and how the accounting profession has been right alongside.
by rory henry
the holistic guide to wealth management
the accounting profession is evolving rapidly. new business models are emerging, and firms are uncoupling themselves from the constraints of a partnership structure, from outdated service offerings, and from time-based pricing practices.
more: rory henry upends the traditional accounting firm | why now is the time for cpas to embrace wealth management
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you may be asking yourself: “what business am i truly in?” or perhaps, “what business should i be in?” before answering these questions, consider that you may ultimately be in the relationship business more than you’re in the tax, accounting or bookkeeping business. it doesn’t matter which training, certifications or acronyms you have following your name. if you’re moving into financial planning – or thinking about doing so – you might want to ask yourself: “am i really in the human business?”
one thing i love about personal financial planning is its deeply personal nature. this is what enables us as advisors to get to the core of what clients desire most out of life.
perception
our professional credentials shape expectations about what we offer to clients and the perceived value of our services. in this regard, the insights of psychologist robert cialdini, renowned for his seminal work “influence,” are particularly illuminating. cialdini’s exploration into the psychology of persuasion sheds light on the subtle dynamics of influence. however, it is his later work, “pre-suasion” that i find equally compelling. cialdini explores the art of framing your message and positioning yourself strategically before even attempting to shift people’s perspectives or behaviors.
for instance, the acronyms and credentials we place after our names greatly color how we think we are perceived. take my own credentials for example: cfp® and bfa™ (behavioral financial advisor). or take the terms “family office” and “wealth management” to describe where i work and what i do. but, what do these terms and credentials make you think of? do they immediately bring to mind wealth and affluence? perhaps they suggest expertise in managing the complex finances of a high-net-worth single family named arrowroot? and when the topic of behavioral finance is mentioned, what are your thoughts? does it conjure images of brokers and traders in the jungles of wall street? does it make you think of daniel kahneman’s groundbreaking work in economics, the unpredictable nature of market booms and crashes, or the emotional responses of investors who oscillate between greed and fear? similarly, the titles of cpa, attorney, insurance agent and accountant often carry their own set of preconceived ideas. each title conjures up a specific image of what these professionals do, the services they provide and how they provide them for better or for worse. and while those preconceived ideas can be helpful at cocktail parties and networking events, they can be limiting in practice.
i’ve found that many accounting firms offer a spectrum of valuable services that go well beyond the traditional confines of tax and accounting – but clients and the general public don’t know it. from the varied services of top 20 firm eisneramper to offerings of local niche firms, cpas are ideally poised to provide a more holistic approach to helping clients. but they often don’t market and price their services in a way to demonstrate the value those services can provide.
from advisory to family office/wealth management
as popular business coach loren fogelman says, your price says a lot about who you are. she gives a masterclass not only on why to raise your fees to attract high-value clients, but how to raise them.
“now that you’re a firm owner, you likely dream of building a high-value client roster,” fogelman writes. “more often than not, you have too many price-sensitive clients on your roster. why? because when it comes to pricing, you are like a magnet; your rates attract a certain type of client. without realizing it, the fees you charge make a statement about your firm.”
sound familiar?
building on fogelman’s observations, not only do your rates make a statement about your firm, but your service offerings make a statement about your firm, and how you present your services to clients makes a statement about your firm.
historical progression of value, services and pricing in accounting and wealth management
if we walk down memory lane, we can see how both the accounting and wealth management professions have gone through significant transformations. yet the public’s perception is that accounting and wealth management are conservative, button-down professions that haven’t changed much in decades. when many people hear the term “certified public accountant” or “cpa,” the image of a bean counter comes to mind. when they hear the term “financial advisor,” thoughts turn to a “stock picker.” you rarely hear people refer financial professionals like us as strategic planners, life planners or holistic advisors even though that’s what we spend most of our time doing. it doesn’t have to be this way!
evolution of the accounting profession
we’ve seen a dramatic change in the way that accounting firms can operate, serve clients and price their services. but there’s still resistance to changing lanes. when it comes to pricing, the tried-and-true hourly billing model, aka, “time for money” model still exists at many firms. but in recent years, more enlightened firms have moved toward “value pricing” and more recently to “subscription pricing.”
- time for money. historically, the accounting profession charged clients based on the number of hours it took them to complete their work, a model that often failed to capture the value provided.
- evolution to value-based pricing. several decades ago, there was a shift by some progressive firms toward a pricing model based on the value delivered to clients rather than the number of hours it took them to complete an assignment for a client. this model took into account the complexity, risk and benefits of the services.
- the subscription model. more recently, there has been a trend toward charging clients a consistent recurring fee (monthly, quarterly or annually) for year-round services. this provides a predictable budget for clients, predictable revenue for firms and ongoing support for clients.
evolution of the financial advisory profession
on the wealth management side, we’ve gone from a commission-based transactional business model favored by stockbrokers to a fiduciary-led investment advisory business model favored by registered investment advisory firms. the predatory broker depicted by bud fox (in “wall street”) and jordan belfort (in “the wolf of wall street”) has been replaced by advisors who are fiduciaries. that means they are obligated always to put the best interests of the client first.
as mercer advisors ceo dave welling said in a 2023 interview: “we’re approaching the meaningful tipping point where consumers really understand the meaning of working with a true fiduciary versus a broker or folks whose intentions may not be aligned with their best interest.” under welling, mercer’s 800 advisors in 80 offices have been expanding beyond investment services to provide clients with tax planning, estate planning and insurance while quarterbacking their clients’ financial lives. “we’re helping clients connect the dots to get what they really want for the financial matters of their lives,” observed welling.
