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Trust for Sale

Vincent A. Schiavi; Financial Planning Magazine. New York: May 1, 2005. pg. 1

Financial Planning is the latest, and probably not the last, magazine to publish CEG Worldwide's survey about how accountants can climb the road to riches by partnering with sellers of financial products (see "Your CPA Partner," December 2004). The study's results show many accountants are doing just that. Those "best practice" CPA firms, in the words of the authors, "recognize that these alliances represent a win-win-win situation-for the adviser, for the strategic alliance partner, and, most important, for the client."

It's time for a contrarian's view. These "alliances" may be a win for the CPA, at least initially, and for the strategic partner. But they are not a win for the client, at least not in the form represented by the "best practices" highlighted in the study.

Financial service and product providers win, in the words of the authors, "by gaining access to affluent clients that they would otherwise not have." That begs us to ask, why should it require a strategic alliance for the better planners in the community to get referrals from local CPAs? Did the strategic alliance magically raise the competency of the planner to a level now worthy of referral? Of course not.

When I entered the financial planning business in 1983, bankers sold lending and trust services, insurance agents sold insurance, accountants provided tax and auditing services, and brokers sold stocks and bonds. Professionals referred clients to other professionals in the network, and around and around they went. Did anyone coordinate the services? No. Did anyone scrutinize the products being offered? Rarely, but at least clients could go to their CPA for advice and not have to worry about being "sold" something.

Accounting firms have been looking at the financial planning business for a long time now. Accounting services, done correctly, require hard work. The same can be said for financial planning services. Those CPAs who consider financial planning a viable and honorable service and have been willing to commit resources to it have been rewarded for their hard work and vision. Other CPAs have waited on the sidelines, looking for the profits associated with planning but unwilling to devote the resources, time, and energy necessary to build the business from within.

The article stated: "Because they rely on outside providers, the [CPA] firms using the strategic alliances model earn a substantially higher profit on their revenues. Without the direct costs and overhead associated with employees, nearly all [emphasis added] their financial revenue will end up on the bottom line."

The promoted business model allows allied financial services and product providers to tap the wealthy client list of a CPA firm. In return, the CPA firm gets a stream of significant income without having to dedicate any, or any more than minimal, employees or resources. This is a sweet deal for everyone except the person most affected by the alliance-the client.

The client's assets and income stream must absorb the expenses from the allied sellers in addition to the fees "earned" by the CPA. Isn't it reasonable, if not probable, that this extra layer of fees will unnecessarily handicap clients' ability to reach their financial goals? Expense management has become even more important in this era of diminished return expectations.

CPAs considering such alliances should question their ability to add value while still acting in the best interest of clients. Your position as a trusted adviser took years to establish. Carefully consider the risks of losing that trust if partnering with others results in wealth erosion instead of wealth enhancement.

Planners paying for access to books of business and passing along those costs to clients also should question whether they are acting in their clients' best interests. Advisers who care more about the "profession" of financial planning than about the "business" of financial planning will make sure that alliances result in a win for clients.

Experienced practitioners hope to achieve recognition for financial planning as a profession. Building a profession takes time and the collective better judgment of the craft's practitioners. Any trend that results in more money being transferred from the pockets of clients to the pockets of strategic partners will only delay proper recognition of financial planning as a noble profession.

Vincent A. Schiavi, CFP, CPA/PFS, is president of Schiavi + Co., a Wilmington, Del., planning firm. He has been recognized by the editors of Worth and Mutual Funds as a leading financial advisor and in 2004 received the "Friend of the Delaware Investor Award" from the state's Attorney General's Office and Securities Commissioner.

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