Case Study: Beyond Tax Prep: Options for Client Services Expansion

Transcription:


Jennifer Liptow (00:09):

Hello. Hello. Welcome Accountants and Friends of Accountants and miscellaneous. We are here today to talk about Choreo. I had the pleasure of working with Choreo on some research through Accounting Today. I am Director of Research for Accounting Today and Arizent. So we worked with Choreo. We went out to 115 people, tax professionals in the industry. We wanted to talk to them about advisory services and the role of advisory services in their practices. So we gathered all that data, we presented it back to our friends at Choreo, and then we put together a white paper and an infographic, which you guys are actually able to access. So definitely check that out. And so today these lovely gentlemen, Clint and David, who will introduce themselves, are going to talk about some of those findings and talk about the things that Choreo has going on. So without further ado, I'm going to hand it over to them.

David Winslow (01:03):

Absolutely. My audio okay. Everybody can hear me? Good. Okay, good. Well, thank you so much for your attention this morning. My name is David Winslow. I'm a Managing Director with Choreo. I am based in Charlotte, North Carolina. So we had a great flight out and so thrilled and delighted to be here and look forward to spending a few minutes with you this morning. Clint,

Clint Costa (01:25):

My name is Clint Costa, and taking off from the last panel, I am the lawyer in your midst, so I apologize for that. I'm based in Chicago, Illinois at Choreo. I'm the Senior Wealth Strategist, so former practicing attorney for 15 years. Private client trust in estates at a couple of national boutique firms. Found that I wasn't enjoying. The things I really enjoyed in the law practice were the things that in law were the least billable and the least valuable to the law firm, but maybe the most valuable to our clients. And so thought that jumping ship and joining the wealth advisors was a good way to maximize that and change that model. So

David Winslow (02:12):

Welcome to the dark sub. That's right. So who is Choreo maybe the most logical space? It's a relatively new brand. So we've been out for the last two years speaking the gospel of who is Choreo and what is Choreo. So essentially Choreo was RSMs wealth management business. So we have been in public accounting for, I've spent most of my entire career in public accounting. And so we were the wealth management arm of RSM. So about two years ago, RSM made a decision that we were starting to run into all of you audit professionals and tax professionals would understand. We were starting to run into independence issues essentially between the wealth practice and the audit practice. So RSM made a strategic decision two years ago last February to essentially spin us out as an independent company. So our entire group lifted out of RSM and has now Ben, Chris, and Choreo.

(03:19):

And we are out essentially with, to me, a unique value proposition that's not out there in the marketplace today. We are a wealth firm that was built by CPAs for CPAs. Our entire business is predicated and based around providing the highest caliber wealth advice to accounting professionals and their clients. As you'll see on the slide, we refer to ourselves as a B2B2C company every day we are spending most of our energy around serving CPA partners and their other professionals on how can we help them run their practices more efficiently? How can we support them and ultimately can we also work with their clients over time? So Clint, you want to spend a couple minutes talking about this?

Clint Costa (04:08):

Yeah, I think to David's point, having the preponderance of our advisors having been public accounting alumni, they sat in those offices with the CPAs. They understood what the pressures that the CPAs were going through, the disjointed reach out to clients to get information, all of the things. And that's what they did really well was help smooth that out. And obviously it helped the wealth business and I think it helped the CPA business. I think what we focus on is this term authentic collaboration, which is why it's handily bolted in the slide. And I think what that means to me is an attorney who worked with larger clients trying to be one piece of the puzzle. The goal is not necessarily to just say, here's three attorneys, here's three CPAs, here's three of this, here's three of that, go good luck client. We want to be and help be that quarterback and supplement what you're doing as the most trusted advisor to the client. And we want to help supplement that relationship, make it easier for you, help you with tasking. And really we know that that's going to help not only the CPA, but it's also going to help the client to have a real continuous approach to the management of their wealth and their tax situation and all the things that they have going on.

David Winslow (05:36):

From my perspective, I think when people hear wealth management, they think big Wall street firms and that's what the industry is. But a lot of times somebody might look at me and say, well, you're just like x, y, Z advisor at one of the big New York firms, for example. But the reality of it is, is we're on the opposite end of the spectrum. Our values are aligned with the accounting industry because that's the only industry we know. So we have a conflict free business model, a hundred percent objectivity. So we're wired and we act like we come to work every day much more in a public accounting culture than we do a wealth management culture. So it is a different paradigm and we think, again, it's something that's going to be unique in the marketplace. We're excited. We're seeing tons of momentum. We're, every conference I've been to, we're getting a lot of essentially attention and a lot of great dialogue with some just world-class firms like yours. So it's all good.

