Adding Revenue & Wealth Management Services to Your Firm
Are you considering branching out to provide investment advice to your clients? Lawrence Sprung of Mitlin Financial kicks off a new content series that will address many of your questions and concerns by explaining a few ways you can do this.
Tax and wealth management professionals are both working to make sure their clients are on the best path possible for financial success. These two fields have a good deal of intersection and can complement each other.
In many instances, tax planning may include some form of retirement planning or financial planning. In the same vein, when clients are looking to plan for their retirement and embark on the financial planning process, there are tax considerations that will need to be addressed. The intersection of these disciplines provides the tax advisor with a unique opportunity to add revenue and wealth management services to their firm.
When tax professionals are exploring adding these services in order to generate an additional revenue stream, they are ultimately faced with several options. We are going to focus on two of the most popular methods used by firms. Keep in mind this is by no means an exhaustive list.
First, tax professionals could simply partner with another advisory firm to allow them an avenue to provide these services, collect a revenue stream and stay involved. There would also be no start-up or ongoing expenses with this method.
Another viable option would be to align with a brokerage firm. Keep in mind that depending on what route you take, whether it is one outlined here or an alternative, you should consult with your own legal counsel to determine if you would be required to get licensed or fulfill any other requirements.
One of the easiest ways to add wealth management services to your practice is to become a solicitor for a Registered Investment Advisory (RIA) firm. This arrangement would allow you to make referrals to the RIA and be compensated for a portion of the revenue generated by it.
Because an RIA cannot be compensated by commissions, there are no licensing requirements for individual solicitors. However, this does come with some constraints, and it does not allow the tax professional to provide direct investment advice to the client. The investment advice must solely come from the RIA.
Although the tax professional cannot give investment advice under this arrangement, there is nothing that prohibits them from being involved in any calls and meetings discussing the clients’ goals, objectives or investment recommendations and being fully involved. In fact, we recommend that the CPAs we work with remain involved in the process, and it creates a win-win for everyone.
This arrangement is fully transparent to the client. When they become a client of the RIA, they are provided with a disclosure document, which requires their signature, acknowledging the fact that their tax professional is receiving compensation for their recommendation. As a fiduciary, it is important that the wealth management firm disclose this relationship and any other potential conflicts of interest to the client. This typically enhances the client relationship by showing them both professionals are fully transparent.
The solicitor arrangement is ideal for the tax professional that wants to add these services to their practice by using an outside expert. It provides them with the benefit of being compensated for the wealth management business and allows them to remain involved in the process of planning and investment management. This does not require any licensing because you are not providing advice and guidance; nor does it require registration. It would simply require completing the solicitor agreement with the firm you are creating the relationship with.
By far, this has the lowest barrier to entry, but you must feel comfortable not being the direct provider of investment advice.
One alternative to the solicitor arrangement with an RIA is to become an “Alliance Partner” with one of the brokerage firms and most likely a local advisor at one of those firms. In most cases, you will be required to obtain a Series 6, 7, 63, 65 and/or 66. You will want to be fully committed to this option because it will take you a good deal of time and effort to study for and ultimately pass these exams.
Once the licensing is in place, you will be able to begin to receive compensation from the revenue generated by the clients that you refer. The revenue derived may come from investment advisory fees or commissions. You are able to receive a share of share commission revenues in this model because you have gone through the process of getting licensed. Under the previous arrangement, there are no commissions that an RIA would receive for investment advice, which is why the licensing was not necessary.
The CPA’s involvement in the relationship going forward will be directed by the agreement they sign with the brokerage firm they are working with. Every firm and advisor will have different constraints and allowances. Predominantly, you will find limitations on what advice you can ultimately provide without the advisor's involvement. This, like the prior method described, is to limit the potential liability incurred by the tax professional and protect the advisor and firm from a compliance perspective.
Most firms will require, for compliance reasons, that the client sign off on a document acknowledging that their CPA is being compensated by the investment firm for the referral. This is an important disclosure document that allows the client to be fully aware of the arrangement between the investment firm and their CPA. Again, being fully transparent is paramount.
The “Alliance Partner” arrangement is ideal for those tax professionals that want to be able to receive compensation, whether it is fee or commission-based, from the referrals made to the firm and advisor. This arrangement requires a good deal more commitment from the tax professional, in terms of commitment. You will need to spend the time and effort to get the required licensing in place before you can begin sharing in this revenue. This hurdle should be balanced with what additional involvement the firm and/or advisor you work with will allow you to do differently because you have gone through this licensing requirement.
Exploring the opportunity to add a wealth management revenue stream is an important one and should not be taken lightly. In addition to adding the revenue stream, I think this approach allows the tax professional and the wealth management advisor to deliver the most comprehensive experience to the client. This shows them that you are both on the same page and are being compensated together to make certain that everyone is on the same page helping them towards their goals.
I would highly recommend exploring all options and discerning which one makes the most sense for you. Each has its pros and cons, but I think it can add tremendous value to you, your firm and your client relationships.
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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Lawrence Sprung CFP® is the President and Founder of Mitlin Financial, Inc. He entered the financial industry in 1996 and continues to be inspired and energized by the challenge of helping his clients achieve and even surpass their financial goals.
Mitlin Financial, Inc. is an SEC Registered Investment Advisor (RIA) that prides itself on...