’t know if they’ll make that back,” he says.
With HD Vest as a financial services partner, those costs shrink to $800 to $1,300 to get licensed and get going on their platform. “Spending that little to potentially achieving six to seven figures in recurring revenue makes adding financial services far more palatable,” Smith says.
TOO MUCH TIME AND EXPERTISE REQUIREDMany accountants and tax professionals, who are already stretched thin, believe financial services would require too much time and additional skills. Survey respondents commented that they don’t have the resources to fund “proper study and credentialing” for them-selves and staff, and to keep up to date on applicable rules and regulations. As one respondent said, “I have enough reading just to keep up with taxes and accounting.”
While those actually offering financial services did acknowledge challenges with time management and gaining additional expertise, these weren’t barriers to successfully adding financial services to their firm’s lineup. Instead, respondents offered helpful advice about how to manage these concerns, examples of which include:
• Get with a broker/dealer that understands the CPA firm model. This will save many headaches in the setup process.• You cannot do financial planning part time—it is a commitment to a way of doing business that is in the best interest of the client.• Don’t overreach to offer services beyond the skills in-house. Have conversations with clients likely to need assistance long before
the time for that need comes (i.e. sale of business, inheritance, etc.).
Source: SourceMedia Research, August 2014
Q: In the last 12 months, how has your firm’s total gross revenue from financial planning/wealth management services changed, if at all?
Q: How much has your firm’s financial planning/wealth management services revenue increased in the past 12 months?
Base = 100 (Tax professionals with a financial services offering) Base = 46 (Tax professionals with a financial services offering, FP revenue increased in past 12 months)
Very challenging Somewhat challenging Not very challenging Not at all challenging
37%
15%
29%
19%
37%
18%
33%
12%
46%
1%
35%
18%
IncreasedDecreasedRemained the sameDon’t know
17%
35%
28%
11%
9%
6% to 10%
11% to 20%
21% or more
1% to 5%
Don’t know
Very challenging Somewhat challenging Not very challenging Not at all challenging
37%
15%
29%
19%
37%
18%
33%
12%
46%
1%
35%
18%
IncreasedDecreasedRemained the sameDon’t know
17%
35%
28%
11%
9%
6% to 10%
11% to 20%
21% or more
1% to 5%
Don’t know
By diversifying with a financial services add-on, the following chart reflects that revenues have been on the rise for many firms as well.
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One way that firms can alleviate some of these potential stressors is to partner with experts as they add on a financial services offering. “Not a single person knows everything about taxes, so there is no need for a single person to know everything about financial services. HD Vest helps target learning and puts a team behind accountants and tax professionals to help automate paperwork and find answers fast,” Smith says. “We make your practice far more streamlined, automated and accurate, which results in increased saving of time and expertise.”
In addition, through its Strategic Partnerships Program, HD Vest provides an innovative referral model that partners tax professionals, who may not be comfortable offering financial services, with financial Advisors who want to expand their services in a mutually beneficial relationship. This program allows you to:
• Better serve your clients• Increase profitability and grow your practice, or• Position your practice to be transferred to your successor.
As HD Vest Advisor Gary Johnson puts it, “The Strategic Partnerships Program has allowed me to provide better service to my clients and capture assets that I probably would not have captured.” Smith agrees, adding, “In the end, people are looking for competent, ethical and professional advice. And no one is more competent than a tax professional.”
By setting aside the misperceptions of adding financial services alongside their practice, accountants and tax professionals can truly enrich the lives of their clients now and during their retirement years. In addition, they can help clients experience the peace of mind that comes when their financial affairs are in order.
METHODOLOGYIn August 2014, SourceMedia Research conducted an online study to learn more about financial services offerings at accounting firms. In total, 321 tax professionals participated in the study. Respondents were drawn from Accounting Today subscribers.
ABOUT HD VESTSince its inception in 1983, HD Vest Financial Services® supports an independent network of tax and non-tax professionals who provide comprehensive financial planning* solutions, including securities, insurance, money management services and banking solutions. Approximately 4,500 independent contractors manage more than $35 billion in assets for some 1.8 million individuals, families and small businesses in all 50 states.
ABOUT SOURCEMEDIA RESEARCHSourceMedia Research provides full custom B2B research solutions for marketers, agencies and other targeting business sectors such as accounting, banking, payments, mortgage, insurance, HR/employee benefits and wealth management. SourceMedia Research is a unit of SourceMedia Inc., whose B2B media brands include Accounting Today, Financial Planning, American Banker, The Bond Buyer and Employee Benefit News.
For more information about HD Vest Financial Services, please visit hdvest.com/taxalpha17 or contact a Business Development Consultant at (800) 742-7950.
*Subject to appropriate licensing, HD Vest offers different types of accounts and levels of service that can have important implications in terms of the legal rights and responsibilities that attach to your relationship with HD Vest. Unless you have separately contracted for investment advisory or financial planning services, any analysis performed is not an investment advisory account or a comprehensive review of all of your financial needs in connection with a financial plan. Not all HD Vest Advisors are licensed to offer all products or services.
HD Vest Financial Services® and its affiliates (collectively, “HD Vest”) do not provide tax or accounting services. You should consult your tax professional regarding the tax implications of any investments. HD Vest Advisors are independent contractors affiliated with HD Vest solely for the purpose of conducting securities-related activities. In addition to the brokerage or investment advisory products or services provided through HD Vest (which you must sign a specific written contract with an HD Vest company to receive), Advisors may separately provide legal, tax, accounting, audit, payroll or other products or services that are not affiliated in any way with HD Vest. HD Vest does not endorse or supervise any activities conducted outside of HD Vest, including tax or accounting services.
HD Vest Financial Services® is the holding company for the group of companies providing financial services under the HD Vest name. Securities offered through HD Vest Investment ServicesSM, Member FINRA/SIPC, Advisory services offered through HD Vest Advisory ServicesSM, 6333 N. State Highway 161, Fourth Floor, Irving, TX 75038, 972-870-6000.