COMMISSION OPTION GIVING CPA-SALESPEOPLE SEX APPEAL: BIG COMPANIES HAVE A YEN FOR TOP NATIONAL FIRMS

As more states agree to allow certified public accountants to accept commissions, the brokerages that cater to them also stand to make a pretty penny – by selling themselves.

The brokerages that have managed to recruit CPAs and turn them into investment salespeople should fetch a hefty premium as big financial service companies hunger for a piece of the burgeoning adviser business. After all, the hard part is over. These broker-dealers already have motivated CPAs to sit for their securities license tests and educated them on investment products and marketing techniques. And they have ambitious expansion plans, which naturally will require capital.

“Much of the groundwork has been laid,” says Edward A.H. Siedle, who’s seeking to put together $250 million in deals for the Chicago buyout firm Golder Thoma Cressey Rauner Inc.

And that groundwork may help raise a groundswell if half of the states that now forbid CPAs to accept commissions – including New York and California – change their laws. That is a step closer now that the uniform accountancy act has been revised (InvestmentNews, Feb. 16). The act, a joint effort between the American Institute of Certified Public Accountants and the National Association of State Boards of Accountancy, no longer bans commissions for CPAs. The act serves as the basis for most state accounting laws.

Two leading firms – rivals in the Dallas area – concede there is heightened interest in their type of business, though both insist they are not for sale.

H.D. Vest Inc., the market leader with about 2,000 CPA reps, is not for sale, officials insist. Herb Vest, founder and chief executive officer of the Irving, Tex.-based firm, is simply not interested.

“It’s a hot topic, but we’re not in the market,” says Roger Ochs, H.D. Vest’s director of marketing.

Indeed, the company’s stock price has been flat. It stood at $5.50 in early trading on Friday – the same as a month earlier. Volume has been relatively light this month.

Meanwhile, First Global
Partners, a broker-dealer with 500 CPAs, has been courted by a variety of suitors, says Stephen A. “Tony” Batman, the Dallas-based company’s co-founder, chairman and CEO.

While he declined to say who, Mr. Batman describes the suitors as large insurance companies, large brokerages and a financial services conglomerate.

“We get approached all the time, but we’re not for sale,” says Mr. Batman, a former H.D. Vest executive. “Of course, everybody always has a price – I’m not foolish. The valuations for financial services firms are very, very high these days. But we’ve got a lot of things to accomplish.”

For one, the company expects to increase revenues from $25 million to $100 million in four years.

sees 20,000 in sales force

And H.D. Vest expects annual revenues to increase tenfold over the next 10 years, to $1 billion. The company expects the loosening of restrictions to help increase its number of reps to 20,000 from 6,000 within that span.

“We’ve been very involved in helping the states see the light and change the ban,” Mr. Ochs says. “Now about half of all CPAs can receive commissions. That was just a dream 10 years ago.”

While CPAs already can avail themselves of fee-based programs through H.D. Vest Advisory Services, the change could give them more flexibility in accepting pay.

CPAs make up one-third of Vest’s 6,000 representatives, and one-fifth are enrolled agents – tax professionals with authority to represent taxpayers before the Internal Revenue Service. The rest of the reps are tax preparers. The firm also is looking for tax lawyers to round out its stable.

“We’re big on recruiting folks who have those tax designations,” Mr. Ochs says.

extensive education

Those professionals can face a big learning curve when it comes to marketing. But Mr. Siedle says Vest’s training appears to be extensive.

Mr. Vest, who founded the firm in 1983, is a proponent of education – the slew of credentials after his name resembles a list of s
tate abbreviations. But it can be hard to control such a fast-growing, far-flung sales force. In 1995, the company was fined $50,000 and censured by the Securities and Exchange Commission for lax supervisory policies and procedures.

Mr. Siedle, a former SEC lawyer, warns that prospective buyers of any firm with a broadly dispersed, part-time sales force should make sure it has supervisory procedures in place.

Because its reps’ first allegiance is to their accounting business, sales per rep aren’t spectacular when compared to wirehouse brokers, Mr. Ochs concedes. Thus the firm doesn’t have sales quotas.

“We have some that do a moderate business and some that do very little business,” Mr. Ochs says. “We let the rep decide how they want to handle it.”

On the flip side, First Global expects its reps to display a “serious commitment to building their business,” Mr. Batman says.

“They have time constraints and they do have a mind set that is not marketing focused,” Mr. Batman says about CPAs. “But we perform deep psychotherapy – even a lobotomy. We provide an environment for CPAs to change how they see themselves.” Before long, many may see themselves working for a much larger employer.