The ability of a CPA firm to expand its capabilities and services to meet the changing needs of today's affluent clients increasingly involves building alliances with insurance and benefit companies. Industry data supports this trend. In fact, by 2010, nearly half of all CPA firms will be significant providers or providers of financial services to affluent clients. This represents a dramatic leap from the situation today, in which only 19.4% of CPA firms are currently significant providers or providers of financial services to this client base.

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	Howard Sharfman

There's a good reason for the expanded concentration on affluent investors. They account for $3.4 trillion of the $17.1 trillion in U.S. investable assets.

A quick snapshot of the services vying for share-of-mind in the affluent market is instructive. Full-service brokers (at 43%) represent the lion's share of providers servicing the affluent. They are followed by certified financial planners (18%); registered investment advisory firms, or RIAs (8.6%); investment managers (7%); and another 23.4% representing other service areas. To this mix, we need to add mutual fund representatives, banks, lawyers, insurance agents, and online advisory and brokerage services. In short, there is a large field competing for a piece of the relatively small (but lucrative) affluent market.

Recognizing the competitive marketplace, our firm has made a concerted effort to ally itself with CPA firms. Why? Quite simply, we recognize that CPAs are perceived by the affluent market as their most trusted advisors—the people who enjoy the best relationships with them. From a practical standpoint, firms like ours have always been open to fee sharing, a relationship seldom embraced by money managers or law firms. CPAs are our best partners.

In addition, as we surveyed the CPA marketplace, we found that the percentage of CPAs providing significant financial services is projected to expand from 3.5% today to about 1.3% by 2009. The percentage of CPA firms providing some financial services is expected to rise from 13.9% today to about 38.6% in two years.

We began our alliance with accounting offices in 2001 with a beta test with a large regional firm. Buoyed by the success, in 2003, we rolled out our alliance with a partner with 10 offices (which eventually spread to 20 offices in 2005) and later that same year started a second alliance with the Chicago office of a national CPA firm (which has expanded to a second office). A third beta testing alliance went live in 2006 with another regional CPA firm.

Why an Alliance?

While we have found that alliances produce the best results, there are other options. A CPA firm can certainly hire and build a division, but recruiting is difficult, the process is slow, and there probably are not any internal systems in place.

A second option is to buy an insurance or benefits agency, but it's an expensive market, there are liability issues to consider, and, quite frankly, most producers are uncomfortable working for a CPA firm.

Consequently, what are left are two better options. The first, depending on the depth of the customer base, is to enter into a long-term alliance. The advantages are that it gives the CPA firm more control, it gives producers the time they need to learn the culture so client relationships are seamless, and the alliance partner will be a committed partner, sharing the same goals. It allows the CPA firm to greatly expand its services to advanced estate planning, more sophisticated finance strategies, and wealth-transfer options. Best of all, it's low cost and can be started quickly. It's really a win-win for both parties.

The fourth option is to build a more informal alliance, whereby the insurance or benefits firm can work with the CPA firm on a case-by-case basis, bringing in specialists when needed. However, this can prove confusing to the firm and to clients, and the commitment may waver based on the level of business.

The Benefits of an Alliance

The bottom line is that alliances allow CPA firms to expand their services to a level that can meet the needs of almost any client. Be client focused. After all, clients are really looking for advice, and high-wealth clients prefer "one-stop shopping," where they can have face time with the right advisor who can bring solutions to the table. They also want to minimize risks, so alliance partners can introduce institutional-priced products and, more importantly, offer recognizable solutions showcasing products and carriers that will be familiar to the client, creating an atmosphere of trust and confidence.

How to Create an Effective Alliance

Like any relationship, an alliance requires some effort to work. It's easier with some partners than with others, but there are important factors to consider:

1. Communication: The best way to get an alliance off on the right foot is by developing an internal communications strategy. This will include the creation of a sales strategy, setting up management reporting systems, sharing success stories, education, and installing in-house champions who can nurture the relationship. Our advice is for the CPA firm to train the firm to recognize opportunities instead of concentrating totally on sales.
   
   
2. Compensation: It's no surprise that, as in a marriage, disagreements over money are bound to arise. The key is to develop a budget, since the alliance must have revenue and expense allocation in the firm's annual budget. The revenue budget must be allocated among all of the partners and managers. Make sure that a monthly variance is communicated to all the partners.
   
   
3. Trust: There must be two-way trust built on shared objectives. The firm must be ready to make a significant investment and time commitment to the setup and design of the insurance alliance. On the other hand, the insurance agent must be willing to invest a significant amount of time in the training of the partner/manager group. Both parties must recognize that an alliance is "big business" designed to build value for the firm.
   
   
4. Compliance: As in any business relationship, there are compliance issues to be considered, and these should be handled by an expert. Compliance issues include licensing, disclosures, and whether or not a firm can pay partners commission.

The Six Elements of a Successful Insurance Alliance

1. Find the "right" alliance. Make sure you share common goals and cultures.
2. Identify a champion. The alliance can only be sustained if there is a motivated champion in each office to push the process along.
3. Establish two-way trust. Both parties must feel good about the alliance.
4. Build communication channels. A new business practice isn't immediately embraced, so keep communication channels open so that no one feels left out of the process.
5. Recognize that this is big business. An alliance is designed to build business and revenue, so set expectations high, and commit to the process.
6. Be client focused. Both firms must have as their core principle "to help and counsel the client."

About the Author:

Howard E. Sharfman, president of Schwartz Benefit Services, Inc., manages one of the nation's premier insurance and benefit consulting firms. Howard's practice concentrates on effective wealth-transfer strategies for high-net-worth clientele. He also provides consultation to both large and small companies in the areas of business succession planning and employee and executive benefit programs.

Known throughout the insurance industry as an estate tax and executive benefits authority, Howard understands the importance of benefits in the attraction and retention of quality employees. He creates innovative solutions that help businesses successfully enhance their benefit programs.

Howard brings a unique perspective to the industry because he has created strategic alliances with accounting firms across the country that have brought value to both parties through mutually beneficial relationships and implementing sound business strategies.

Howard is a member of the Advanced Association of Life Underwriters, Million Dollar Round Table, and Top of the Table, and he is the current chairman of international financial service giant ING's LifeDesign Advisory Board. Howard also serves on the advisory boards of John Hancock and Partners Financial. He is a frequent lecturer to a variety of industry groups, such as the Heart of America Tax Conference, the International Forum, and the NFP/Partners Annual meeting. He also is a contributor to numerous publications. Howard's strategies for wealth transfer, including the "ZERO ESTATE TAX PLAN" have been implemented by many of the nation's leading families.

Howard has a Bachelor of Arts degree from Babson College, where he majored in accounting and entrepreneurial studies. In addition to having completed numerous continuing education courses and having received many industry achievement awards, Howard also participates in several civic and community organizations.

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