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Working with a solicitor to get new business: how to use external marketers to expand your practice.


* IN THEIR SEARCH FOR NEW CLIENTS, CPAs with wealth management practices may wish to pay outside marketers to solicit business on their behalf. Additional good referral sources include CPAs who don't themselves offer these services or other professionals such as insurance agents who want to expand what they offer their clients.

* IN ADDITION TO GAINING PROFESSIONAL EXPERTISE, outsourcing the prospect-generation function can help to reduce a firm's staffing costs. External marketers typically are paid fees based on the revenues the referred clients generate for the firm.

* SOME CPAs HAVE BUILT SUCCESSFUL WEALTH management practices by paying other CPAs for referrals. Others turn to professionals such as insurance agents as a source of new business. The idea is to find someone who understands the firm's business so he or she can identify genuine prospects.

* STATE AND FEDERAL SECURITIES REGULATORS monitor paid arrangements between investment advisory firms and solicitors, depending on whether the firm is registered with the state or with the SEC. SEC regulations require that the solicitor give the prospective client a copy of part II of the adviser's form ADV and a separate disclosure document spelling out the arrangement between the solicitor and the adviser.

* INVESTMENT ADVISERS REPORT A WIDE VARIETY of compensation arrangements with their outside marketers. Many pay the solicitor a percentage of the revenues the client generates each quarter. This percentage increases if the solicitor becomes more active in helping to manage the client's account.

A CPA firm has assembled a top-notch staff for its new wealth management practice and is now ready to provide comprehensive personal financial planning and investment management services. The business plan calls for the firm to offer these services first to existing clients. The venture's next goal is to land new accounts. While it's a sound plan, the firm needs to know how best to identify new prospects and convince them to become clients.

While the CPA credential is synonymous with technical expertise, that knowledge doesn't automatically translate to the marketing and sales skills needed to attract new clients to a wealth management practice. Once CPAs expand beyond traditional accounting and business consulting services, they no longer are competing solely with other accounting firms--they're up against brokerage firms, private banks and other financial planners. Many of these entities aim significant resources at the same prospects a CPA firm plans to pursue.

One solution to overcome a lack of sales experience is to pay outside marketers to solicit prospective clients and introduce them to the firm. These individuals can be experts who make their living finding clients for others, CPAs who don't themselves offer investment management or even other professionals such as insurance agents who want to expand the range of services they offer their clients. All can be excel lent sources of new business. This article explains how CPAs can work with each of these resources to build their investment management practices, plus some of the regulatory challenges they face in doing so.


There are two frequently cited arguments in favor of hiring an external marketer to find new clients. First, the practice allows CPAs to work with other professionals whose sales experience and interpersonal skills complement their background. Mark J. McGaunn, CPA/PFS, CFP, president of MJM Financial Advisors LLC in Acton, Massachusetts, made a career change to financial planning and wealth management two years ago after working as an auditor and accounting manager. His goal was to create a "family office" where clients would delegate all of their financial responsibilities to him including investments, bill paying and the like.

Because he lacked a roster of existing clients, McGaunn started from scratch. He initially had focused his marketing efforts on traditional channels--advertising, joining the local chamber of commerce and so on--but didn't have much success in attracting new clients. He then met a man with 18 years experience selling life insurance who wanted to expand the range of financial services he could offer his clients. Both recognized that combining their skills could provide a mutual benefit. "I was looking for someone to complement my technical skills," McGaunn says. "He preferred the relationship side so our strengths complemented each other, and he offered to become my referral source for new clients."

A second behest of outsourcing the prospect-generation function is that it reduces a firm's staffing costs. Experienced financial services sales professionals (such as bank new-business trust officers), command annual salaries in the $50,000 to $100,000 range plus a percentage of the investment assets they bring in. In contrast, hiring an external marketer--called a solicitor by the SEC--typically requires no up-front outlay; fees are based on revenues the referred clients generate. "I've been associated with larger accounting firms--total staff of 300 or so--that hired a full-time marketing person," McGaunn says. "Someone with my resources can't afford that kind of commitment."


