Wealthy investors and families are increasingly turning to certified public accountants for investment management and financial planning services. Clients find CPAs’ independence from major financial institutions attractive in the wake of such wealth management industry embarrassments as a federal tax evasion investigation against UBS and huge losses on Citigroup-affiliated hedge funds offered through Citi Global Wealth Management.
According to a 2007 study by Seattle-based accounting firm Moss Adams, assets under management at CPA firms are growing at a 20 percent annual rate, and revenues at a 35 percent rate. By comparison, revenues for the asset management industry as a whole grew by 16.9 percent in 2006, according to the most recent data available.
CPA firms have a built-in advantage, notes Anthony Wood, CEO of New York–based IPro One, which helps them set up advisory units and establish succession plans for partners: These firms are already trusted advisers to the rich, having assisted in managing their complex tax situations and small businesses. He expects CPAs’ advisory practices to grow rapidly as their firms’ baby boomer clients approach retirement and seek help in moving from saving and investing to drawing an income from their assets. CPAs also have the freedom to pick and choose products from a wide array of asset managers and can avoid conflicts of interest.
“Asset managers and others need to take notice of CPAs, which have a captive client base,” says Wood. “The biggest problem that faces other independent registered investment advisers is finding clients,” he says. “With wealth managers inside a CPA firm, the business is sitting right there.”
N. Nicholas Bhandari, managing director of Tegra Financial Partners in Atlanta, the wealth management arm of Habif, Arogeti & Wynne, the biggest independent CPA firm in Georgia, says he expects his firm to have “$2 billion in assets under management within five years.” That would be a fourfold increase over the amount Tegra now has from wealthy investors. Serving 20 percent of the parent firm’s clients, Tegra initially encountered resistance from accounting partners who feared that the financial advisory relationships could jeopardize their tax business, especially if recommended investments soured. Bhandari says this is one of the challenges facing CPAs, and Tegra, which began as a retirement-plan consulting firm and entered wealth management in 1999, spent a lot of time educating partners about the value of the advisory business. Today about 60 percent of the partners buy into the concept — no doubt encouraged by the fact that wealth advisory now represents 10 percent of the firm’s revenue.
Christopher Allegretti, CEO of Hill, Barth & King, an accounting firm based in Boardman, Ohio, says its HBK Sorce Financial arm, established in 2001, now accounts for 20 to 25 percent of revenues. “Before we started financial services, we referred all that business away,” he notes. “We work with a lot of entrepreneurs and have a detailed inventory of their business and financial lives. We see it all the time, where clients have eight brokerage accounts and a hodgepodge of investments. They need a quarterback.”
HBK Sorce recently started providing wealth services to a 25-physician medical services practice that was an accounting client. “Our knowledge goes much deeper than just filing a tax return at the end of the year,” says Allegretti. “That can’t be replicated by other advisers.”
Still, CPAs face plenty of competition for wealth advisory, and the big institutions are hardly conceding the field. Even as they accumulate more assets, CPA practices tend to be small, which could limit their range of products. And if they grow too big, they will have to spend more on overhead and infrastructure and could lose the advantage of intimacy with clients.
Christopher Sorce, managing partner of HBK Sorce — in 1995 he co-founded Sorce Financial, which HBK acquired in 2001 — says CPAs can rely on third parties to match what the big financial services firms offer, such as the ability to sell small businesses for retiring founders. He believes CPAs will continue to grow because investors don’t want to be locked into the products that big firms push. “People don’t want proprietary products. We’re just the conductor of the orchestra.”
“The big guys claim that they have access to the glitzy products,” notes Tegra’s Bhandari. “We have that same access, but we’re also independent.”
