Practice Management

CPA Firms Profit From Alliances, Says Survey

CPA firms short on time and staff, but eager to meet their clients’ varied and extensive needs, are building up their service offerings and profits through alliances with organizations savvy about investments, insurance and regulatory compliance. This is according to a 1999 survey of 100 midsize accounting firms that Yankelovich Partners, a research firm, conducted for CIBC Oppenheimer, a financial services provider.

As regulatory restrictions decrease, new service opportunities are emerging for CPAs to expand their practices. But providing investment and insurance services requires additional expertise that many accounting firms sorely lack and most find difficult to attract and retain. Indeed, the survey revealed that responding firms’ aspirations far outstripped their capabilities.

Only 38% of those firms participating in alliances employed one or more partners who were licensed to sell insurance or to sell annuities and mutual funds. Just 13% had a partner on staff with registered investment adviser certification, and a mere 6% employed a partner who was a registered investment adviser with certified proficiency in securities law.

That hasn’t discouraged firms from wanting to offer new services, though. Among those firms that responded, 42% expressed an interest in selling or providing advice about investments and 32% said the same about insurance.

David B. Brennan, a national director at CIBC, said firms can overcome accreditation and head-count problems if they play their cards right. “One of the things we’ve learned is that partners at CPA firms are ‘maxed out.’ They don’t have any more hours in the day,” he said. “The solution is for CPAs to increase their firms’ revenue and profitability without, in the process, increasing their own hours. And they can do that by making alliances.”

Brennan sees no danger that clients will be disappointed because CPAs aren’t providing the additional services themselves. “Clients don’t expect or want CPAs to be experts in these fields,” he said. “But they do want them to handle due diligence and make informed decisions about the best place to get specialized expertise.”

The survey demonstrated that accounting firms who forge such alliances usually bring in more revenue. According to the survey, 16% of firms formed alliances. Of those, 44% said the deals were “very profitable,” 19% “not very profitable” and 25% said it was “too early to tell.” None reported that an alliance was unprofitable.

Brennan said there’s more to consider, however. “Firms shouldn’t enter an alliance to make money quickly,” he explained. “They should be looking at long-term improvement in their client relationships.” In his experience, a reliable, resourceful and experienced ally can help a CPA firm bring in new clients and strengthen its relationships with existing ones. Over the long term, he said, a carefully arranged partnership can produce rewards greater than the short-term gains that are possible from a hastily arranged alliance.

Brennan also thinks CPAs have an important advantage they can’t afford to forget. “As the advisers consumers trust most, CPAs have an edge,” he said. “So, when they form alliances, it’s critical that they align themselves with partners who have equally sterling reputations.”


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