Although the role of certified public accountants (CPAs) has been gradually evolving for two decades, a recent report by California-based Tiburon Strategic Advisors highlights how CPAs are making a major push into financial planning, as they quickly redefine themselves to meet market demand. By 2006, almost 40% of CPA firms plan to offer financial planning, up from 14% in 2002, the study says.
Tax professionals cite two key reasons for incorporating financial planning into their existing business: an increase in income and personal satisfaction. And CPAs have the added advantage of a solid reputation as trusted advisors with their existing clients.
Bottom line, CPAs are looking at their existing clients' needs and are filling a void, says Chip Roame, senior vice president of Tiburon. Just the sheer number of CPAs should make financial planners pay attention. This is a huge change in the industry, one that provides cross-selling opportunities for everybody.
Today there are 450,000 CPAs. Almost 90,000 (20%) of them offer financial planning; 13,900 are registered investment advisers (RIAs), while 9,000 have Series 6 and 7 licenses.
According to Roame, recent gains in the stock market and changes in American Institute of Certified Public Accountants' rules have resulted in CPAs becoming more aggressive and proactive about expanding their existing service base. In addition to financial planning, CPAs are also adding legal services, management and technology consulting, and business financial services.
Accountants use several models to provide financial services to their clients: offering hourly planning, establishing informal non-revenue-sharing referral relationships, setting up formal revenue-sharing referral relationships, creating their own RIAs, and affiliating with independent broker-dealers (IBDs). More than 80% of accountants go the IBD route; it's the simplest way for a CPA to enter the field, and it provides back-office support, Roame says.
According to the study, size determines how firms enter the planning market. The biggest firms are building RIA models, while the medium-sized firms are focusing on consolidation or joint ventures to start planning departments. Small firms are affiliating with IBDs. More than 75% of CPAs want to form strategic alliances with investment experts and vendors, the study says. Almost 60% of those offering financial planning are CFPs; 31% have the PFS designation, while 6% are CFAs.
The Tiburon Strategic Advisors Report, published in late 2004, provides insight into how CPAs and enrolled agents are entering the financial planning and investment management business. It was compiled using proprietary findings from Tiburon's benchmarking tools and summarizing recent industry media coverage.
You may order the entire Report online.