Once upon a time, everyone knew their place: Bankers did checking, savings, and made loans; stockbrokers sold stocks and bonds; insurance agents sold insurance. Then the landscape changed.
Stockbrokers became financial advisors and started offering checking and lending. Insurance agents became financial advisors and started offering mutual funds and managed portfolios. Bankers became financial advisors, selling insurance and investments. They diversified their revenue streams, seeking a larger “share of wallet.” Should you get on board?
What Does That Have to Do With Me?
Accountants were late to the party, filing taxes for individuals and businesses. Technology brought us the likes of TurboTax, TaxAct, and other software packages. Mass-market tax-preparation services commoditized large segments of the business.
Established accountants with a large base of individual clients often have the advantage of client loyalty. However, everyone wants a good deal, so some pricing pressure develops. Clients eventually die, although you hope to retain the family’s business through generations.
Unless you can bring in new clients who will pay the price you charge for traditional services, you need to diversify your revenue stream.
Four Strategies for Diversifying Revenue
You can choose to take your business in one of several directions:
1. Financial planning. The more assets the client has, the more potential problems they face. Your high-net-worth client keeps cash liquid (often at a bank), buys securities (held at a brokerage firm), protects their family with insurance, and borrows money, long- and short-term.
Everyone providing these services makes money from the products they sell. They make money promoting “one-stop shopping,” although no one can be the best at everything.
You are a fiduciary offering objective advice. People will pay hourly fees to learn the best way to buy these services.
2. If you can’t beat ’em, join ’em. Some accountants choose to provide one or more of the above services through their firm. Others enter into an arrangement with a product provider that provides referral fees or commissions. It’s legal, but it must be disclosed to the client.
The challenge is the erosion of the fiduciary relationship. If the accountant sends the client to a specific financial advisor or insurance agent, are they getting pricing that’s in the client’s best interests? On the positive side, many accountants may prefer dealing with a known quantity.
3. Specialization. You study, study, and then study some more. You gain more letters after your name. There are 40-plus specialized certifications in the United States. For example, enrolled agents are authorized by the US Treasury Department to represent taxpayers who are being audited.
4. Niche building. Different from just specializing, most professions have characteristics unique to their field. Physicians have different tax issues than jewelers. Teachers are different from real estate developers. Expatriates are another category entirely.
If you build a practice within a specific business segment, you gain a reputation as a specialist in the field. People love their family doctor, but don’t want them attempting brain surgery.
Diversification often means drilling deeper into the segment of the business you most like or expanding into services your client is going to buy anyway.
Bryce Sanders is president of Perceptive Business Solutions Inc. in New Hope, Pennsylvania. He provides high-net-worth client acquisition training for the financial services industry. His book, Captivating the Wealthy Investor, can be found on Amazon.com.