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The wealth management solution.

So the question is no longer one of whether CPAs in significant numbers will offer financial services to their clients, but rather one of how they will do it.

Fortunately, this is one area where we can follow the lead of successful financial advisers, who have been moving increasingly in the direction of wealth management as a model for providing financial services. Our research has found that the overwhelming majority of surveyed financial advisers--86.2 percent--believe that wealth management will be the dominant business model of the future.

We can also follow the lead of affluent investors, who likewise are clear about wanting the kind of comprehensive solutions that wealth management provides. Given the complexity that goes along with wealth and the sheer number of financial options to consider, these high-networth individuals are ever more interested in streamlining their financial lives. Rather than going to a different professional for every financial product and service they need, they can go to a single individual--the wealth manager--and obtain them all from one source.

One piece of research highlights this best. One study of 778 affluent investors found a direct correlation between client satisfaction and the number of services they are sold. As you can see from Exhibit 3, the level of satisfaction among those investors sold only one service was just 39.9 percent. In a sharp contrast, those sold three or more services reported a satisfaction level of 96.1 percent.

Wealth management as we define it is an integrated process for helping clients manage their wealth. It usually involves a diverse range of services, depending on the needs of each investor, but may well include investment management, financial planning, retirement, estate planning, tax planning, asset protection and cash flow and debt management. And it is based on a long-term consultative relationship with the client.

For most CPAs, providing this range of services means a significant shift from simply offering traditional accounting services. But for those who are successful in transforming their accounting practices into wealth management practices, there are also significant benefits:

* Wealth management complements the existing expertise of CPAs and leverages the knowledge about your clients' lives that you already have.

* Its holistic approach enables the wealth manager to formulate better solutions to clients' financial challenges.

* The comprehensive nature of wealth management offers you the ability to readily differentiate yourself from your traditional competition--other CPAs offering only accounting services.

* Because of its consultative nature, wealth management results in deeper client relationships, which lead in turn to increased profitability and more client referrals.

How do we know that wealth management really delivers these benefits? Financial advisers again offer us a clear indication of the success of the wealth management model. In our studies, financial advisers generally break out into three groups, according to how they conduct business.

1. Product specialists. These are financial advisers who focus on a product niche that might feature products such as managed accounts, stocks or fixed-income alternatives. This group corresponds to CPAs who offer only traditional accounting services.

2. Investment generalists. These financial advisers provide a wide range of investment products, but do not have a more comprehensive financial planning orientation. This group is analogous to CPAs who offer financial services, but who do so within the traditional sales model, and not as part of a consultative process.

3. Wealth managers. These financial advisers take a holistic, comprehensive approach to their clients' financial lives that results in integrated solutions. Because of the breadth of this approach, it also offers the wealth manager the opportunity to cross-sell a wide range of products and services to each client as appropriate.

Which financial advisers enjoy the most success? One study examined the specific results of each business model for 2001, finding significant differences. As Exhibit 4 shows, annual production dropped for both the product specialists (down 9.4 percent) and the investment generalists (down 51.8 percent).

Only the wealth managers saw an increase in annual production (9.3 percent). Given that the study was conducted during a volatile and largely down market, the results of the wealth managers are even more impressive.
Exhibit 3. More Services Leads to Higher Client Satisfaction

Clients getting three or more financial services from their 96.1%
Clients getting two or more financial services from their 73.6%
Clinets getting on or more financial services from their 39.9%

N = 778 investors with a net worth of at least $5 million.
Source: Russ Alan Prince and Hannah Shaw Grove, Wealth
Management, 2003.

Note: Table made from bar graph.

Exhibit 4. Production by Business Model

Wealth Managers 9.3%
Product Specialists -9.4%
Investment generalists -51.8%

N = 4,106 registered representatives.

Source: Russ Alan Prince, Sunny Patpatia and Jordan S. Berlin, The
World of Registered Representatives, 2002.

The CPAs who choose wealth management will have a highly profitable
model for effectively meeting the needs of their best clients.

Note: Table made from bar graph.
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Title Annotation:Special Section: Wealth Management
Publication:Journal of Accountancy
Date:May 1, 2004
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