Entering the Realm of Investment Services

It's not necessary to reinvent the wheel when entering this niche—help is available.

Disclaimer: The facts in this article were obtained solely through interviews with people quoted or companies discussed in the article. The Journal of Accountancy does not endorse or recommend any particular turnkey providers, investment advisers, broker-dealers or money managers.

It's only natural that CPAs, who know so much about clients' financial situations and expectations, might want to help them plan and implement their long-term investment strategies. Investment services can be a dynamic and lucrative addition to a practice, but this niche often is challenging to launch and maintain. To make it easier, a number of companies offer services designed specifically for finance professionals branching into this niche.

What they provide varies widely. Some offer consulting and training alone, while a number supply extensive operations support as well as access to money managers or investment funds that otherwise would be unavailable to the CPA's clients. All of the providers on the list beginning on page 76 offer investment management, although some also enable CPAs to sell individual stocks or other financial products through their securities or insurance arms. Some work only with CPAs who have already registered as investment advisers (RIAs), while others don't have this requirement or will help practitioners become RIAs so they can offer financial planning for a fee or become registered representatives of the broker—dealer.

Investment services are complex and risky because of the multitude of regulations that apply to them. Since insurance and securities usually are sold by people who depend on commissions, many clients see value in investment advice that can be obtained from professionals who work independent of commissions and who have solid technical backgrounds. This is the foundation for CPAs who want to enter financial planning and establish specializations in wealth management.

To excel in this challenging field, Phyllis Bernstein, AICPA director of personal financial planning, says it is important to resist temptation to offer services outside the niche. It is very difficult to become an expert in a number of fields. CPAs need to keep up technically, and the investment business, for investment advisers and brokers, is really one of the most complicated from a regulatory point of view.

Practitioners who don't specialize in this area often find it difficult to fully comprehend its complexity. To stay current, CPAs must understand macro-and microeconomics, modern portfolio theory, capital market theory, investment management, equity securities, securities analysis, options, futures and combination securities, fixed-income securities, investment policy development, manager and mutual fund selection, performance monitoring and asset allocation, in addition to tax planning, estate planning, retirement planning and risk management.

Investment services present an excellent practice opportunity for CPAs, but those who choose to offer them should have the training required. It is unlawful for anyone to provide investment advice or sell securities without being properly licensed, and it is important to consult with an attorney about this, cautions Bernstein. She also suggests that CPAs consider the ethical issues concerning the practice of investment advising or securities sales by CPA firms that perform audits. The AICPA Web site (www.aicpa.org) lists state laws regarding commission and contingent fees.

Bernstein estimates that it takes a few years of dedicated study to become proficient in this field. One good introduction is through conferences, such as the AICPA Investment Service Conference and PFP Technical Conference, and continuing professional education courses offered by a variety of sources. Training is relatively inexpensive, she says, but it takes a lot of time and study to complete. She also recommends that newcomers get involved with their state CPA societies to meet knowledgeable PFP professionals.

Once a practice has assembled the expertise and licenses required to enter this area, its time to consider outside assistance, which comes in many forms. The best choice for any given practice should depend, first, on the firm's culture and philosophy. Ted Gurniak, of five-person Gurniak & Gurniak in Allentown, Pennsylvania, chose to become a member of the Callan Associates Investment Management Council because it offers CPAs investment research and education for a quarterly fee but does not get involved in money management or selection and implementation of specific investment plans.

In a typical engagement, Gurniak, who set up his own registered investment advisory firm and who has the AICPA's PFS designation, uses software provided by Callan to analyze a clients needs and come up with an appropriate investment mix. He then makes product recommendations from a list of top-performing mutual funds based on Callan's research. Gurniak has his own institutional account with Charles Schwab & Co. to handle the actual trades.

While Gurniak chose to affiliate with a company that serves exclusively as a research arm, all of the other companies discussed in this article offer CPAs, and their clients, at least some degree of control over investment selection. The strategy depends on the personality of the firm and its clients, says Kevin Malone of Greenrock Research in Oak Brook, Illinois.

