Accounting firms are establishing wealth management practices to serve their clients better and have more revenues. While analyses of the clientele commonly signal that a wealth management practice will be highly successful, reality shows that it is often different. The complication is turning possible wealth management clients into actual wealth management clients.
In a survey of 328 senior partners at accounting firms with 10 or fewer partners with wealth management practices, 55.2% reported these practices were unsuccessful. Meanwhile, 31.1% of the senior partners reported that their wealth management practices were moderately successful, and only 13.7% said their wealth management was very successful.
Among the senior partners who say their efforts are unsuccessful, 86.7% question whether they have a suitable business model to deliver wealth management services and products. The three principal wealth management delivery models are:
- Internal, where the wealth management expertise is housed entirely within the accounting firm, usually as a subsidiary.
- External, where the wealth management expertise is provided by an outside firm with whom the accounting firm has a strategic relationship.
- A combination of in-house wealth management professionals and external experts.
While the different delivery business models have advantages and disadvantages, the research shows they are not why some accounting firms’ wealth management practices are very successful and others less so. With the delivery business model not a factor in the success of an accounting firm’s wealth management practice, what is driving success?
The biggest obstacle to success is the reluctance to discuss wealth management and their firm’s wealth management practice with their clients. At the same time, somewhat more than a sixth of very successful accountants see this as a problem. Nearly three-quarters of moderately successful and nine out of ten unsuccessful see this as a problem.
According to Paul Saganey, founder and president of Integrated Partners and co-author of Optimizing the Financial Lives of Clients: Harness the Power of an Accounting Firm’s Elite Wealth Management Practice, “There are different ways to empower accountants that result in them comfortably referring their clients to wealth managers, with some approaches being more effective than others. What works least well is where the accountants know they have a wealth management practice at the firm, and that is about it. In all situations, waiting for accountants to connect the dots between their clients and what their wealth management practice can provide rarely works well.”
Even when accountants share in the wealth management revenues, wealth managers must facilitate the referrals for success. Without question, it is the responsibility of the wealth managers, not the accountants, to generate the referrals.
The most common approach wealth managers use to generate referrals is technical education. Wealth managers commonly explain their various financial strategies and products in group and one-to-one settings. Often, continuing education credit accompanies such education programs. The logic is that as accountants have a better understanding of wealth management solutions, they can discuss them with their clients. All the research shows that this approach does indeed work, but not particularly well in getting new wealth management clients.
Instead of educating accountants on the technical aspects of wealth management strategies and products, a more productive approach focuses on fact patterns and outcomes. For example, an ultra-wealthy family has significant investable assets that are unlikely but might be needed. They are concerned about estate taxes and the taxes they have been paying on their portfolio. Some accountants will likely have a few clients that fit this fact pattern. Then, the accountants can make the introduction with some direction from the wealth manager. Incidentally, the solution is a rainy-day fund where all the investment portfolio gains are never taxed.
“Talking clients” is the most potent way for wealth managers to connect the dots,” says Andree Mohr, chief implementation officer for Integrated Partners, a leading financial advisory firm where she oversees the growth initiatives, including the CPA Alliance program. “This approach is best for wealth managers to create a steady stream of high-quality accounting firm clients for wealth management strategies and products.”
Although many accounting firms can create tremendous wealth management practices, only a handful are doing so. It is not that they do not have many clients who can benefit from their wealth management practices. While many accountants think their delivery business model is the reason for their lack of success, this is inaccurate. The reason for a lack of success is that the wealth managers are not connecting the dots for the accountants.
Russ Alan Prince is the executive director of Private Wealth and a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.
