February 2002

Lessons on Financial Services

By Neil Alexander

Two ingredients make the accounting profession ripe for further consolidation by financial services companies: It consists of numerous small firms and maintains access to a huge and valuable client base. The prize for financial services companies is a captive audience for their strategic financial products. Through acquisition, banks, brokerage firms, money managers, financial planners, and insurance companies could quickly have their target market's most trusted advisors acting as intermediaries.

Some CPA firms have surrendered to the apparent security and enhanced profitability of mergers. Others are fighting back by developing financial products in-house. These firms wrote business plans and hired insurance coordinators, financial planners, and professional money managers. They consulted attorneys about regulatory compliance. They created corporate subsidiaries and changed their names. And, to date, most find the results disappointing.

It is challenging to create a successful niche in a new set of financial disciplines while mired in traditional management policies. Add formidable competitors that specialize in these products. The result is predictable.

The disappointing results of launching into financial services stem from some inflated expectations. The value of the CPA's independent advice was underestimated in the rush to promote products. There have been exceptions, of course, but for the most part what happened differed significantly from what was expected (see the Exhibit).

Reigniting Financial Services

Public accounting firms that have successful new financial services practice segments share the following characteristics:

The following are five techniques that can reignite a floundering financial services practice.

Role of financial service professionals. Establish an attitude that acknowledges the CPA as the client's trusted advisor, the professional that identifies the value and expertise of financial service providers. CPAs don't need to know the specialized details of financial planning, trusts and estates and insurance-that's why they establish relationships with other professionals.

Supportive infrastructure. The following things should be in place to ensure financial services operations run smoothly:

Communication between practice segments. Financial services must be treated as a valuable practice segment. Financial services staff should be involved in management and strategic decisions. Proactive methods should promote communication across practice segments, and reward referrals.

Commissions. Clear, consistent rules and policies should govern the commissions for financial products. All staff members should understand these policies and be committed to making them work. Financial services must be regarded as a valuable service component that deserves competitive compensation along industry practice.

Training. The affected staff should be trained-to the extent necessary-in the financial services offered. They must understand the circumstances that indicate a need and suggest possible solutions. They should be trained in quantifying and identifying those steps needed to make smart financial decisions for a client.

Looking Forward

According to financial services industry researcher Russ Allen Prince, consumers of traditional CPA services will increasingly demand all-inclusive financial solutions. Competition among the money center banks, brokerages, and insurance companies that provide such solutions will only increase. Comprehensive financial service offerings will blur with traditional CPA services. There will always be a need for the tax, audit, and accounting services provided by CPAs. These services, however, will often piggyback nontraditional products, such as estate planning and life insurance. The firms that survive will be those that profitably adjust their products and services to the market's demands.

Neil Alexander, CFP, is founder and president of Alexander Capital Consulting, LLC, Los Angeles, Calif., and can be reached at
Anthony H. Sarmiento
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