CPAs can choose from several types of arrangements for identifying prospects. One option is to work with a professional marketing organization. The Growth Partnership (TGP) LLC of St. Louis uses a systematic approach to identifying prospects for the 50 CPA firms it serves. (Roughly 40% of the CPA firms it works with offer wealth management services to executives of their clients.) TGP and companies like it first develop a demographic profile of the CPA firm's ideal prospects. It then develops a list of qualified prospects and launches a series of communications designed to get the prospect into the CPA's office for a meeting. (In selecting a marketing organization, CPAs should remember to select one that abides by the requirements of the national "do not call" registry.)

According to TGP President Jeff Palow, "We start with a series of mailed communications to make the prospect familiar with our CPA firm client. We conclude that preliminary contact with a small gift we send to the prospect the day before we make our initial follow-up call to ask for a face-to-face meeting with the prospect and the CPA firm." That call comes from a TGP telephone representative who identifies himself or herself as calling on the CPA firm's behalf. TGP has the firm set up a voice-mail box for the representative to maintain the appearance the call is coming from the firm.

The conversion from prospect to client can be a slow process. Palow reports that some CPA firms ask him to solicit an original list of prospects for three to four years before giving up on those who haven't responded. He believes this is the best way to build a relationship with a finite group of prospects rather than "turning the phone over to a telemarketer whose only interest is getting a face-to-face appointment."

CPAs interested in hiring an outside marketer needn't bother looking in the local phone book--they're not listed in a separate category: And they don't have a professional organization that provides referrals, either. So how do CPAs find someone to bring in new clients? McGaunn recommends developing a network of contacts in the CPA and financial planning communities. That approach worked for Diahann Lassus, CPA, CFP, president of Lassus Wherley & Associates PC in New Providence, New Jersey. She notes that most CPAs attend professional meetings and conferences regularly and many are active in their state societies. As this network of professional acquaintances grows, CPAs can inform a wider audience, including accountants and other professionals, that they are looking to build marketing relationships with those who would solicit new clients on their behalf.

In their efforts to find marketing help for their investment practices CPAs shouldn't overlook the power of advertising in the right publications and Web sites. "We've run a classified ad in a professional publication such as the JofA or the Massachusetts state society's newsletter," says Kristine Porcaro, a principal with Lexington Advisors in Lexington, Massachusetts. "We've also posted the job opening on We've been able to find several solicitors that way."

Regardless of what approach a CPA firm decides to take to solicit new clients, selecting the right person to solicit outside business still poses a significant challenge and results are not always positive. In addition to having complementary skills and sales experience, the solicitor also must understand the firm's business so he or she can identify genuine prospects. Several years ago, Diahann Lassus hired someone with a strong financial-product sales background. But the arrangement didn't work out as she hoped. "Looking back, I think the person we hired didn't have enough experience and background with our firm to really understand who we were and what kind of clients we were looking for," she says. "If we hire another salesperson, it will be an in-house position so that person can be part of our sales committee. Then we'll be confident the clients he or she brings in will be a good match with our firm." In the meantime, Lassus's firm has decided the sales function is "best done by the individual who will ultimately maintain the relationship with the client."


Several CPAs have built successful wealth management practices largely by paying other CPAs for referrals. American Economic Planning Group (AEPG) in Watchung, New Jersey, has been in business for 22 years and according to Thomas J. Geraghty, CPA, CFP and vice-president of the financial planning division, the firm has grown largely on referrals from other CPAs. Geraghty estimates that AEPG currently has solicitor arrangements with 10 CPAs, 5 or 6 of whom refer clients regularly.

Lexington Advisors has increased its assets under management over the past four years to $125 million. According to president Michael S. Tucci, CPA, CIMA, the company established solicitor agreements with local CPAs early in its existence and many of Lexington's initial clients were referred by them. Those arrangements continue to generate new business: Tucci estimates 50% of his firm's new clients come from CPA referrals. He believes his status as a CPA provides a marketing as well as a technical advantage with his peers. "Although I'm no longer involved with traditional areas where many accountants practice, being a CPA with over 15 years experience helps," he says. "Referring CPAs often say I speak their language because we share a mindset as practitioners."


CPAs accustomed to traditional gratis referrals from one professional to another should note that state and federal securities regulators monitor paid arrangements between an investment advisory firm and solicitors depending on whether the firm is registered with the state or with the SEC. Porcaro handles Lexington's state compliance issues. She says Massachusetts requires CPA-solicitors to register with the state's securities division, but their CPA license grants them a waiver from the certification and examination requirements investment advisers must fulfill. "Registration allows solicitors to be compensated for referrals, but they cannot give investment advice," she says. "If a CPA wants to provide such advice, he or she must meet the testing and licensing requirements, just like any other investment adviser."

