Accounting firms are under pressure. Most of their offerings are highly commoditized and many of them looking for new sources of revenue.
The result is that the number of family offices affiliated with accounting firms is multiplying. More telling is that the pace at which new family office practices are being created by both domestic and international accounting firms has increased over the last few years, and the growth shows no signs of abating.
When an accounting firm creates a dedicated business line to address the needs of very wealthy clients, there is substantial evidence that it can increase the firm’s overall profitability, support cross-sell and expansion opportunities and act as a competitive differentiator.
These are some of the benefits associated with an embedded family office practice:
• The ability for accounting firms to differentiate themselves: While certain services such as bill paying and financial reporting are also commodities, blending them as part of a holistic offering can allow the firm to charge higher fees, attract wealthy new clients and set itself apart from its accounting competitors. The ability to integrate wealth planning, for example, proves very powerful in enabling an accounting firm’s family office practice to stand out.
• Family office services are usually more profitable than accounting services: Assuming a well-run operation, the ability to charge higher fees can result in margins that outdistance those of most accounting services. Fifty percent margins or better are common for family office practices. Moreover, not included are providing other expertise from other practice areas.
• Well-managed relationships produce exceptional realization rates: Higher fees are one thing, but collecting those fees on a consistent basis is another. The personal, symbiotic and inclusive nature of the family office business means that unpaid invoices are infrequently a major problem.
• Family office accounting practices are often—at least in part—retainer operations: The most successful accounting firm family office practices tend to structure their engagements as retainers. This translates into steady, ongoing and possibly increasing revenues. Aside from retainers, there are regularly hourly and project fees.
• There are always significant cross-sell opportunities within the accounting firm: The wealth and complexity of family office clients can generate enormous possibilities for other practice areas within an accounting firm. For example, most ultra-high-net-worth individuals have substantial business interests that can benefit from a broad range of corporate advisory and consulting services.
• The pool of potential clients is expanding every year: The number of wealthy families is growing at an incredible rate. Moreover, the amount of wealth they control is expanding even faster. This dynamic, in concert with the benefits outlined above, mean there are tremendous growth possibilities for accounting firms that commit to a family office practice.
A family office practice can be one of the most lucrative business lines at any accounting firm. The keys to success are selecting a business model that suits the firm, assembling and delivering the right mix of expertise, including outsourcing to specialists, and knowing how to source high-quality clients. Accounting firms that can address these three components have all the ingredients for extremely attractive growth.
Russ Alan Prince, president of R.A. Prince & Associates, is a consultant to family offices, the ultra-wealthy and select professionals.
