Adding an in-house wealth management unit to a CPA practice sounds like a reasonable idea, in theory.
In practice, however, certified public accountants and traditional financial advisers can be like oil and water. And the CPAs don't always support their in-house wealth advisers.
Appropriate personality styles, internal champions and integration strategies are keys to success.
Kevin Leahy, president of Connecticut Wealth Management, and director Denis Horrigan recently took their firm independent after a decade as the wealth management unit of Kostin Ruffkess & Co., a large CPA practice.
“Over the past couple of years, the accounting firm was responsible for referring less than 25% of our new assets, [which was] consistent with the levels of referrals in prior years,” said Mr. Horrigan, who is a certified financial planner. The firm now manages about $200 million in assets.
“Over the years, we spent more and more time trying to get buy-in from the partners and the rest of the team. But these activities didn't yield more referrals; they just took time away from serving our practice and our client relationships,” Mr. Leahy said.
“By nature, CPAs are more conservative. They guard their [client] relationships very carefully,” said Jonathan Mintz, executive director of The Advisors Forum, an organization that teaches interdisciplinary strategies to CPAs, financial advisers and attorneys to help them work together more productively.
“Their big concern is that the adviser is not looking out for the client's best interest,” he said. “Even if [advisers are practicing] within the same firm, they have not necessarily broken [through] the barrier of mistrust.”
CPAs are used to having a predictable result with respect to their work, said Christopher Lamb, managing partner of Old Mission Investment Co., which oversees about $300 million in assets.
“But within the investment world, we deal with uncertainty every day. Having that type of uncertainty with a referral can cause many tax professionals to distance themselves from that type of potential liability,” Mr. Lamb said.
'A DIFFERENT LIGHT'
Robert Matheson, a CPA and president of Matheson Financial Services Inc., said that wealth managers who are also CPAs are likely to get more referrals from accounting professionals.
But that isn't always the case.
Ted Sarenski, president of Blue Ocean Strategic Capital LLC, which manages $120 million in assets, established the investment management unit for a 12-partner CPA firm in 1998. He bought the unit out last year.
Mr. Sarenski said he had always felt like an outsider.
After leading the unit for 12 years, he found that while 50% of his referrals came from the firm, “most came from three partners who recently retired, which minimized our future prospects.”
“I'm a CPA, but they saw me in a different light because I was doing investment management. The managing partner believed in what I was doing, but he didn't push it at the firm — there was no incentive to send referrals to us,” Mr. Sarenski said.
“There needs to be a champion within the accounting firm who makes sure that everyone is cooperative and working with the unit,” said Alan Goldfarb, director of wealth strategies for Weaver Wealth Management, the registered investment advisory arm of Weaver LLP, an independent CPA firm. His company manages $380 million in assets.
Another important factor in success is having a personality that fits in with the CPA firm's culture.
There is a “sharp contrast between the cultures and the personalities [of advisers and CPAs],” said Tom Karsten, senior managing partner of both Karsten Financial, which has $180 million in assets under management, and Karsten Strube CPAs.
“The balance of personalities and objectives can be quite challenging,” he said.
“Many times, the CPA handling the account may want to move slower and gather as many facts as possible before implementing a plan. The investment professionals will typically want to move a little bit quicker and are focused on taking advantage of the opportunities that are available for the client,” Mr. Karsten said.
“While this single difference in attitude can create some disagreements, the checks and balances involved also ensure that the client is receiving the benefit of both philosophies,” he said.
The difference in personalities also has much to do with how the two types of professional are paid, Mr. Mintz said.
“For CPAs, it's billable hours; for financial advisers it's often commission. CPAs view that as a dirty word, it's totally contrary to what they do,” Mr. Mintz said.
An integrated-practice approach also is a recurring theme for success.
When there is a referral, “it's not like a handoff,” Mr. Goldfarb said.
“We meet with the client and CPA jointly. The CPA is always apprised of the situation, and client reports go to CPA, who is always in the loop,” Mr. Goldfarb said.
“Our firm has been structured with a CPA firm working in conjunction with an investment firm for almost 20 years,” Mr. Karsten said. “Despite the challenges we have faced working together, the synergy created between the two companies has been very powerful and has led to substantial growth over the past 10 years.”