Four Reasons CPA Firms Should Consider Putting Wealthcare in the Mix

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By Tony Batman, chairman and chief executive officer, 1st Global

Leaders of market-dominating CPA firms report that the Golden Age for the CPA profession, the period of high growth from 2002 through 2007, will not be repeated. Additional revenue sources must be sought for CPA firms to achieve profitable growth. I have long believed that CPA firms are well positioned to be the dominant providers of comprehensive wealth management services in America because defeated Wall Street strategies and deflated insurance brands have made CPAs the only remaining advisor your best clients trust.

Now, research from IBISWorld, one of the largest publishers of U.S. industry analyses, shows there's another reason to embrace wealthcare: substantial revenue and profit growth over the next four years. To illustrate, let's compare the potential growth prospects for wealthcare services against the aggregate growth of traditional services offered by CPA firms.

"Wealthcare" encompasses both financial planning and wealth management services. Financial planning clients are generally those with no significant estates, while wealth management clients require an exceptional level of care because of multigenerational asset control matters, estate issues, complex taxation or closely held business problems. In other words, financial planning clients are in the process of building an estate and wealth management clients have estates large enough to transcend their own lifetimes. 

According to IBISWorld classifications",accounting services" represent CPA firm revenues from general accounting, tax consulting, corporate taxes and auditing services. "Payroll and bookkeeping services" include those services generally provided by non-CPA firms, though when done by CPA firms they are included under accounting services. The final IBISWorld classification, tax preparation services, represents most non-CPA providers of products like TurboTax and standard tax preparation services provided by H&R Block, Jackson Hewitt and independent non-CPA tax preparation firms. I'll refer to the combined tax, accounting, auditing and other services as TAAO. 

IBISWorld analyzed the CPA and non-CPA providers of the broad range of professional services and reports that TAAO services represented an estimated $119.5 billion in total revenues for 2011 ‒ $66.2 billion for accounting services, $8.7 billion for tax preparation services, and $46.2 billion for payroll and bookkeeping services. That's down 2 percent from $121.4 billion in revenues generated from TAAO services in 2006.

On an inflation-adjusted basis, revenues from accounting services were flat from 2006 through 2011 ‒ generating $64.6 billion in 2006 and $64.4 billion in 2011, respectively. This poor performance from an area in which the majority of CPA firm revenues are generated is due to very steep declines in economic activity. 

Looking forward, IBISWorld forecasts real growth in TAAO services for CPA and non-CPA service providers will average about 3 percent a year through 2016. This is an improvement over the recent past, but a far cry from the dramatic growth the profession experienced early in the last decade. Such historically low growth rate projections are common in mature industries, which are characterized by fierce price competition, slow aggregate growth and high concentration among a few participants. 

In contrast to the slowing TAAO industry, the U.S. Bureau of Economic Analysis reports the aggregate financial services industry generated a staggering $822 billion in revenues in 2011, representing about 5 percent of the U.S. economy. The vast financial services industry includes subsectors such as property and casualty insurance, health insurance, commercial banking, institutional portfolio management, custody and clearing services, investment banking and other services in which most CPAs would never compete. 

Using IBISWorld's industry segmentation and analysis, wealthcare revenues include all retail segments of the financial services industry, including personal life insurance sales, retail securities brokerage, personal financial planning, investment advice and other personal and small business financial services. Retail segments are those that serve the needs of American families and businesses and exclude institutional class services like pension plan portfolio management and investment banking.

With just under $205 billion in revenues for 2011, wealthcare represents nearly one quarter of total financial services revenues, according to IBISWorld data. This is 71 percent greater than those revenues generated from TAAO services. 

As with TAAO services, wealthcare industry revenues have decreased more than 5 percent since 2006. The market collapse and recession led to declining investment portfolio valuations and reduced family incomes. However, wealthcare industry revenues are estimated to grow more than 17 percent on an inflation-adjusted basis to $240.9 billion by 2016, based on IBISWorld data.

Though both wealthcare and TAAO industries are rising from economic slumps with slower growth rates than those in the Golden Age, there are four reasons why wealthcare services should be considered by CPA firms for higher growth than general industry forecasts:

  • Wealthcare services generally carry higher margins and greater profitability than traditional TAAO services. This leads to enterprise value multiples that are often two to three times higher than those of TAAO services.
  • Lagging distrust of major financial institutions following the financial collapse has caused many affluent families to seek alternative sources of financial advice and planning services. The CPA profession and its independent financial advisors are winning this battle of perceived competence and trust at the expense of the traditional wealth management providers.
  • CPAs are poised to be America's retirement and wealth de-accumulation experts. The risks and complexity found as clients approach the retirement "red zone" (the five years before and five years after the actual retirement date) grow beyond the capabilities of their stockbroker, community banker and life insurance agent. These people tend to consolidate their advice needs to a single financial advisor who can help them through retirement and estate matters.
  • Many affluent families, especially those with closely held family businesses, are significantly concerned about the future tax drag on wealth accumulation, wealth distribution and wealth transfer. Only the CPA profession can competently integrate wealth and tax strategies. Traditional competitors have abdicated giving tax advice to clients, which plays directly into the strength of CPAs.

Strategic planning compels business leaders to identify and pursue profitable growth opportunities, and I believe adding wealthcare services can take many CPA firms from success to significance. For wealthcare CPA firms, the future appears very bright.

1st Global Capital Corp. is a member of FINRA and SIPC and is headquartered at 8150 N. Central Expressway, Suite 500 in Dallas, Texas 75206; (214) 265-1201. Additional information about 1st Global is available via the Internet at

1st Global was founded by CPAs on the belief that accounting, tax and estate planning firms are uniquely qualified to provide comprehensive wealth management services to their clients. Each affiliated firm is provided with education, technology, business-building framework and client solutions that make these firms leaders in their professions through dedicated professional client relationships built around wealth management.

About Terri Eyden


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