Clint Costa (06:46):

So this is a great, the word bubble, all the things that we have to do together, both from a cashflow perspective, from a tax perspective, from an estate planning perspective, I think what we're trying to drive home here is the idea that the client is never served. When any of these are being done in a bubble, we don't want to work in a bubble. So I'll take you to a very typical thing that I, as the evil attorney used to have happen all the time. We would work with clients through the year and then we would get through that planning and we would do some pretty massive planning, very impactful. We're changing cash flows, we're changing business ownership, we're engaging in things that require babysitting. Guess what? Attorneys are really bad at babysitting. We're onto the next, right? Clients, we've exhausted our client, we've grabbed them by the ankles and shook all the money out.

(07:43):

And so they're tired of us and not that they're not going to come back, they're good relationships. They trusted us, all those things, but they didn't want to pay us the hourly rates that we would charge to do a bad job at what you do really well. And so we would go to that point of you kind of take a break at New Year's, maybe if you're lucky and depending on the year, and you kind of get through that January lull. And then in February, all of a sudden we would start to think, oh, I don't know if anyone realizes that there's four new entities, maybe a 10 41, maybe. All these different things that need to be accounted for that the cash flows have changed. The client probably didn't fully understand that. And so that's when that email would go out. And maybe it was February 1st, February 15th, maybe it was March 14th, and it would be, Hey, by the way, the business isn't owned, how it was last year, this didn't change.

(08:38):

That did change. That was just such a painful process for everyone. And I think we would come off of calls as the law firm thinking and with the wealth advisor who maybe introduced us thinking that didn't go well, I wonder why. Well, it's pretty clear why. And so I think any of these things, our viewpoint is we want to help the client in whatever that capacity is. If the client's accountant is the one who's driving a lot of this planning, perfect. We can run with 'em if it's a different setup and we we're helping introduce the planning and then getting that coordinated, we don't want to do that in a bubble. And I think just these are just a few of the examples as to why that would be.

David Winslow (09:22):

Yeah, I think from my perspective, and I think Clint, you probably agree with this, is that I think most clients believe that their wealth advisor and their accountant are spending a lot of time collaborating and talking about issues. And I think when you talk to a practitioner of either, the reality of it is that's not happened. I know that there's instances where people have great collaborative relationships, I think is more rare than a lot of people would admit. And I think clients think that this collaboration is happening. To me, what this word bubble represents is almost every important financial decision that a client needs to make has probably a tax and wealth overlap associated, and the client wins by their team getting into a room and getting to the right answer. And so our business is built on making sure that we foster that collaboration, that we memorialize these meetings, that we are proactively scheduling meetings that the accountant is invited to. So the whole business is built on trying to make sure that we bring that authentic collaboration to life. So Clint, you want to take this one?

Clint Costa (10:36):

Yeah, so I think our viewpoint is there are many ways that we can work together to expand client service. And we think that engaging in a partnership, in an authentic collaboration with a well-suited wealth partner can do many things to augment, to bring in more revenue, to augment the client experience, and ultimately to allow the accounting firm to add to its capabilities. Something that is hard to spin up, right? There are RAs in a box. There are many examples of ways to do it that David will talk about. At the end of the day, what we've seen in the industry is that it's hard to do that continuously. And as you grow, there are issues with that. So our viewpoint is adding that service line is a way to grow the firm, grow the client experience, and do it seamlessly in the right situations. Yeah,

David Winslow (11:40):

Absolutely. We just got back from the BDO Evolve conference. Shout out to Michael Horowitz and his team. They did a just unbelievable job. It was a great conference. I mean, how many people did you have there, Michael? How many? 1900, 1900 participants at the conference. And I was approached by so many firms that are either in the wealth business or they're thinking about being in the wealth business. And probably what I heard more than anything was they're in the wealth management business, but it's not delivering what they thought, which is you want to have a wealth management offering or a strategic partner that's going to be accretive to your brand and accretive to your client experience. And what we saw was a lot of these firms were doing the opposite. It was brand damage almost, and it was not accretive to the client experience. And so we're having conversations with some of those firms around, well, how can you change that dynamic around?