Control over the investment plan is perhaps the most important issue for CPAs and their clients. "Who is responsible for developing the investment plan with the client?" asks Connie Brezik of Far West Financial, which has offices in Casper, Wyoming, and Scottsdale, Arizona. Although a turnkey provider might offer research and consultation on specific portfolios, I want to be the person making the final investment decisions with the client, she says. Some of the companies listed here offer CPAs access to private money managers who chart an investment strategy, while others provide an array of options for practitioners to choose from themselves. The companies that have affiliations with money managers allow CPAs access to them for client portfolios that are smaller than the usual minimum account size and usually at a lower cost. Almost all of the investment firms have minimum account sizes, which may vary depending on the investment strategy.

For many practitioners, one of the most valuable services these companies provide is administrative and compliance support. What I wanted was a strong back office, says Brezik, a sole practitioner who has one part-time staff person. When she began helping clients with their investments, Brezik wanted to free up her time to meet with existing clients and find new ones. She didn't want to hire several employees shed have to manage, so I looked for someone to provide daily reconciliations, to make sure the right investments were purchased and to give me quarterly reports for my clients. She contracted with Buckingham Asset Management, a so-called turnkey asset management program that allows CPAs to outsource the operations side of their investment services as well as to receive investment research and management. With her two offices, the turnkey programs mean I don't have to be in one place all the time to manage people.

Brezik advises practitioners to examine available support systems carefully. This is a very detail-oriented business, so it's important to establish who is going to place the buy-and-sell orders and when and who is going to make sure the right transactions occurred. Get a list of procedures the back office will follow and compare among providers. There could be quite a difference.

Another issue is coordinating the investment arm with the existing CPA firm. Are you going to continue to run a CPA firm and maintain traditional CPA services? Brezik asks. If so, she advises choosing a provider that offers plenty of operational, educational and marketing support. A number of the providers on the list are run by CPAs, and their services include consulting on how to bridge the gap between the two entities. You have to consider ownership and structure issues, partner buy-in, independence, cultivating internal referral sources and marketing to the existing client base, among other issues, according to Marlin Bochantin of Oak Brook Investor Advisory Services, one of the companies started by CPAs to offer consulting and investment advisory services to CPA firms. Some CPA firms have hired non-CPA investment advisers to run these practices, while others use in-house talent. It's more practical to hire experienced financial advisers, says Bochantin, although he warns this can raise problems. They often are unfamiliar with the culture of the CPA firm.


In selecting a provider, a practitioner should consider his or her own investment approach and the philosophy that best will suit clients. Some affiliations allow practitioners the potential to trade actively, while other companies with proprietary investment plans usually favor a conservative, and in some cases passive, investment approach. At Buckingham Asset Management, we use institutional passive, diversified asset class funds to fulfill the investment policy statement created by the CPA and his or her client, says Stuart Zimmerman. We don't try to find a good fund.

The AICPA personal financial planning executive committee has a white paper on the various compensation methods in practice. It is available at AICPA online ( www.aicpa.org/members/div/pfp/wht-papr.htm)

The client simply owns everything in a given asset class, such as domestic or international small-, mid- or large-cap stocks. In other words, an investor in a mid-cap fund would own shares of every single stock classified as mid-cap.

The list that appears on the previous page covers only some of the providers in this field. While it is not comprehensive, it features a number of different types of providers to give CPAs a sense of what is available. In addition, while some mutual funds may offer assistance to CPAs as part of an asset management program, listing them is beyond the scope of this article. When investigating the companies listed here, CPAs should be aware that the descriptions do not necessarily cover all of the requirements those entities might have for doing business with them, in particular licenses and registration. CPAs who are thinking about branching out into investment management should consider their options fully, including some providers not included on the list, because of differences in offerings, philosophies, approaches and licensing requirements.

The Right Licenses and Registrations

It is difficult to be considered a committed and serious financial planning practitioner without giving investment advice and registering as an investment adviser. In addition, many qualified practitioners find it necessary to sell mutual funds and insurance. If an adviser wants to sell products for a commission or a wrap fee, he or she must affiliate with a broker-dealer and obtain the appropriate securities licenses. As a result, when CPAs enter this niche, they must make informed decisions about which licenses and registrations to pursue.

The primary federal regulator for large investment advisers (those who provide investment advice and manage more than $25 million in assets) is the SEC. Each state usually has securities and insurance commissions for state investment advisers and insurance licenses. Although broker-dealers are not required to register with the SEC, they must register with the National Association of Securities Dealers (NASD) and are subject to SEC oversight. Even if CPAs practice the team approach to financial planning, it doesn't hurt to be licensed and registered because it's not always possible to rely on experts in other disciplines to address every client need.

