Wealth management practices and its cousin family office practices, when implemented well are likely to be the most profitable practices in an accounting firm. For example, a comprehensive family office practice at an accounting firm can have margins as high as 70 percent. Well run wealth management practices can be just as financially rewarding.
Based on a survey of the managing partners of 301 small accounting firms (five or fewer equity partners; maximum of $10 million in annual revenues), 43 percent of these firms have wealth management initiatives. Almost nine out of ten of these firms are providing wealth management through some form of partnership with outside experts, while the remaining accounting firms have brought all the expertise in house.
More telling is that when it comes to wealth management, ALL 129 accounting firms are seriously underperforming. Not only are they not reaching their expressed financial goals, but based on a comparison to benchmarks calculated formed on the types and wealth of the clients at these firms, the performance of these wealth management efforts tends to be severely anemic.
The major mistake these accounting firms are making is not understanding what it takes to be successful as wealth managers. The belief that having the right platform in place translates into wealth management success is the crux of their substandard performance. The platform is both the means to deliver financial products and services as well as the planning expertise. The small accounting firms surveyed, and in surveys of larger accounting firms with wealth management practices, regularly show that the platform is not the obstacle. However, in most cases, accountants are shortchanging themselves when it comes to dividing revenues with external providers. This turns out to be not much of a problem, as the revenue sharing model does not really matter when there is little to no business.
Two issues tending to derail wealth management are accounting firms. One is not compensating – directly or indirectly – the partners who introduce wealth management to their clients. This tends not to be a particularly large stumbling block for small accounting firms, but it can be.
The other issue is failing to be proactive and failing to recognize the myriad wealth management opportunities that a client provides. All too often, accountants are waiting for the client to explicitly ask for wealth management help, and this happens relatively infrequently. Processes like the Whole Client Model have been shown to be exceedingly effective in determining ways providers such as accountants can determine how to add value by delivering more expertise including wealth management to clients.
What is evident is that there is an enormous business opportunity for small accounting firms in providing wealth management services and products to their clients. Doing so can also be powerfully leveraged to bringing in new clients – a major concern of three quarters of the managing partners surveyed.
This article was written by Russ Alan Prince from Forbes and was legally licensed through the NewsCred publisher network.