Accountants: 1 + 1 = 3

Synergy. It's a word that most of us are familiar with, and yet, one not so easy to define. It's more than two people getting along and benefitting one another. It's when the combination of energies, resources, talents and efforts equals more than the sum of the parts. Hence, 1+1=3.

Wealth management - a real opportunity

In a challenging business environment - where many accounting firms are struggling with competitive forces, technology and lower business valuations - there exists a big opportunity that some firms are recognising. This is the opportunity to build simple and elegant wealth management divisions.

Consilium specialises in helping accounting firms across the country realise this opportunity.

Wealth management businesses add tremendous value to accounting firms. Many wealth management businesses are valued at three or four times recurring revenue - far more than most accounting businesses. By partnering with Consilium, a multi-partner accountancy firm can expect to increase firm revenue 25%, while increasing the firm’s capital value 75%.

Value added to accountancy firm by adding wealth management

The opportunity for accountants exists primarily because investors are interested in receiving financial services from their trusted accountant.

In an article published in The Journal of Accountancy in the United States, hundreds of investment prospects were surveyed. The article showed that 50.9% of those prospects would be very likely to obtain investment services from their accountant, were they offered.

Expanding the client life cycle

Many accounting firms begin working with a client at the point they become business owners, or when the client has enough financial complexity to justify the accountant's skills and expertise. Although there is no precise age range, the bulk of these clients fall between ages 40 and 65.

Traditional Accounting Revenue

By adding a wealth management practice, an accounting firm is able to care for a client from 'graduation to grave'. In the early years of this cycle, while the client builds and grows their business, a wealth management division provides them with risk management and KiwiSaver advice. After the client retires, a wealth management division cares for them as they transfer business assets into investment assets, to provide for a comfortable retirement.

Accounting Revenue with Wealth Management

The benefits of synergy

In a 2010 study, research firm CEG found that all accounting firms that collaborated with synergy partners like Consilium had higher average revenue than those that decided to do it all internally. As you can see below, by finding a synergy partner, firms of all sizes earned substantially more revenue than those using an internal model.

The average increase in revenue for firms collaborating vs. those doing it internally

Source: Succeeding Amid Adversity, CEG Special Report, 2010

The majority (62.7%) of firms that use the collaborative business model use a ‘turnkey asset management programme’. This is a fancy way of saying they outsource non client facing responsibilities to a firm like Consilium. This includes investment monitoring and asset allocation, price negotiation, advice processes, administrative support, education and communication materials. By outsourcing, they get a wealth management business that they 100% own, but that leverages the knowledge and skills of others.

The culture clash

Many accountants have concerns about providing wealth management services. These concerns include a perceived conflict of interest, lack of skills relating to financial advice and fear that they would damage their position as the trusted adviser. These are all important considerations.

The reality for firms that collaborate with Consilium is vastly different. Our clients cite increased value appreciation, improved client relationships and better financial outcomes for clients.

Can the culture clash be overcome? In our view, the financial services industry needs accountants to become more involved. Accountants bring with them several traits necessary for providing excellent wealth management services:

  1. Accountants are fiduciaries
    Accountants enter client relationships with a clear service proposition and without any conflicts of interest. This is the exact service standard promoted by Consilium, and shows that an accounting firm can deliver financial services in a way consistent with their existing values and firm culture.

  2. Accountants are 'fee only'
    Accountants have very transparent fee structures that are simple to understand. They don’t charge commissions, or accept inducements or revenue from third parties who want access to their clients. In the investment world we call this a fee only model. The only source of revenue to the accountant is the client, freeing the accountant to give impartial advice. This is the exact fee structure advocated by Consilium.

  3. Accountants like process
    Most accountants are trained in audit. They want to know where investment returns come from. They value transparency and processes that are consistent, rational and repeatable. Thus, accountants demand structures and processes that the industry needs, and that Consilium advocates.

  4. Accountants require value
    Accountants look at value; they want to see that what comes out is measureable against what goes in. It is this approach to investment that has led Consilium to construct portfolios that cost less than what most investors are used to paying, without sacrificing investment returns.

  5. Accountants don’t sell, they advise
    Accountants are not sales people. They are interested in identifying problems and finding solutions that benefit their clients. This is the right approach to wealth management. In good wealth management there is no product; rather, the best practitioners provide solutions to their clients’ persistent financial problems. There is no pressure. There is no sale. There is just good advice, given by a trusted adviser.

Partnering with Consilium

By partnering with Consilium, accounting firms can build outstanding wealth management businesses, whilst retaining their brand and their independence. We provide all the solutions needed, from portfolios and business processes to training and compliance advice. The accountant is then free to focus on building relationships and extending quality services to their clients.

Perhaps most importantly, the accounting firm keeps full ownership of the client relationship, and can leave Consilium at any time. There are no hooks or confusing contracts. This gives the accounting firm confidence they can always do right by their clients, with no pressure from outside influences.

Consilium specialises in working with accounting firms, and it is the successful relationships with our members that have taught us how to build thriving wealth management practices within accounting firms.

If you’re interested in learning more request a consultation, where we will explore together where your firm is now, where you want to go and consider strategies to help you achieve your goals.