Fiduciary Standards
Increased fiduciary standards can have a significant impact on how CPAs advise their clients on investments. A registered investment adviser has a fiduciary responsibility to work in the client's best interest; the broker has a fiduciary responsibility to the broker-dealer.

Here are some of the licenses CPAs should consider:

Series 6. To sell mutual funds and insurance products, CPAs must be investment company/variable contract registered representatives. The passing grade for the 100-question, two-and-a-half-hour exam is 70 or better. Most states also require CPAs to pass the series 63 or 65, as well as the series 6, exam. To sell variable insurance, it's also necessary to hold an insurance license; licensing requirements vary by state.

Series 7. This exam for general securities representatives enables those who pass to sell every kind of security except commodities. It covers equities, fixed-income and government securities, options and limited partnerships. It is 250 questions in two three-hour sessions; a grade of 70 or better is required to pass. As with series 6, most states also require passing the series 63 or 65 exam and an insurance license to sell variable insurance products.

Series 24. This exam for general securities principals is taken by principals in firms where a series 7 or series 63 license is required for representatives. It is a three-hour exam with 125 questions.

Series 63. This is the NASD Uniform Securities Agent State Licensing Exam, which is accepted by almost all states. It is a 50-question, one-hour exam. Most states require passing either a series 63 or 65 exam as a condition of registration as an investment adviser. The exam covers the Uniform Securities Act and the guidelines for state registration of securities. Additionally, most states require passing this exam along with the series 6 or 7 exam for registered representatives.

Series 65. Many states require investment advisers and financial planners to pass the uniform investment adviser law exam, a two-hour exam with 75 questions.

Insurance Licenses
State insurance licensing rules differ. Generally, one exam covers traditional life insurance, fixed annuities, health and disability insurance. Some states require a second exam (in addition to the series 6 or 7 exam) to sell variable insurance.

Anyone who sells a financial product classified as a security must be sponsored by a broker-dealer. Before taking any of the exams mentioned here, it is necessary for a CPA to establish an initial relationship with a broker-dealer. If the state requires a securities exam, series 6 or 7, for a CPA to become an investment adviser, the state securities agency will sponsor the CPA for purposes of becoming a state-registered investment adviser. For the NASD to administer the exam to someone not associated with an NASD member, the CPA must request a form U-10 from the NASD by calling 301-590-6500.

Examination Study Materials
Many organizations provide materials CPAs can use to prepare for the exams. Some broker-dealers also have their own materials or arrangements to obtain

  1. Securities Exam Preparation—

  2. Securities Training Corp.—

  3. Investment Training Institute—

  4. Bob Elder Series 7 Self-Study—

  5. Examco—

  6. Securities Consultants Inc.—

  7. National Regulatory Services—

  8. The Consortium—

In addition, some of these companies offer full-service regulatory compliance assistance to help CPAs register as investment advisors.

Phyllis J. Bernstein


Buckingham Asset Management, Inc.
230 South Berniston
Saint Louis, Missouri 63105
The turnkey asset management program, run by CPAs, supplies start-up, operations and compliance support as well as marketing tools and regular client reports. The company provides research to enable the CPA and client to select the proper asset allocation approach. Fee-based investments are made in institutional asset class funds in a selection of asset classes. Funds own all securities available in a given asset class. The minimum portfolio amount is determined by each CPA.

Callan Associates, Inc.
71 Stevenson Street,
Suite 1300
San Francisco, California 94105
www.callan.com, go to IMC home page
Callan's Investment Management Council is made up of fee-only investment advisers who pay an annual fee (a minimum of $6,000) for the core services, which include due diligence on mutual funds, investment policy assistance, proprietary asset allocation analysis software and access to a technical research center. Callan doesn't provide back office help or investment management, nor does it participate in any asset management fees. The company works only with registered investment advisers. Firms working with institutional accounts can opt for another level of membership that includes access to private money managers.

1509 South Florida Avenue
Lakeland, Florida 33803
The four CPA/PFS partners who run this company offer money management for CPA firm clients and help CPA practitioners expand into the investment business. Alliance member firms are registered investment advisers working with portfolios of $100,000 or higher who split a 1.5% fee evenly with CPAlliance. Four investment approaches are available using individual stocks and bonds and favoring low portfolio turnover. CPAs and clients choose the asset allocation strategy, but CPAlliance makes final investment management decisions. The company offers training, registration assistance, continuing education, marketing tools (including discounts on Fidelity Investments marketing materials), client reports and portfolio analyses for clients and prospects.