Congress passed the National Securities Market Improvement Act in 7996 with the goal of harmonizing regulations across the country. But there is still variation among the states. For example, according to Porcaro, Massachusetts CPAs who refer clients to multiple investment advisory firms must register with the state because these referrals are interpreted as investment advice. In these cases, the referring CPA must meet the same requirements as other applicants and pass the series 65 licensing exam.

Investment advisers registered with the SEC must comply with detailed regulations both in screening solicitors and managing their communications with prospective clients. (CPAs can find details on the SEC rules in section 275.206(4)-3, "Cash Payments for Client Solicitations," of the Investment Advisors Act of 1940.) According to Rob Stype, managing partner of Adviser Compliance Associates LLC, a regulatory consulting firm in Washington, D.C., SEC-registered firms should review the regulations of each state where they do business. "Some states require you to register your solicitors as investment adviser representatives, although the SEC doesn't," he says. "But that's not true of every state, so CPAs must understand local regulations."

SEC regulations say a solicitor cannot have a record of recent (within the past 10 years) securities law disciplinary actions or SEC-registration disqualifications. (The www. and Web sites provide links for investigating disciplinary records.) Assuming a solicitor has a clean history the investment advisory firm and the solicitor must observe specific disclosure and recordkeeping rules. When first approaching a prospective client, for instance, the solicitor must give the prospect a copy of part II of the investment adviser's form ADV and a separate disclosure document. Part II provides details on the advisory firm's history, business practices, methods of operation and compensation. The separate disclosure document spells out the arrangement between the solicitor and the investment adviser. It must include

* The solicitor's name.

* The investment adviser's name.

* The nature of their relationship.

* A statement that the investment adviser will compensate the solicitor for his or her services.

* The terms of the compensation arrangement, including a description of the compensation the solicitor will receive.

* The amount, if any, the individual client will pay in addition to the advisory fee for the cost of obtaining his or her account through the solicitor.

Stype has encountered two problems advisers commonly face in attempting to comply with the disclosure rule. The first occurs when a solicitor gives the prospect part II of form ADV but fails to provide the separate disclosure document. The second mistake happens on the adviser's end. "The adviser often cannot confirm that the solicitor provided the documents at the time of solicitation," Stype says. "The rule requires the adviser to make a bona fide effort to ascertain the solicitor complied with the disclosure requirement--that's a key point."

To avoid disclosure rule violations, Stype suggests investment advisers adopt two safeguards. First, the solicitor should ask the prospective client to sign a receipt stating he or she received both part II of form ADV and the separate disclosure document. The solicitor then should send that receipt to the adviser for its files. Second, the adviser can ask the solicitor to sign an annual certification stating that he or she made a bona fide effort to comply with the agreement with the adviser. (That agreement should require compliance with the disclosure rule. See "Excerpts From Sample Solicitor Agreement" on page 33). "The SEC doesn't require the annual certification letter," Stype says, "but the adviser needs to show it made a good faith effort. From our standpoint, these safeguards are effective ways of doing that."


The CPAs interviewed for this article reported a range of business arrangements and activity levels with their outside marketers. AEPG pays its solicitors 10% of the revenues a client generates each quarter. As an example, if AEPG charges a 1% management fee on a $1 million portfolio, the solicitor would receive $250 quarterly. According to Thomas Geraghty, that percentage applies to "hand-off" relationships where the solicitor introduced the client to AEPG but does not play a subsequent role.

The percentage increases if the solicitor becomes more active in managing the client's account. Lexington Advisors, for example, pays such solicitors 25% of the referred client's revenues in the first year and 10% in subsequent years. While the hand off relationships would appear to be the simplest to manage, Geraghty and Lexington's Tucci recognize that a solicitor who is referring his or her own client can bring valuable knowledge of the client's financial affairs. As a result, both advisers extend the opportunity for solicitors to play an active ongoing advisory role after introducing a client. AEPG also helps CPA and other solicitors who wish to set up their own independent registered investment advisory firms. They then can become involved with recommending and managing the client's investments, and AEPG, too, subsequently increases its compensation to 25% of client revenues.


