The wealth management business as we currently know it is far less mature than the accounting or legal professions. After all, the Certified Financial Planner certification was born in 1972 and the Certified Financial Planner Board of Standards was founded in 1985. With less history than the accounting profession, the financial planning or wealth management business is still evolving into a profession that can be broadly respected and somewhat consistent from practice to practice. It’s my opinion that the wealth management business at large still has a long way to go.
How that relates to the wealth management business inside an accounting firm is an interesting paradox. It seems as if many firms still take their lead and direction on how to staff and compensate their teams from the wealth management business, when the reality is that most advanced and progressive wealth management firms now agree that their staff and compensation models are derivatives of what they see in the accounting and legal professions.
This issue goes deeper than the affiliation models for accounting firms and whether you are affiliated with a broker-dealer or not. The issue goes to practice management and the business plan for your firm.
If your firm is looking for extra cash flow by grabbing any low-hanging fruit that originates from the accounting firm, then a loose staffing and compensation model is likely the lowest-cost way of running the business. Note that I didn’t say the best way, simply the cheapest way. This is typically done as joint work where staff simply gets a “piece of the action.” This means that staff is paid a percentage of the business revenues derived from wealth management activities for the clients that they serve. This is similar to the Wall Street wirehouse model or insurance agency model where the firm sets up split revenue codes to compensate an advisor according to a prearranged revenue split. I believe this method is old, outdated and ineffective for accounting firms that are serious about having a significant wealth management division.
Rather than taking guidance from the insurance or securities industry, I prefer the staff and compensation model that has emerged from the larger investment advisory firms. These firms typically are registered investment advisors only, with no broker-dealer affiliation. When you go deep and learn about their business model, it is very similar to the accounting firm method of building teams and compensation with a little modernization.
Start with a plan
Before a firm can be serious about staff and compensation, you need a business plan. If you were assisting a client with a business plan, you would insist on building a team that can consistently deliver or exceed the desired experience and outcomes for your clients that the plan articulates. For your wealth management business plan, treat yourself as if you are as important as your best clients.
One of the first issues is a chicken-and-the-egg question: Do you build your staff first or do you generate income and cash flow first? My choice would be to build your staff to the business plan and then let your marketing drive the revenue and cash flow. It isn’t hard to market wealth management within the walls of an accounting firm. Your clients already love you and want more of you, and much has already been written about just how much clients want tax advice from their wealth manager. The wealth management community at large falls far short of delivering that tax advice. This presents a huge opportunity for accounting firms.
The trend among the highest performing advisors is to build client service teams. These teams resemble the accounting firm hierarchy: partner, manager, staff … augmented with subject-matter specialists as needed.
The firm needs a leader to start. Someone who is responsible for everything from marketing to delivering the experience promised to clients. Most firms choose an existing accounting partner to do this, with mixed results. Perhaps I’m being generous with the characterization of mixed results, but let’s just say that most accounting firms are falling far short of their wealth management potential.
The leader shouldn’t be a CPA partner who is running the wealth management division on a part-time basis. The leader needs to be full-time and completely dedicated to the wealth management business. If this leader has a good wealth management technical background, then your next hire would be a good administrative assistant/paraprofessional.
The leader’s compensation should look like a traditional accounting firm partner comp plan. It will be low to start, with an aggressive bonus program. Eventually, this leader will rise to the compensation level of a managing director or partner as this unit grows and flourishes. My experience is that many firms “cheap out” here and get subpar leadership. View this division as a private equity firm would view it had they just invested in your wealth management division.
Building out the rest of the team will be similar to your accounting firm staffing. Each client should be serviced by a team. This team should have a lead advisor and a support-level advisor. All meetings with clients about planning matters should include both team members. This is the best way to lead and train your junior staff and it allows the lead planner to be 100 percent focused on the client, the conversation and the agenda.
I believe it is best that these team members become W2 employees of the planning entity. In most firms, the planning entity is a separate entity — as it should be. The benchmarks for these W2 employees is based on the market in which you are located. But in this remote world we have entered since the pandemic began, that may also change.
Some of the firms that many advisors deal with publish detailed staffing and compensation surveys and studies. Some of the more popular ones that I’ve seen come from Charles Schwab, Dimensional Funds and the CFP Board of Standards. Become familiar with these in order to structure your plan or to revise the plan that you currently use.
Size and scope
How many clients one team can properly serve depends on the scope of work, complexity, and size of each case. As far as scope of work goes, my advice is not to compromise your firm’s business plan for deliverables and the client experience. The best models for the most successful firms is a heavy wealth management service model compared to the “asset-grabbing lip-service planners” of yesteryear. We have found that a good team can handle about 75 to 90 high-net-worth families with our high-touch level of service.
Those without robust service models will suffer if they are narrowly focused on any one service. There are many firms where teams lightly serve hundreds of clients, but in my opinion their offering is not quite robust enough to qualify them as wealth managers. If their primary service is investment advice and retirement forecasts, they will face challenges ahead as clients do not need you for that commoditized part of the relationship.
The robust wealth management offering leaves no gaps in your advice. You will give advice on all of the major areas of the CFP playbook, and take accountability for the implementation with the other professionals needed. This may include bankers, attorneys, insurance agents, investment professionals, real estate professionals and anyone material to your clients’ financial well-being.
But the robust service model also includes many family office-like services, such as family governance, domestic employee guidance and human resources, ad helping your clients’ children find purpose and meaningful careers. In fact, my experience with high-net-worth clients leads me to believe that these nontraditional services are more valuable to the client than the core offerings.
Next you build on your subject matter expertise. In the early days, it is OK to obtain these on a virtual as-needed basis. But the growing firm is going to build these specialties in house. These may include specialties like Social Security and Medicare, investing in alternatives such as real estate and private companies, investment analysts, insurance analysts (but not insurance sales), international expertise, estate planning expertise, etc.
As you would in your accounting firm, have a solid career track for wealth management professionals. Too many firms simply advance careers with production bonuses, and we all know that it is about a lot more than the money. Hold reviews at least annually, and more frequently for those who are at the entry level through manager level.
I also like the idea of tying compensation and bonuses to more than just new revenues in the door. For staff on a career track, these incentives may include passing the CFP Exam, being able to lead client meetings, training other staff, implementing new technology, or attending off-site educational meetings. Be creative, and tie your bonuses to the tactics that you believe will advance the firm’s client relationships and are in the best interests of your clients, the employee, and the firm’s business plan.
