President and Founder Mitlin Financial, Inc.
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3 Ways to Include Wealth Management Services in Your Practice

Feb 15th 2019
Expanding to include financial advising services
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Tax advisors and wealth management professionals have much in common.  Each of us is trying to work with our clients and assist them in reaching their goals. Over the years, I have found clients who have their wealth management and tax advisors in touch with one another tend to be on a better path to reaching their financial goals than those who do not.

An accounting professional will typically act as a sounding board for the client and their financial situation. Many times, a CPA will look to incorporate financial planning or investment management into their practice to insulate their clients from the outside forces of a wealth management firm. 

Here’s where they run into trouble, though: How should they structure their firm to handle the delivery of services that go along with a wealth management practice and do so in a profitable way?  There are several models that can be followed, each with advantages and disadvantages.

Here are three options:

1)    The firm can build their own internal wealth management practice to be there as a resource for their current clients and used as a tool to attract new ones. The wealth management arm could potentially introduce a new client to the tax side of the practice, even if they did not originally opt for these services. This method is usually easiest for large firms that have the capital to allocate to starting, building and maintaining this new business line. Although it involves planning, money and advising clients, similar to a tax or audit practice, it is a different business line and needs to be treated as such. You also risk losing a tax client if their investment portfolio goes the wrong way, even if their decision simply has to do with an outcome of the current markets. 

2)    Many larger brokerage firms will offer a revenue sharing agreement with a CPA. They require the latter to get licensed. Then, they can refer clients to the firm and share in the revenues generated. This allows the CPA to simply concentrate on their tax and accounting practice while outsourcing the wealth management component and still being compensated. This method allows you to get started with no capital outlay, other than the materials needed to study for the exam and maybe a class, and receive compensation for the business generated by your clients. The major hurdle to this relationship is the time needed to study for and pass the necessary exams, but it’s a viable option for those who are willing to accept their schedule might be tight for a little while.

3)    One of the easiest ways a CPA can add wealth management services to their practice is by becoming a solicitor for a Registered Investment Advisory (RIA) firm.  This type of arrangement does not require any tests, so there’s no studying, and it allows the CPA to be compensated for their referrals. They would not be able to give any advice and guidance on behalf of the RIA, but they could be involved in discussions between the client and wealth management advisor.  The client will need to sign off on a disclosure making them aware the accounting professional is being compensated for the referral, but transparency is a best practice we should all be striving for anyway. Using this method, the CPA doesn’t have to invest any money up front to add this aspect of advice to their practice. They will want to make sure they have a complete understanding as to how the firm practices and services their clients. It also creates a separation of the tax planning and providing investment advice and guidance.

While I’m aware some tax advisors do not want to have anything to do with wealth management advice and guidance and do not see the need to get paid for their referrals, I think those not exploring one of the previously mentioned opportunities are missing the boat in several regards.  Many of your clients are looking for wealth management advice and guidance, whether you offer it or not. Wouldn’t it make the most sense, be in the best interest of the client and put the client in a better position to succeed if you and their wealth management advisor were on the same page?  I think so.

CPA firms should be seriously considering how they are going to incorporate wealth management advice into their practices. It allows them to create a new revenue stream and keep the client closer to the firm. It’s a win-win for everybody. 

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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