It's impossible to estimate how many CPA-wealth managers are working with outside marketers. However Stype reports that compliance related inquiries to his firm from CPAs considering hiring solicitors are increasing. In spite of the regulatory requirements and the challenge of finding the right solicitors, the arrangement makes sense for firms looking to increase their client base without the extra expense of adding staff. More clients mean more revenue--even if you have to share it with someone else.

Investment Management: The Path to Success

* Money managers need to create alternative growth strategies to achieve their revenue goals.

* Being a "trusted adviser" will become the cornerstone of quality client service.

* Money managers must fully understand the financial needs of their clients and promote the right mix of products and services.

Source: PricewaterhouseCoopers, 2002 North American Private Banking/Wealth Management Survey, 2D85256C0C004A9D31.

Excerpts From Sample Solicitor Agreement


Under this agreement, you may distribute literature describing the services provided by Lexington Advisors, supply related documents (for example, tax returns, cash flow statements, cost basis information); introduce new clients to Lexington Advisors; and accompany clients you have introduced when they meet with an investment counselor from Lexington Advisors.


You are specifically prohibited from offering investment advice to any individual or entity on behalf of Lexington Advisors. Only registered and licensed investment advisers meeting regulatory qualifications may render investment advice on behalf of Lexington Advisors.


We agree to compensate you for the performance of authorized activities, subject to the following restrictions, conditions and limitations:

a. The invoice must identify and relate to a specific client served.

b. You must have properly introduced the client by providing them with copies of Lexington Advisors disclosure document (form ADV, part II) and a written statement disclosing your relationship with Lexington Advisors. An acknowledgment of receipt of both, signed and dated by the client prior to their contract for services provided by Lexington Advisors, must be on file with Lexington Advisors.

c. Compensation relating to the initial establishment of an account for the identified client will be an amount equal to 25% of the annual management fee we have received from the identified client; contingent upon your continuing to be retained as identified client's CPA.

Source: Provided by, and reproduced with permission of, Lexington Advisors Inc.


* AICPA Investment Management Conference, May 19-21, 2004, The Fairmont, New Orleans. For additional information or to register go to or call 888-777-7077.

* Turning Sales Over to the Pros. This book explains how CPA firms can integrate sales professionals into their business development (# 090416JA). For more information or to purchase go to or call 888-777-7077.

Sample Solicitor Disclosure Document and Client Acknowledgement Form

The Solicitor has entered into an agreement with Lexington Advisors, a registered investment adviser under the Investment Advisers Act of 1940 (the Adviser), under which the Solicitor has agreed to solicit clients on the behalf of the Adviser. The Adviser has agreed to compensate the Solicitor in an amount equal to 25% of the fees paid to the Adviser by clients solicited by the Solicitor.

The fees payable by client to the Adviser are the fees stated in the Adviser's standard form of client agreement. No additional fees are charged to the client, and there is no fee rate differential to clients because of the compensation paid by the Adviser. The Adviser and Solicitor are not affiliated.

The undersigned hereby acknowledges receipt of this disclosure document and Adviser's disclosure statement and acknowledges that he/she has read and understood the information contained thereto.

Source: Provided by and reproduced with permission of Lexington Advisors Inc.


* Firms can reduce staffing costs by outsourcing the prospect-generation function. This eliminates the expense of hiring an experienced financial services sales professional. An external solicitor typically requires no up-front outlay until he or she generates business.

* When hiring an outside marketing firm to solicit new clients, CPAs should ensure the entity abides by the rules of the new national "do not call" registry.

* A firm should make sure the person it hires has enough experience and background to understand the firm and the kind of clients it is looking for. Having the marketer work in-house is one way CPAs can be confident the clients he or she brings in will be a good match.

* CPAs interested in hiring a solicitor can find one by developing a network of contacts in the CPA and financial-planning communities or advertising in the right publications and Web sites.

* To avoid disclosure rule violations, the solicitor should have the client sign a receipt stating he or she received both part II of form ADV and the separate disclosure document. The solicitor then sends that receipt to the adviser for its files. The adviser also can ask the solicitor to sign an annual certification stating that he or she made a bona fide effort to comply with the disclosure rules.

ED McCARTHY is a freelance writer in Warwick, Rhode Island, who specializes in finance and technology. His e-mail address is
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Author:McCarthy, Ed
Publication:Journal of Accountancy
Article Type:Cover Story
Date:Jan 1, 2004
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