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5 Things To Consider Before You Offer Financial Services

Financial ServicesAs a tax professional, you may have thought about how you can expand your business to include additional revenue streams such as payroll and bookkeeping. And if you’re like a lot of my clients, the opportunity to provide financial services has seemed like an idea worth considering as well.

The good news?  You have lots of potential revenue-generating opportunities on the table. The not so good news? Some of them can do more harm than good to the practice you’ve worked so hard to build. Especially those that live within the financial services category.

Often, the desire to introduce a new service is rooted in an interest to solve a problem. For example, your interest in providing financial services is likely linked to your desire to provide additional value to your clients while also growing a potentially lucrative revenue stream for yourself. Additionally, you may be outraged on behalf of your clients who are being taken advantage of by salespeople who call themselves “financial advisors” and find yourself eager to act in their best interest.

While there can be great benefits to introducing investment services into your practice offerings, unfortunately, there are also potential liabilities along with other risks that need to be considered. Will it be a conflict of interest? Will operating outside of your core strength be problematic? Do you really have enough time to take this on? These are all very real concerns that should be carefully considered before you introduce financial services into your practice—as it is all-too-common to find CPAs or EAs abort the financial services arena shortly after entering it because they haven’t really considered how it will really impact their practice in the long-term.  And missteps in this area can lead to losing clients rather than deepening your relationship with them and creating a healthy revenue stream for your firm.

Before you make any big decisions, consider these five things:

  1. Decide if you really want to offer financial services to your clients. If so, why? If not, why not? And if you do want to offer investments, to what extent? If your answer is financially driven that’s okay. Being aware of your “why” will help ensure your success. What do you need more, additional income or more clients and services?
  2. Understand that financial services is a sales-driven business. If you don’t want to persuade your clients to make a sale – or if you just don’t have the “salesman” personality, financial services may not be the right for you. If you are frustrated with your current client-attraction strategy, don’t be misled into thinking that your problem will be solved simply by offering a new service. You may still find yourself hunting for better, more affluent clients.
  3. Consider Your Disclosure Requirements. Each state’s requirements are different as are the rules for CPAs and EAs. Consider how you will handle the disclosures with your clients. The requirements vary from loose (i.e. a notice with a few sentences indicating you earn commissions related to financial product sales) all the way to obtaining a client’s signature on a tightly detailed statement (disclosing who pays the commissions, how much commission will be received, how the commission is calculated, and which of your recommendations give rise to a commission).
  4. Educate Yourself. You’ve spent years developing and earning your experience in the tax industry. Unfortunately, even the smartest tax law knowledge won’t necessarily qualify you to make the best financial product recommendations. How will you educate yourself in this area? Will you have the ongoing support you need to succeed? How will you carve out the time you need for your training?
  5. Be prepared to lead a handpicked team of advisors. Comprehensive financial planning includes working with commission-based agents in several specialties from insurance to stocks and bonds analysts. Some CPAs and EAs struggle to have enough time to develop relationships with the professionals they need to offer unbiased advice. And those who do, tend to be paid hourly which rarely leads to profitability when time spent cultivating these relationships and supervising client engagements is considered.

Should You Offer Financial Services to Your Clients at All?

CPAs are not immune to the threats of increased competition, technological shifts, and an uncertain legal landscape. These realities threaten the traditional CPA business model. Some CPAs are responding to these pressures and opportunities by adding financial services to their business model. Those who succeed are flexible, innovative, knowledgeable and able to leverage critical strategic relationships with other financial professionals. Sound like you? If so, consider this your cue to pass “go” and collect $200. After all, according to a recent study conducted by CEG Worldwide, over 50 percent of prospective clients who had not yet purchased investments through their CPA said they would be interested in doing so.  And from what we’ve seen, though many CPAs cite a conflict of interest as the main reason why they do not offer financial services, from what we’ve seen, very few clients share this concern.

You might be on to something.

How To Prepare If You Begin Offering Financial Services

  1. Don’t trade in your “most trusted business advisor” status for a shiny object. CPAs are the country’s most trusted business advisors. The foundation for this trust is rooted in two key elements: independence and objectivity. By changing your role from advisor to salesman, you risk losing your independence and objectivity. Once your recommendations are motivated by commissions or referral fees, rather than the problems you solve, you begin to erode your trustworthiness.
  2. Know the limits of your staff. If you are like most firms, you are overworked and under-staffed. Adding another service to your existing service lines means you will have ramp-up time and training. Most solid investment and/or insurance professionals invest years in training and prospecting to develop a business. If you are short of people today, what will happen when you divert your attention to non-productive areas for a few months?
  3. Come up with a financial strategy. If your plan is to delegate your new work engagements, be prepared to invest in your people and get them the training and support they will require. Prepare yourself to say goodbye to some of your current clients. The time required to do financial planning work requires giving up some tax work. Consider taking new clients only if they will bring both tax and financial planning work or tell existing clients that the firm has room only for tax and financial planning clients.
  4. Be sure to develop your marketing plan and selling skills. To establish a serious financial services business, you must focus on building sales volume into the business. The most successful people can make persuasive benefit arguments for their products and services. Do you have the selling skills to regularly contact your clients, make recommendations to them and ask them to buy? There is a difference between answering a client’s request for services and pro-actively developing new business. You must develop the latter. Many CPAs do not want to sell or appear to be persuasive with their clients. If this is the case, plan how you will master the skills you need to be successful in this business.
  5. Understand the profit-sharing with your partners. Some of the 90% profit-sharing arrangements the slick broker-dealers and insurance brokers mention really amount to much less than you might expect. Are you receiving 90% or 30% of the original amount? More importantly, what are you receiving in terms of support and service from the financial services provider? List all the places you will enlist for the support and services you need to be successful in this business.

 Rethinking your idea about offering investment services?

There certainly is less risk in remaining focused and well qualified for your current suite of services.  In fact, most professionals who provide a limited scope of services find more loyal client relationships, improved expertise and level of service, and less stress, according to AICPA studies.

If you still find yourself concerned with the level of service your clients receive when it comes to investment advice, try partnering with a talented advisor who shares similar values and work ethics.  You may not have to be an expert in all things to ensure your clients get VIP treatment.  In fact, limiting the number of services you offer (which limits the number of things you must be an expert in) just might be the smartest move you make.

What are your thoughts? Do you currently offer financial services or are in the process of adding them? Have you chosen to focus on your role as a CPA and leave the financial services to the advisors? Share with us in the comments!

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