(12:43):

Because ultimately what you're looking for is something that will make your firm's brand stand out, will create more of a sticky client retention that will make the client experience be so much better, and ultimately, hopefully as a byproduct that the firm is a lot more profitable as well, that you can be strategic from a profitability standpoint. Clint, you've talked a lot about in some of our meetings and some of the dialogue we've had around how can a practitioner save time. Do you want to talk a little bit about your days as a lawyer and how you thought about that?

Clint Costa (13:19):

Trying to forget those days actually, but no. Yeah, I mean I ran a book of business as an attorney and there were the tasks and then there were the lead up to the tasks. So the task was what we could bill for. And the lead up to the task was also important because maybe we're framing that for the client, we're helping them to understand why I am about to make you dive deep into something you probably didn't want to do but is important for you and your picture, your estate planning or tax picture. And we had relationships in the law firm. We had all the gamut of relationships with CPA firms with wealth advisors as you would expect. And what we found where there were certain advisors we loved working with because they made our job easier, they almost made us feel bad in a way because they would do such a good job of tasking and proactive planning and proactive appointment setting. We thought, this is just tremendous. All I have to do is join this call and sound smart. And for lawyers, it's sort of sounds smart or sound very confusing, one of the two and then ultimately get the job done for the client. And so that's an experience I had and one that I know that our advisors regularly do because that's the pedigree that they came from.

David Winslow (14:47):

So let's talk a little bit about the study that we did with the outstanding team at Accounting today. I mean, we reached out and spent a lot of time trying to understand what CPA firms are doing in the wealth management business. And I think the white paper, the infographic, everything that you have will give you a lot more depth probably than what we might talk about today. But the reality is is that most firms simply cannot offer all these services in house. We go to a lot of industry conferences and we hear the same themes that are out there in public accounting right now. Themes around AI disruption themes around essentially increased regulatory burdens, themes around the war for talent essentially. And so the industry is facing all these themes that are unique to it. And so the reality of it is, for instance, on wealth management, they just really can't, don't have the talent in order to make it really work the way that they would like to do.

(15:58):

So they're relying on just referring this out to third parties, et cetera, et cetera. Most all firms, as we found do a lot of tax prep, the actual compliance work, a lot of advisory services around planning a lot of business advisory services. Those are all the things that we think accountants do, and they do an outstanding job doing those as opposed to some of these other areas where wealth management, financial planning. And so we think there's a real path for these firms to be able to supercharge their growth trajectory and again, enhance that brand and deliver a better client experience all the way around. I think few firms, few accounting firms that are out there are actually capturing this revenue that they're creating for other firms. They're essentially, when I talk to accountants, I can't tell you how many tax people I met with when I was in Vegas that said, I send so many more referrals to wealth firms than I received back from wealth firms.

(17:04):

And that's just not right, right? And so essentially you're taking your client relationships, you're sending them to a third party, you're receiving no revenue at all for the time that you've put in, and ultimately you don't even know what kind of client experience they're going to have. And so we believe that there's a unique value and opportunity for accounting firms to deliver additional services, essentially in our case wealth management and increase that growth trajectory. Again, that was one of the major themes that we continue to hear, how can we grow essentially? And what we're hearing mostly is we're going to grow by going out. Guess what? Most accountants do? They're going to go out and try to find more clients and offer the same services to those clients. But the hurdle and where we have a catch 22 is that there's not enough people to actually execute on that vision.

(18:04):

There's not enough talent out there in the industry right now for all firms to rely on the same strategy of going out and getting more clients and offering tax audit consulting, et cetera, et cetera. Again, it's just not going to work or it's not going to work as well maybe as what we think some other paths are. So the conversations that we have with firms are around, essentially you've got three options here. When I sit down with the leadership team of an accounting firm, we can talk about what are these options? No strings attached referrals, so just send the client. That's what most firms do today. Here's a list of three wealth firms. I can't recommend anyone on that list, but here are three essentially that you should reach out to and good luck. The second is offer expanded client services in-house, meaning they can essentially start a service line, a wealth management service line, they can staff it and they can essentially start to deliver it.