advisor value shifting from portfolio performance to success of a holistic financial plan
wealth managers have realized that even though they are paid based on the amount of assets under their management (aum), the performance of the stock market isn’t what they want their services to be measured against. they want it to be more about the total value they deliver to clients. warren buffett’s famous bet – that the unmanaged s&p 500 index fund would outperform a collection of professionally managed hedge funds over a 10-year period (see sidebar) – was proof that actively managed investment funds don’t add long-term value to their clients’ wealth. it solidified the need for advisors to go beyond investment performance to demonstrate their value.
| warren buffett’s million-dollar bet
warren buffett made a long-term bet, famously known as the “million-dollar bet” or the “buffett bet,” that an unmanaged s&p 500 index fund would outperform a collection of hedge funds over a 10-year period. initiated in 2007 and concluded in 2017, buffett wagered that a simple s&p 500 index fund would outperform a hand-picked selection of hedge funds over the measured decade. he bet $1 million that the performance of the s&p 500 would be superior to that of five fund-of-funds (a group of hedge funds) selected by ted seides, a co-manager of protégé partners, a firm that invested in hedge funds. buffett’s bet was meant to highlight his conviction in the value of passive investing and to criticize the high fees associated with active management, which he, vanguard and others have argued eats significantly into returns over time. buffett wanted to demonstrate that for most investors, especially non-professional investors, a low-cost index fund is more likely to provide better returns after fees than actively managed funds. when the bet concluded in 2017, buffett’s chosen index fund, the unmanaged vanguard 500 index fund admiral shares, had a compounded annual increase of 7.1%, compared to the hedge funds’ average of only 2.2%. the winnings were given to a charity of buffett’s choice, girls inc. of omaha. |
a recent mckinsey study showed that clients are increasingly seeking “one-stop-shop” solutions for “financial and other needs adjacent to wealth management.” researchers found that nearly half (47%) of clients preferred holistic advice in 2023, up from only one in four (29%) in 2018.
i have found over my career that the shift to offering more holistic advice has been fueled by advancements in technology. technology has made it easier than ever for advisors to perform asset allocation, to rebalance client portfolios and to streamline administration, onboarding, account billing. these advances have enabled advisors to add value beyond simply investment management and they have made holistic financial planning more widespread.
shift from holistic financial planning to a human-first approach
now the conversation among advisors has shifted to providing holistic financial planning and how to use “human-first” approach to serving clients that’s grounded in the principles of behavioral finance. as advisors this approach allows us to gain a much better understanding of our clients’ values and helps us look at the many dimensions of what gives them a sense of wellbeing.
you cannot put a value on the peace of mind, clarity and sense of purpose that clients feel when you guide them based on what’s most important to them and their unique relationship with money. this deep level of understanding – based on using behavioral finance and a human-first approach — greatly influences a client’s willingness to pay you premium fees. as my friend dennis moseley williams likes to say, “the goal isn’t what you want your client to do; it’s how you want them to feel.”
i have long abided by the adage that “common client experiences command common fees; exceptional client experiences command exceptional fees.” personal holistic planning fosters client goodwill, allowing you to serve clients on an entirely new level.
tax savings + holistic financial planning: one-two punch of value
research shows that one of the single greatest contributors to an investment portfolio’s success is not the stocks that are picked, but by how much taxes are reduced. tax savings combined with a holistic financial plan (that takes the client’s future into consideration) is a powerful one-two punch of services that can create long-term “stickiness” with clients and can generate significant high-margin revenue.
the goal of tax planning isn’t about short-term tax savings, it’s about saving on taxes over a lifetime. it’s why tax planning, in most cases, should take place within a holistic financial plan. ron baker, founder of verasage institute, calls it working with clients from “womb to tomb.” for instance, we can start helping them plan for college when a child is born and help them plan their estate as they start contemplating their legacy later in life. i have found that as advisors, we can also help entrepreneurs start, grow and sell their businesses. we can ensure that businesses and families are protected properly by having the right types of insurance. we have the ability to connect generations by using estate planning to ensure a plan is in place for families when a loved one eventually passes on.
but sadly, only one-third of americans have a financial advisor. business owners need to know that their business is on track. but they need a financial plan that provides peace of mind for their future. the evolution of the accounting profession to an integrated model can be illustrated by a flywheel. the cpa sits at the center of the financial services universe, one service builds on the other and gains momentum over time, all while working in harmony.
financial flywheel example
client: owners of a $30 million technology company
let’s refer to them as the smith family.
current services provided to smiths:
- business and personal tax filings
- accounting work for the technology company
additional integrated services:
- estate plan
- succession plan
- m&a advisory
- wealth management and assets under management
- serving the next generation of the family
background: james and linda smith own a technology company valued at $30 million. they have two children, emily and alex. the smiths are currently using an outside accounting firm for their business and personal tax filings and for the accounting needs of their technology company.
integrated service offerings
- estate planning. the wealth management team assists the smiths in creating an estate plan that safeguards their assets and ensures their wishes are respected posthumously.
- succession and exit planning. the team collaborates with the smiths to formulate a succession plan for their technology company, ensuring smooth transition and continued success.
- m&a advisory. in the event the smiths decide to sell their company, the wealth management, accounting and m&a teams work together to negotiate the sale of the business and streamline the transaction process.
- wealth management. the team manages the smiths’ investments as their aum grows to $35 million from $10 million post-sale.
- serving the next generation. the team helps prepare emily and alex for their financial futures, offering education and assistance in developing their own financial strategies.