CPAs building financial services practices: firms of all sizes are successfully balancing client interests and pressure for new revenue.

As record numbers of Americans approach retirement age amid uncertainty about their social security and pension benefits, CPAs increasingly are offering financial planning services to their clients to cement relationships and uncover new revenue streams.

While some in the profession fear being labeled "product pushers" or "salesmen," more CPAs than ever are leveraging their "trusted-adviser" reputation to help clients manage their wealth options more intelligently in today's challenging financial climate. "Personal finance is one of the highest interest topics covered at company sponsored workshops," says a mid-level finance exec at Cincinnati-based Procter & Gamble Company. "Our employees cannot find enough information in this area."

Research conducted for the AICPA Custom Media division since 2002 by Bay Street Group, LLC; CEG Worldwide, LLC and the AICPA's PCPS division, reveals that nearly one-in-five CPAs (17%) are providing financial planning/advisory services to their clients today, up from 11 percent three years ago. "My retirement or close-to-retirement clients are frightened about the market today and want reasonable options to provide retirement income from their asset base," notes Dave Doiron, head of a small accounting firm in Orange Beach, Ala.

Bay Street Group's recent poll of readers of the AICPA's CPA Insider[TM] weekly e-newsletter found that 47 percent of the 2,671 respondents considered the need to "expand revenue/client base" as their highest priority; 27 percent said they expected to expand into new service niches or lines in the next 12 months; and 75 percent cited Americans' lack of financial awareness and literacy as a highly important concern.

Not just for high net worth individuals

The belief that only wealthy individuals are viable prospects for a firm's financial advisory services is becoming a misconception. "It takes a long time to build a PFP practice, but once you reach critical mass, it starts to roll fairly easily," says Dennis A. Parker, CPA/PFS, who heads a small Chicago-based firm. "Leads don't necessarily come from your high net worth clients."

An accounting firm's size may dictate its approach to offering financial services to its clients. CEG Worldwide's October 2004 study for the Journal of Accountancy found that 61 percent of smaller firms offering financial services today see "average employees at corporations" as an important target market, whereas only 10 percent of larger firms thought so. Meanwhile two-thirds of the larger firms that are offering financial services cited small business owners as an important target market, more than double the percentage (32.5%) of small firms who thought so.

Mid- to large-size local firms expected to excel

Research indicates that CPAs from all sectors of the profession expect medium-to-large size local firms to be the ones generating the highest proportion of their revenues from financial services over the next three-to-five years. According to a May 2005 poll of CPA Insider[TM] readers by Bay Street Group, LLC, 58 percent of respondents thought medium-size local firms would be earning a significant portion of their revenues from personal financial planning services, followed closely by large local firms (50%) and small local firms (43%). Just one-in-three (33%) respondents expected regional firms to be earning a significant portion of their revenues from personal financial planning services in three-to-five years and just 17 percent of respondents said large firms would be doing so.

Although local firms make up the largest share of AICPA members, survey respondents' answers were consistent across all size categories. For instance, firms of all sizes agreed that local firms would likely generate the greatest share of revenues from financial service offerings to clients over the next half decade. Fifty-six percent of large firms agreed, as did 55 percent of small firms and 58 percent of medium firms. On the other end of the spectrum, 13 percent of large firms (vs. 17 percent of small firms and 20 percent of medium firms) thought national firms would be earning a significant portion of their revenue from personal financial planning services.

Expanding cautiously

While many CPAs understand the potential benefits of offering financial services to their clients--either directly or by partnering with financial services providers--they are taking great pains to ensure that their integrity and objectivity remain intact. "We are not really trying to sell our clients a product, rather we are offering independence and objectivity for what is best for them," cautions Chris Bonfanti, head of a medium-size St. Louis firm.

One of the more interesting findings to emerge from our 2005 research is that 1031 exchanges (31%) and college savings accounts (20%) have moved past insurance (9%) and securities brokerage (13%) as financial services most likely to be offered by accounting firms. Exhibit 1 (above) shows the other most common financial services that CPAs are offering or planning to offer their clients.

Conclusion:

Accounting firms increasingly are looking to offer financial planning services as a means of retaining clients and expanding revenue in today's highly competitive business climate. Local firms, particularly medium- and large-size local firms, appear better positioned than other firms to generate significant revenues from financial services offerings to clients. CPA firms that rely on outside providers of financial services, regardless of size, appear more successful than the firms with in-house financial services practices. However, to partner successfully with CPAs, financial services providers need to heed CPAs' concerns about coming across as too "salesy," not respecting the clients' best interests, not handling their fair share of the workload and jeopardizing a long-term client relationship with a financial services mistake. "When I was active in my practice, I was constantly being asked questions about retirement plans, types of investments for self managed plans, rollovers and retirement planning in general, says a California hospital CFO who is returning to public practice. "I see these concerns as the main activity as the population ages." The key, says Dennis R. Seipel, head of a small Sheboygan, Wis.-based firm is to "make sure we really listen to our clients and make certain we understand the level of risk they're willing to accept and then act accordingly."

Exhibit 1

Services CPAs Most Likely to Offer

                        All     Small    Medium    Large
                       Firms    Firms    Firms     Firms

   Tax Planning         58%      75%      62%       23%
Retirement Planning     45%      53%      52%       22%
  Estate Planning       39%      45%      50%       15%
 Wealth Management      29%      31%      37%       14%
  1031 Exchanges        24%      30%      30%        6%
  College Savings       16%      18%      18%        7%

Source: Bay Street Group LLC, 2005

Exhibit 2

Top CPA Partnering Concerns

                                           Public
                                  ALL    Accounting    Industry

They're too 'sales oriented'      76%       80%          71%
Their mistake could hurt the      59%       65%          51%
CPA's relationship with client
They're not as concerned about    48%       54%          37%
what's best for client
They don't have CPAs'             45%       47%          40%
integrity/objectivity
Don't understand CPAs'            34%       35%          32%
responsibilities
They get big fees while CPA       23%       30%          11%
does the work

Source: Bay Street Group LLC, 2005

CPAS rate financial services most demanded by clients:

(top six of 15 choices)

Retirement Planning         83%
Tax Planning                60%
Estate Planning             48%
Wealth Management           43%
College Savings Accounts    32%
1031 Exchange               15%

Note: Table made from bar graph.

Source: Bay Street Group LLC 2005

A firm's size and resources may determine whether leading financial
products are considered "in demand" by its clients:

Tax Planning    Estate Planning    Savings Plans      College

Small Firms         63%               54%               39%
Medium Firms        62%               49%               32%
Large Firms         51%               43%               27%

                 1031 Exchange

Small Firms          21%
Medium Firms         13%
Large Firms           7%

Note: Table Made from bar graph.

Source: Bay Street Group LLC, 2005

Which firms will be earning significant
revenue from financial planning services?

                              CPAs
                            weigh in

Medium Sized Local Firms      58%
Large Local Firms             50%
Small Local Firms             43%
Regional Firms                33%
Sole Owner Firms              26%
National Firms                17%

Note: Table made from bar graph.

Source: Bay Street Group LLC, 2005