(19:11):

It's a great option for a lot of firms because you're going to keep all of the revenue. And so most firms that we meet with typically start there because they see it as, I can get the most margin, the most profitability if we just build it in house. The reality though is what happens, and I met with literally dozens of firms in Vegas at the Evolve Conference where essentially they said the same thing, which is we started this business, essentially we've amassed some revenue in it and it's either flatlined essentially, and it's not delivering the client experience that they want to deliver. Why is that? Because it's a business that's going to require additional resources. Essentially you have to continue to nurture any advisory services that you offer. The reality though is that most firms are not going to invest their capital in the wealth management business.

(20:09):

So they start, they build a small business, IT kind of flat lines, and then they kind of question, why are we in this? It's just kind of, it's a smaller business relative to the rest of everything else we offer and it flatlines at that point. And so again, it's because if you think about where accounting firms need to be investing today, where is it? It's people in traditional service lines because they don't have enough tech stack. Essentially we hear a lot additional capabilities that we are looking at, we want to invest in that are more synergistic with our core service lines. Wealth management's not going to be on that list so it doesn't receive any more capital and eventually just kind of withers or goes sideways essentially. So the third option, and this is the Choreo option, is that you partner with a strategic partner where ultimately you're able to share revenue with the firm if you so choose. Essentially we will deliver that client experience that aligns with what your firm values are. We will essentially continue to invest. If you can have a 100 person service line of wealth management inside your firm, we will spend every dollar to build that if you can create that kind of demand. So that's what we offer. But Clint, you got any thoughts on any of those?

Clint Costa (21:32):

I think, and that was super, very well said, David, I think in what we see in the market, I think when I think about some of these options, one of the things I think about with number one, and that also relates to the slide before with some of the data about the idea that most referrals are uncompensated. I think about my time in professional practice when these things were offered and felt, it's like, oh, it feels a little, I don't know, it doesn't feel great. What I would say is the Choreo option for that is not, and I don't think our regulatory people are here. This is not a kickback, right? This is not a, oh, thanks I'll, right? I'm from Chicago, so I know about kickbacks. That's not what this is, right? The goal here is to elevate the accountant even further, right? To incorporate so that we have a reason.

(22:26):

You have a reason to be in these meetings other than your goodwill and your desire to serve the client's best. When I was managing a book of business, I was judged on my realization. There was a sense of how much time are you putting into these clients and what are we billing and how do we need to manage that because we were in business to make money just like everybody else is. So that rev share, though it is completely optional, I think is it's the fee for service that's hard to capture if you're not in this wealth management business. The other thing I would say, with respect to the no strings attached option, when you send out a referral, and I've been there, David's been there, we've all been there who are in professional services, we're sending our valued clients out. I did study as an accountant, I didn't fully actualize that, but I did study as one.

(23:21):

And so I only took one finance course that I thought was a waste of time. But what I do remember from that finance course is that there's a risk premium, right? You could say there's a percentage chance that I'm going to make this client so upset with this referral that they're going to leave me. So if you think about it, what's really odd is that an uncompensated referral is actually in a weird way, you're paying, you're taking a risk that could be distilled down to a monetary to a dollar value of the risk that you take by making that referral. So I dunno

David Winslow (23:55):

If, yeah, I mean each of these have pros and cons. No strings attached means I'm not putting my brand at risk to Clint's point, I'm trying to help my client and essentially I'm not going to put our firm brand ization, regulatory, et cetera, et cetera, on the line for that. So that's a benefit to no strings attached. And again, some firms continue to want to do that and we're great with that too because that means we get to keep all the revenue I guess at the end of the day. So that happens. But again, these all have essentially pros and cons and our job is to sit down with you and say, let's walk through a waterfall discussion around do you want to be in the business? Here are your options, here are the pros and cons essentially. And at the end of the day, make the decision that's best for your firm regardless of what business model you ultimately land on.

(24:48):

So we're going to be around for the rest of the the forum. So here's a QR code where I think if people have phones, you also have essentially placeholder, what are we calling these things? Ryan? Postcards? Yeah, at your sheets. I have the QR code on them as well. So you'll be able to download the white paper infographics, spend some time with that and ultimately reach out. We're going to be here for most of the rest of the conference. So we'd love to meet as many of you as we possibly can during the cocktail hour. Probably not during karaoke because I'm going to be on stage most of the time probably. So I think we got four minutes. Does anybody have any questions? Somebody always has to be brave and ask one and then it opens up, but it only takes one. And I didn't plant one. Michael's planting one. I gave him a shout out. He's trying to help me here. I like it.

