It’s no secret that financial planners are buying up accounting firms, which should tell accountants something. Clearly advisers see a lot of potential value at the relatively cheap prices on offer.
They understand that the average suburban accounting practice represents an enormous opportunity sitting idle. By introducing financial services to an accounting firm’s client base, they can boost revenue and potentially treble the value of that business within a short period of time.
Traditional accounting firms tend to be valued on a cents-per-dollar of gross fees basis. They typically trade on a multiple of between 0.7 to 1.3 times revenue. A top accounting practice with a loyal client base, quality staff and formal systems and procedures may be valued at a dollar-for-dollar. For example, a firm with $750,000 in annual fee revenue would command a sale price of around $750,000.
By comparison, financial planning practices sell for around three times revenue. Top practices achieve much more.
It has taken a while but a growing number of accountants have cottoned on to this discrepancy and they’re exploiting it. They’re adding financial services to their mix, lifting their revenue and they’ll ultimately get a higher price when the time comes to sell.
Accountants have nothing to lose and a lot to gain by expanding into financial services, provided they do it right.
There are still naysayers who believe that it’s all too hard and too many conflicts of interest exist in financial planning which may damage their brand and reputation, but it doesn’t have to be that way.
There are a number of different ways to introduce financial services. Some are quicker and easier than others. For example, accountants can hire a qualified professional adviser inhouse or they can enter a joint referral relationship with an established advice business and refer existing clients to the new entity.
It’s often simpler for an accounting firm to initially introduce financial services on a referral basis which minimises expenses.
If offering clients comprehensive strategic and investment advice seems too much too soon, accountants can start small with life insurance and lending before gradually expanding into other areas of wealth management such as holistic strategic advice and estate planning.
They can move at their own pace over a period of between 1-2 years or they can accelerate the process and have a financial planning arm up and running within three months.
What for? It is all about the money?
The benefits of melding traditional accounting and financial advice go way beyond money. Although it’s often extremely financially rewarding both in terms of building a diversified revenue stream and lifting capital value, there are many non-financial benefits.
For starters, accountants can satisfy their duty of care to their clients by raising awareness about their potential need for life insurance, income protection and TPD cover. They can deliver peace of mind to clients and their loved ones by helping them protect their wealth in the unexpected event of death or illness.
They can play a more significant role in their clients’ lives and become their primary trusted adviser, in conjunction with the financial planner, by helping their clients secure a comfortable retirement and financial independence.
In an increasingly competitive environment, accountants who can provide more than tax advice and accounting services but a complete, integrated wealth management solution under one roof will effectively put a fence around their clients. By meeting their clients’ total financial needs, they can minimise or remove the need for their clients to go elsewhere for advice, which would put them at risk of losing the client to an accounting firm linked to that adviser.
No matter how loyal an accounting client is, if they develop a close relationship with a financial adviser not aligned to an accounting firm, eventually that adviser will chip away and encourage them to at least consider an alternative accountant.
Finally, with the imminent removal of the accountants’ exemption less than a year away, accounting practices that resist change and refuse to embrace financial services will ultimately get left behind.
Greg Holman (FCPA) formed Holman’s Accounting Group in Noosa 21 years ago. His firm was listed by BRW as one of the top 100 accounting firms in Australia by revenue and one of the top 10 fastest growing. In the late 1990s, Greg was joined by Rob McGregor and together they established an award-winning financial planning business. In 2012 they sold their accounting firm and launched GPS Wealth Ltd – an AFSL designed for accounting firms looking to embrace financial services as a key service offering. GPS Wealth was recently named Dealer Group of the Year by AccountantsDaily's sister publication ifa. It is also the 2015 CoreData Licensee of the Year.