It’s Not Just Their Retirement at Stake …

The demographics of our profession are not exactly in favor of smaller practitioners. The average 

age of small-practice owners is quickly approaching what the larger firms would call normal retirement age. It seems clear to me that smaller firms without a solid succession plan are most vulnerable to not capturing a reasonable selling price when finally deciding to retire.

According to a 2012 survey by the American Institute of CPAs, 95.5 percent of all CPA firms have 19 or fewer employees. Many of these small firms have already figured out or will soon find out that it is essentially a buyer’s market for CPA firms. That is, valuations are low and there simply aren’t many buyers lined up to take over your firm at a lofty valuation.

Of course, there are always rollup opportunities with larger firms where you’ll be allowed to merge in your firm, work as long as you want and then receive a payout upon retirement. Typically that payout is equal to about one times the annual revenues that are retained at the time of the merger. Higher valuations do occur for firms with an exceptional client base or a specialty which is desirable to a buyer.

While this method may seem like business as usual in the courtship phase, it doesn’t always work out so perfectly. The reasons for the challenges are numerous, but the leading challenge is assessing the culture of your merger target. Talk is cheap and always sounds good before the deal, but after one busy season with the new firm you’ll know if you made the right decision. If you didn’t make the right decision, the whole transaction will positively be more work than if you just stayed in your cocoon and ran your own shop. But don’t let that fear hold you back.

Another strategy is to find internal successors from your existing employee pool. The smaller the firm, the less likely that the right candidate exists within your walls. Frankly, that in itself is telling about the value of your firm. Without the leverage and continuity of quality staffers who may be partner material, a new buyer is simply buying a job, rather than a business.



Establishing an active wealth management division can help in many ways. The first way that it helps is that the work is spread evenly throughout the year. Unlike traditional accounting and tax services, which tend to cause workload compression into a few short months, in the wealth management business your clients need you every day.

A practice management issue may arise with finding the time to devote to wealth management. But for true business owner entrepreneurs this is a luxury problem. I’ve heard some exclaim that forgoing accounting revenues for wealth management revenues is a lateral move, and merely trading hours and dollars from one work code to another. This would only be true for those who lack the skill to properly manage their business. Wealth management historically has a significantly higher realization rate than traditional accounting services in smaller firms. I know that many practitioners can’t get rid of their old thoughts of how longer hours equal more money, but you need to give it a try. Imagine having a balanced life for the entire year, and not just the few weeks between October 15 and January 15. With wealth management you can serve fewer clients, work fewer hours, have more satisfaction, and make more money.

There are a few solutions to the issue of needing more hours. The first is to hire more or better staff to absorb some of the partner’s traditional accounting workload. Another would be to terminate smaller or difficult clients or sell them to a practitioner smaller than yourself who would be happy to take on more traditional work with smaller clients. Another may be to hire an experienced wealth management professional who can lead that charge. And yet another solution may be to outsource any or all of the above. There are plenty of financial services professionals who would be glad to revenue-share with you: You bring in the clients and they do the work for some pre-determined formula to share the revenues. If you choose the latter route, however, be careful to pick the right partner. Many existing advisors talk a great game about holistic wealth management, but as soon as they’ve got the assets to manage or have an opportunity to sell their products, the proactive and holistic service stops. This would not be helpful in the long run to you or your clients.

Another way that wealth management helps to build a better firm is that it is actually a service that clients want. You’ve heard the comparisons where accounting and tax services are like going to the dentist — no one wants to do it, but it is a necessary evil. Properly delivered wealth management services actually become an attractant, and one of the few reasons that clients will enjoy coming to your office. As a wealth manager with over 30 years of experience, I’ve encountered many clients who talk of their accounting relationship as dismal and necessary. When asked why they don’t change firms, the response sometimes heard is, “Better the devil you know than the devil you don’t.” I wouldn’t describe those clients as raving fans.

A well-executed wealth management business may become the best promotional tool for traditional services as well. The key is how you package the combo. In my world, I counsel firms to draw a line in the sand where no new clients get to come across the threshold unless they meet a certain profile. In this instance, I suggest that profile be over a certain size in terms of gross billings and that they engage the firm for both traditional services and wealth management.

Wealth management services can also help with staff retention. Stop complaining about your young Millennial staff. Too many older practitioners talk about these up-and-coming professionals as if they’ve got no work ethic. Just because they don’t want to work 18 hours a day for six-plus days a week doesn’t mean that they don’t have a good work ethic. They simply want to perform more meaningful work than telling clients what happened last year and do it with the type of work-life balance that their best clients enjoy.

The last way wealth management can help a CPA firm is with the valuation of the firm. Simply stated, a properly run wealth management firm is worth far more than the dollar for dollar of revenue that traditional accounting services draw in today’s marketplace. Just as you’d find in any businesses, some are worth more than others. In order to make sure that your valuation is at the top of the list, you have to deliver an elevated service experience when distinguished from other providers.



The elevated service begins with making sure that you are truly delivering a comprehensive wealth management offering. Many firms use the term “comprehensive,” but few actually deliver it. The American Institute of CPAs’ Personal Financial Planning Division publishes a PFP checklist that is as detailed and long as you’d expect from a specialized industry audit guide. Take a look at that guide and ask if your offering is as robust as that one. If you think that this checklist is overkill for your clients, then you need to examine the profile of your wealth management clients.

The most valuable wealth management practices are those that serve families that need the scope of services found in that checklist. A common mistake made by many firms looking to grow their wealth management offering is starting with smaller clients until they get more proficient in PFP. This mistake could have your wealth management business looking like your accounting firm, with many clients and a commoditized type of offering.


Thursday, January 28th, 2016 EN

No comments yet.

Leave a comment

You must be logged in to post a comment.