Audience Member 1 (25:52):

So one of the common objections to having an in-house wealth management practice is when the market turns negative, there's repercussions in terms of the relationship that you have with let's say your tax client in the Choreo model. If a firm is recommending Choreo as a solution outsource basically, do you sense that you have the same risk as a recommender of the solution? Can you speak to that? I know you've only been doing it for a couple of years.

David Winslow (26:33):

Yeah. You want me to go first and you jump in? So yeah, I hear that a lot. So my response to that is a couple of things. First of all, Choreo is really much more of a planning focused organization. I would say in most client meetings that we do, I would say 75 to 80% of that meeting is related to some sort of planning topic, whether that be a estate and gift, whether that be a business planning around a closely held company, whether it be on retirement plan, consulting, whatever it may be. But most of our conversations revolve around planning, not money management. That's kind of like table stakes for us probably. And we'll generally sit down, tell 'em what's going on with the markets, but we're much more of a planning based organization. So I don't think those concerns are isn't acute if we were just holding ourselves out as being more akin to an institutional money manager or a traditional kind of wealth management firm.

(27:33):

So we don't get that a whole lot. And the other thing I tell accountants too is most clients understand that we can't control the markets any more than accountants control what the Congress is doing with the tax code. So accountants aren't getting blamed for essentially new statutes or new regs that run counter to the client's best interest. So there's certain externalities that we can't really control, but again, hear it a lot and it's common and it's out there. I just don't think the basis is that is probably as acute as we think it is. So you have,

Clint Costa (28:11):

Yeah, I think just anecdotally, I would second what David said. I came over to Choreo in August of 2022, and then we suffered through a period of a bad market. And one of the ways that I actually sort of made my bones with a lot of the advisors was to reach out and say, if you have upcoming client meetings and you don't want to talk about the market, why would you want to talk about the market right now other than to just confirm the client's money is still there though, having less value. Let's generate some ideas. Let's think about some planning topics to think about. And I think also to David's point, a big part of the world we live in is some of that coordination. And so I think we live on some goodwill when clients are experiencing that really nice close relationship between the wealth advisor and the CPA such that they understand that there's more to that relationship than just the investments. And so we can talk about this is a great outright at the most basic level. This is a great opportunity to tax loss harvest. Let's go get you some tax benefits out of this bad market.

David Winslow (29:23):

We got time for one more. Anyone? Gil? Hey, there we go. Love it.

Audience Member 2 (29:32):

I just had a question or two topics actually on the client referral fees. One, do you have to inform the clients that they're getting a referral fee and how does that conversation go? And then secondly, how do you structure the referral fees? Is there different fees for different services when it has different levels of profitability in the products they're purchasing? And then as far as going forward, is there consistent referral fees year after year?

David Winslow (29:54):

Sure. Great question. Thank you. So disclosure requirement, so there's a couple of components. So when you have an initial meeting with a client, there really no disclosure required, just sit down, build a relationship, et cetera, et cetera. At the next juncture, if an accounting firm's going to share information, they need to get a 72 16 signed at that point, essentially by the client that they would retain. Essentially, if we then proceed to a formal engagement, they will disclose and we have all the disclosure forms, but disclose that you're receiving a referral fee as part of the engagement essentially. So that disclosure does need to happen at the time of engagement.

(30:41):

Your question regarding the payout, kind of how we share revenue. So it's a flat 25% essentially that we give back to the accounting firm. And we have an entity established where one practitioner for the firm needs to have a securities license of 65, and they become essentially part of that regulatory entity, essentially is how we structured it. And I'm not the right person to have that conversation by any stretch in terms of some of the regulatory probably, but that's the highlight of it. And how the firms then allocate that 25% is totally up to them. I mean, we're wiring them the money and it's a flat amount based on the revenue that the client essentially is paying us. So again, thank you so, so much for, do I have time for another? No, they're shutting me down. I'll find you.

Audience Member 3 (31:41):

Scale 25%.

David Winslow (31:43):

It's 25%. Just flat. Yeah. But we can connect on it at the end of the session. Thank you so, so much. I hope to meet as many of you as possible while we're out here. Thank you.