1st Global, Inc.
8150 North Central
Expressway, Suite M-1000
Dallas, Texas 75206
Founded by CPAs, 1st Global exclusively helps tax and accounting professionals build their own commission- and fee-based financial services businesses with a turnkey system that provides securities brokerage, fee-based management, insurance services and financial and estate planning services. The company offers extensive training, practice management and business development assistance, proprietary financial planning and practice management software, client reports and technical assistance. 1st Global's SEC-registered investment adviser offers seven different turnkey fee-based programs. The minimum fee-based portfolio amount can be as low as $25,000, depending on the program selected.

Greenrock Research
2311 West 22nd Street
Oak Brook, Illinois 60523
This company grants access to fee-based individually managed portfolios and supplies research on investment adviser organizations. It provides back office, compliance and operations services as well as investment planning and strategy advice to CPAs. Greenrock also offers individual marketing and training consultation. Minimums are $250,000 for equity portfolios and $500,000 for fixed income.

Lockwood Financial Services Inc.
10 Valley Stream Parkway
Suite 310
Malvern, Pennsylvania 19355
CPAs clients gain access to nationally known fee-based money managers even if their portfolio sizes don't meet the usual minimums. Lockwood provides asset allocation advisories and portfolio design recommendations as well as evaluation research on individually managed account managers to facilitate selection of the best manager and strategy. A two-day introductory program provides education, proprietary software and sales and marketing orientation. The three-day annual meeting features 50 sessions and introductions to affiliated money managers. The minimum portfolio amount is $100,000.

Oak Brook Investor Advisory Services, Inc.
2100 Clearwater Drive
Oak Brook, Illinois 60523
This broker-dealer was created by CPAs to offer turnkey features, such as training, financial services operations support, assistance in selecting financial advisers, compliance and other back office help, marketing support and business advice, to other CPA firms. It also performs consulting on investment management practice issues for a fee. Advocating a diversified, conservative, long-term approach that minimizes the use of mutual funds, the company relies on private money managers to help CPAs create asset allocation and fee-based investment plans for clients. There is no minimum portfolio amount.

Portfolio Management Consultants
555 17th Street, 14th floor
Denver, Colorado 80202
800-852-1177, Don Vigil
This is a fee-based turnkey that offers consulting, back office, operations and marketing support. It provides help with asset allocation and investment policy, manager search and due diligence, portfolio accounting and performance reporting. Users enjoy flexibility in choices of asset classes and investment types. The company does not contact or work with clients; it works with CPAs only. An extensive investment consulting staff is available. The minimum portfolio amount is $100,000.

Reinhardt Werba Bowen
1190 Saratoga Avenue,
Suite 200
San Jose, California 95129
This entity offers proprietary funds in all asset classes for a passive, diversified, long-term investment approach. It provides a comprehensive turnkey program covering training, compliance, sales and marketing support, reports to clients, practice management and technology assistance. Performance reports and other data are available over the Internet. CPAs can take advantage of technical as well as business planning and development assistance. Minimum portfolio amount is $100,000.

The Terra Financial Companies, Ltd.
2015 Spring Boulevard,
Suite 550
Oak Brook, Illinois 60523
This company has three subsidiaries: Through Terra Securities Corp., a broker-dealer, CPAs can become registered representatives; Terra Insurance Services allows affiliates to sell insurance products; and Terra Financial Planning Group is a registered investment adviser that enables CPAs to become investment adviser representatives, working on fee-based investments. For fee-based advisers, it provides a turnkey program including back office and compliance support, proprietary technology, portfolio advisory services, investment consulting, marketing advice and training. Minimum portfolio amounts are $250,000 for no-load index funds and $50,000 for load funds offered at net asset value.

H. D. Vest Financial Services
6333 N. State Highway 161, Fourth Floor
Irving, Texas 75038
This broker-dealer and advisory services company, founded by a CPA, provides fee- and commission-based investment options. H. D. Vest affiliates receive free training, back office and compliance support, investment advice, access to specialists in a variety of investment vehicles, marketing programs tailored for CPA firm clients and licensing assistance. The minimum portfolio size for investment management clients is $10,000. Brokerage accounts require a minimum of $1,000.


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