These days, many accounting services are considered commodities; there are more competitors vying for the same business with no discernible difference between offerings and there's pressure to reduce fees in order to attract new revenue. Accounting clients are also becoming more discerning, meaning they take more time to service, resulting in lower profits.
At the same time, one of the most profitable practice areas within accounting firms is the "family office." A well-managed family office practice is-on a per partner basis-extremely profitable. Family office practices can also help strengthen relationships with clients, deliver high-value services and cross-sell other capabilities of the accounting firm.
While this practice area has proven invaluable for a number of leading accounting firms, it is very clear that family offices must be developed and operated in a way that complement the culture, expertise and business protocols of the existing organization. Generally speaking, accounting firms adopt one of two business models when delivering family office expertise: product-neutral or product-inclusive.
A product-neutral business model is built around the delivery of services in exchange for a retainer, project or hourly fee. Very often all three compensation arrangements are used, depending on the circumstances.
The typical services offered directly via a product-neutral model are administrative, wealth planning or lifestyle in nature and might include things like accounting and tax work, estate and succession planning, and special projects. Furthermore, family offices using this model will coordinate a variety of outside specialists to provide various other deliverables to their high-net-worth clients, such as concierge medical care, family security services and financial products.
A product-inclusive business model is similar to the product-neutral framework, with the addition of financial products such as investment management and life insurance. The products can be provided by an affiliated organization or a third party, but the accounting firm shares in the revenue.
One family office business model is not inherently superior to the other. A number of factors need go into deciding which family office model to adopt. The nature of the accounting firm's clientele is one consideration, as is the way the accounting firm tends to source new clients. Also, the capabilities of the accounting firm need to be taken into account.
When selecting a business model for a family office practice, an accounting firm should be aware of some critical differences. For example, the typical all-in operating margins for a product-neutral model range from 40 percent to 65 percent, while a product-inclusive model is often somewhat higher, ranging between 50 percent and 75 percent.
There are also advantages and disadvantages to both models that extend well beyond profitability. The best business model is one that suits the professionals involved, the operational environment and the type and nature of the firm's wealthy clientele.
Russ Alan Prince, president of R.A. Prince & Associates, is a consultant to family offices, the ultra-wealthy and select professionals.
