President and Founder Mitlin Financial, Inc.
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Building Wealth Management Services into Your Practice the Right Way

Tax practices are on the lookout for ways to make their businesses more valuable, adding to the services they provide and increasing the overall level of service they provide to their clients. Many times, adding wealth management services can provide these additional benefits to the business.

Mar 16th 2020
President and Founder Mitlin Financial, Inc.
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Now that you have decided to add wealth management services to your practice, it is now time to decide how to do it. Tax practices are on the lookout for ways to make their businesses more valuable, adding to the services they provide and increasing the overall level of service they provide to their clients. Many times, adding wealth management services can provide these additional benefits to the business.

There are many ways that firms can provide these services, and we have found that keeping it all in house is one of the primary methods tax practices like to utilize. Typically, you will find two options that most firms use when it comes to providing wealth management services under the umbrella of your tax practice. These options are creating your investment firm as a subsidiary or sister company of the tax practice and the other way is to bring in an advisor to co-brand your efforts within the framework of your existing practice. You can also set up a separate sister company when aligning with an outside advisor if you are looking to keep the two businesses somewhat separated.

Whether you want to start the practice yourself or align with a veteran wealth advisor, there are certain best practices you should consider for keeping it all in house.

1. Set up a Separate Entity: It would make the most sense, especially if you are going to handle everything in house, to set up a separate sister company or subsidiary of your tax practice to handle the wealth management services you plan to provide. This will allow you to manage the businesses as two separate entities and review the performance of each as such. Having the two entities will also provide you with a clear understanding of the enhanced revenues, expenses and profits being derived from the wealth management arm. You will easily be able to see the financial benefits of adding this component to your practice. 

Setting up a separate entity would be an easy way to separate the two business lines from a business perspective, but stay connected concerning referrals and sharing of client information between the two entities. As an example, if your firm is called “XYZ Accounting” you can easily set up “XYZ Wealth Management.” Clients will easily see that the two entities are related and it provides you with an easy way to refer clients between the two businesses. It would also be wise to have your corporate privacy policies address the fact that information can be shared between the two entities.

Should you decide to align yourself with a veteran advisor and co-brand your services, you may want to set up a separate entity if you are going to be directly involved in the day-to-day business of the wealth management arm or simply receive a referral fee for the business generated by your referrals. The key here is, no matter which way you decide, you want to provide the client with a view that the tax and wealth management services are being provided in a coordinated manner.

In this arrangement, the separate entity would, most likely, be partially owned by the tax practice and by the veteran advisor you are working with.  Again, setting up a separate entity will allow you to track the separate business lines and the enhanced value the wealth management practice is providing you. It will also be key here to have the privacy policy of each entity allow for the sharing of information between the two organizations.

2. Utilize a Qualified Wealth Advisor: It is important to have a qualified person as the face of the wealth management practice. This is the same no matter which method, described above, that you use to add these services in house to your practice. There are some clear indicators of the type of advisor you would want in this role. First, you would want someone with significant experience: 15 years or more directly in an advice-giving role.  It is key that this person has the experience needed to advise the clients and preferably someone that has seen and dealt with a bear and/or down market. A CFP® professional would be a good designation to look for as well. They have gone through rigorous education and testing, in addition to the fact they need to complete 30 hours of continuing education every two years. The CFP® professional will also be in a position to help the client with all areas of their financial plan and rely on you for the tax components. Lastly, you will want to look for someone that is not a broker, but a fiduciary advisor. Most tax clients (people) are not looking to be “sold” financial products, but they are looking to receive financial advice and guidance by someone acting in their best interests.

3. Put the Effort into this New Venture: Anything worth doing takes work; it is not easy and does not have immediate success. You need to put the effort into growing this new facet of your business. It will be important to discuss these new services with your clients and introduce the wealth advisor into the relationship and be sure that they are looking for opportunities to refer back to the tax practice. Your tax clients will appreciate the additional help; you will have a three-hundred-and-sixty-degree view of their financial life and provide them with an expert in the wealth management field. Most people are looking to simplify their life, and having their tax and wealth management professionals on the same page will certainly do that.

You already have the client relationship in place, which means a great deal of the heavy lifting has already been done. It will require you to create a business strategy for your newly founded wealth management arm and investing the time, effort and energy in making the introductions. The success of keeping the wealth management services in house is directly tied to your ability to cross-sell these services to your existing client base while developing new relationships and referrals.

There certainly are some great benefits to adding wealth management services to your practice and keeping it in house. You need to discern what the best way will be for you and your firm. We have touched on a few of the key best practices when adding this to your firm, but this is not an exhaustive list. Make sure you are committed to building this into your practice and then work on making it a part of it. Doing this the right way will add revenue and value to the business and a higher multiple if you look to exit the business down the road.

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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