President and Founder Mitlin Financial, Inc.
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outsource wealth management

What are the Best Options for Outsourcing Wealth Management Services?


After you decide to add wealth management services to your practice, you need to choose the best way to do it. Lawrence Sprung of Mitlin Financial goes over the three best methods to choose from, depending on your needs, in his latest article.

Apr 28th 2020
President and Founder Mitlin Financial, Inc.
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After you decide to add wealth management services to your practice, you need to choose the best way to do it. In our last article, Building Wealth Management Service into Your Practice the Right Way, we discussed ways to add these services and keep it all in house. Here, we are going to discuss ways that will allow you to add the services but outsource the work.

Wealth management and tax planning go together like any great duo and are, in some ways, attached at the hip. Many investment decisions cannot be made without taking into consideration the potential tax consequences associated. This presents an opportunity for a tax practice to make sure that their clients are not only getting top-notch tax advice, but wealth management advice, too.

Tax professionals see the benefit of their clients receiving coordinated advice, but, many times, they do not want to provide those services. It always seems like tax advisors are on some deadline for their clients. Over the course of a year, they have to be prepared to take care of year-end tax returns and payroll and sales taxes and adhere to other deadlines, too. Many do not have the time or bandwidth to also provide financial planning and investment management advice while staying on top of what is taking place in the markets. In some respects, tax professionals feel there may be a conflict of interest; they might also be concerned they lack the expertise to provide advice in the area of wealth management, or they may not want to jeopardize a client relationship simply because the markets turned in the wrong direction.

These are all great reasons for the tax professional to seek ways to outsource wealth management services for their clients.  The right solution can provide them with a way to continue providing tax advice to their client while having a trusted advisor provide the wealth management services and keeping the tax professional apprised of all progress. There could be opportunities to share in the revenue, too.

The best practices for outsourcing depend largely on if you, the tax professional, want to be compensated financially for these services or if you would simply prefer to make a handoff and build goodwill with the financial advisory team you refer to. 

Keeping these in mind, let’s look at the three potential ways outsourcing could work for your practice. Two options will incorporate a shared compensation model, and the other will simply provide an overview that would not provide direct compensation:

Method 1: The tax professional looking to outsource wealth management services for their client and receive compensation may look to be directly involved in the advice given to the client.  Most cases under this scenario would require the tax professional to get appropriately licensed to provide the additional services.  This may require a significant commitment to studying, passing and taking continuing education courses to maintain the licenses needed. There is a higher barrier to entry with this method, but it will allow the tax professional to have some decision-making ability with regard to the client’s investments and management of their assets. It will also allow them to share in the revenues generated by the wealth management firm and the financial advisor working with the mutual client. There is no need for the tax professional to build or implement any specific infrastructure to their existing business to utilize this method. They are simply leveraging the wealth management firm and their ability to provide advice and guidance to their client while still maintaining an active role.

Method 2: Those CPAs who do not want to concern themselves with getting licensed and maintaining continuing education may look at becoming a solicitor for a Registered Investment Advisory firm. For this to be a viable option, the tax advisor needs to feel comfortable not giving investment advice. They can have a seat at the table and be involved with discussions between the client and the wealth management firm, but they cannot provide direct investment advice themselves. This option would allow the CPA to outsource the advice, earn a portion of the compensation received by the advisor and have an active role with their client. However, they do  not have to be concerned with any of the steps needed to handle these services internally. Sure, there is a bit less involvement there, but if you align yourself with the right advisory firm, you will still be involved in the process and the client will get the enhanced attention to detail you were looking to provide.

Method 3: The last method would be a simple handoff. This is ideal for those tax professionals who do not want to be involved at all, even if it means giving up financial benefits. Many tax advisors feel there may be a conflict of interest if they are compensated, and they do not want to jeopardize a client relationship because of potential market gyrations. At the same time, though, they do want to make sure that their client is working with a competent professional who is willing to keep them involved in the relationship and the conversation. Finding the right advisor is important here. This also provides the tax professional with an opportunity to receive referrals back from the advisor. Once the advisor has an understanding of the CPA’s ideal client, this could open the door to reciprocal referrals. This method has the lowest barrier to entry for the tax professional and the least involvement, but, by partnering with the right advisory firm, it could produce the best results.

In each of these scenarios, you must find a wealth management firm and advisor with the expertise and experience working with clients like yours. It is highly recommended that you look to work with advisors who hold the CFP® designation, have a minimum of 15 years’ experience, and have the ability to work with and solve the problems of your clients. The 15 years of experience is simply to make sure that the advisor has experienced a recession or market downturn in their career. The chances of the markets experiencing that type of event over a long-term relationship are fairly high, and it is important to align yourself with someone who has that experience and knows how to handle it.

Outsourcing wealth management services can add an additional revenue stream to your practice or, at a minimum, provide your client with a stronger respect and connection to you and your firm. Keep in mind: There may be licensing requirements in your given state that should be reviewed before moving forward with any of the methods discussed. This is an excellent way to add value to your practice over time and help you attract the clients you want to work with on a daily basis. 

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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