By Tony Batman, chairman & CEO, 1st Global
A popular ancient proverb proclaims the nature of four types of human beings: "He who knows not and knows not he knows not: he is a fool—shun him. He who knows not and knows he knows not: he is simple—teach him. He who knows and knows not he knows: he is asleep—awaken him. He who knows and knows he knows: he is wise—follow him."
The CPA profession is a cross-section of humanity and contains all four elements described in the proverb. CPAs seeking enlightenment agonizingly reflect on where they fit on this spectrum. Some enlightened academics privately think about less-enlightened ones (i.e., less open to new ideas) as "having a Bayesian prior that approximates "one"."(a) It is likewise true that some CPAs are narrowly visioned and unflappable about their dated world view and their declining and possibly irrelevant role in the lives of American businesses and American families. They cannot believe that they have any more value to offer to their clients than what they have already provided and only must work harder and longer at a continuing cheaper price to have a better life. Their destiny seems regrettably sealed in their compliance-oriented past. They are doing the best they can with what they believe, yet they may be good people with good moral values—that is not the debate. They may be, though, the fools to be shunned.
Of the second sentence, many CPAs are open to new possibilities and just need to be taught a new path by those already on that path. Their Bayesian priors do not get in the way of a better destiny.
The third sentence represents the masses of forward-thinking and concerned CPAs who are simply too overworked or are bound in by politically sedentary organizational cultures to consciously look over the horizon at a more prosperous life they subconsciously know is there, but cannot find the energy or the time to act. They are "unknowingly knowing" and simply need to be awakened. Couple the awakening with the courage to act and you have the formula for true change.
And finally and fortunately, there are those fulfilled CPA businessmen and women who are courageous and wise. They have moved from success to significance. It is they we should follow. These wise CPAs know what an Ivy League business student is taught in "Introduction to Business 101", that the strategic choice of what industry in which to engage their talents is a dominant driver of business and financial success. Furthermore, the two elements of industry choice are (1) the absolute size of the chosen industry, and (2) the growth prospects for that industry. It is easy to be struck by the notion that a growth industry portends more emotional and financial happiness than a mature industry.
The purpose of this article is to inform, even possibly awaken, readers to the comparative growth prospects of the wealthcare industry and the combined accounting and tax preparation services industries. The author defined the term "wealthcare" in a paper titled "CPA Wealthcare—From Success to Significance," dated May 23, 2011, and published in AccountingWEB.com. Wealthcare is an apt concept to capture the essence of the CPA-centric combined financial planning and wealth management firm. Clients are segmented between those families requiring basic "financial planning" with no significant estate issues and those other families requiring comprehensive "wealth management" because of multigenerational matters, complex estate issues, complex taxation, or closely held business problems needing solutions. In other words, financial planning clients are those clients still building an estate. Wealth management clients are those who have built an estate large enough to transcend their personal financial needs beyond their own lifetime. Please refer to the cited article here: http://www.accountingweb.com/content/cpa-wealthcare-success-to-significance.
IBISWorld is the world’s largest publisher of U.S. industry research,(b) and reports that for 2010 the accounting ($66.2 billion) and tax preparation industries ($8.7 billion) together represent $74.9 billion(c) in revenues. Absolute five-year growth for accounting and tax preparation services since 2006 through 2010 ($72.7 billion) has been only 3 percent—calculated as only 0.7 percent compounded annual revenue growth per year!
The five-year growth forecasts from IBISWorld for the years from 2010 through 2014 (with the 2014 figure of $83.1 billion made up of $73.6 billion for accounting services and tax services revenues and $9.5 billion for tax services), is estimated to be 10.9 percent absolute growth in those five years. This calculates as less than 2 percent compounded annual growth per year, and does not demonstrate much improvement over the preceding five years.
Furthermore, accounting and tax preparation services’ estimated growth is forecast to be even less than the estimated growth rate predicted by many economists for the entire U.S. economy! Accordingly, by definition, accounting services and tax preparation services industries are "mature industries." Attributes of mature industries include fierce price competition as the primary value differentiator, high concentration of the industry in fewer participants (Intuit®, H&R Block®, Jackson Hewitt Tax Service®, Deloitte, Ernst & Young, PwC, KPMG, McGladrey and Grant Thornton LLP), consolidation of participants by mergers and acquisitions, and aggregate slow growth—all seeming current trends for tax and accounting.
In contrast to the aggregate accounting and tax preparation industries, the U.S. Bureau of Economic Analysis reports that the aggregate financial services industry is a staggering $822 billion industry, representing about 5 percent of the $15 trillion U.S. economy, and 11 times bigger than accounting and tax preparation. The vast financial services industry includes the sub-industries of financial advice, financial planning, property and casualty insurance, life insurance, health insurance, commercial banking, securities brokerage, institutional portfolio management, custody and clearing services, investment banking, and other institutional class services in most of which accountants and tax preparers would never compete.
Using IBISWorld industry segmentation and analysis, the author has created the "wealthcare" industry universe by identifying the "retail" segments of financial services serving the needs of American families and businesses (i.e., excludes the institutional class services like pension plan portfolio management and investment banking), and including estimates of personal life insurance sales, retail securities brokerage, personal financial planning, investment advice, and other personal and small business financial services.
For 2010, aggregate wealthcare revenues are estimated to have been $123.5 billion, which is 65 percent greater than the 2010 aggregate accounting services and tax preparation services industries. For the five years commencing 2006, wealthcare industry revenues decreased 5.3 percent from $130.3 billion in 2006 to $123.5 billion in 2010. The aggregate revenue decline was caused by declining investment portfolio valuations and reduced family incomes attributed to the market collapse and recession in 2008 and 2009. However, based in the IBISWorld data, wealthcare industry revenues are estimated to grow to $159.5 billion by 2014, an absolute increase of 29 percent over the next five years and far greater than the IBISWorld forecast growth of 2 percent for accounting and tax preparation!
This author, as discussed in his May 2011 article, has long been struck by the notion that CPA firms are positioned to be the dominant providers of comprehensive wealthcare in America because of defeated Wall Street and insurance industry brands and the ongoing demands by your best clients that you provide wealthcare services to them because they do not trust anybody else. Now, you have another reason—the potential for substantial revenue and profit growth over the next five years. The wise CPA profession leaders—those who know they know—are teaching the motivated and the curious. For wealthcare CPA firms, the future appears very bright.
To learn more about the future of traditional tax services or how top CPAs have integrated wealth management services into their practices, contact 1st Global at (800) 959-8461 or LearnMore@1stGlobal.com.
Footnotes and sources:
For more information about offering wealth management services as a CPA firm and how strategic business partnerships with accomplished financial advisors can impact your growth plans, contact 1st Global at (800) 959-8461 or LearnMore@1stGlobal.com.