The Right Insurance Partner

How to avoid culture clash.

ince the AICPA relaxed the contingent fee rules, CPA firms have flocked to insurance as both an urgently needed client service and a new source of revenue. However, even the largest and wealthiest accounting firms don’t have all the technical and managerial expertise necessary to serve a diverse client base in such a specialized discipline as insurance. The solution typically has been to affiliate with an insurance partner—a licensed professional who can handle all of the technical matters related to the client base in such a specialized discipline as insurance. The solution typically has been to affiliate with an insurance partner—a licensed professional who can handle all of the technical matters related to the firm’s insurance business. However, after two years, many firms are already on their second or third insurance partner. Few relationships are living up to original expectations.

The overwhelming reason is culture clash. CPA firms have a relationship culture. Their business model is based on hourly billing; partners and staff build client relationships on many hours of hard work. Insurance agents, on the other hand, use a transactional model. While they may draw on knowledge gained over a long career, the value of their work is often reflected in a single transaction that may take comparatively few hours to accomplish. For CPA firms, the challenge is to select an insurance partner that can bridge this fundamental gap in culture and business model. Given the differences between CPAs and insurance agents, how does a firm choose the right insurance partner?


There are a number of important factors CPA firms should look at when selecting an insurance partner.

Qualifications. The most basic characteristic is to make certain an insurance partner has the proper licensing to conduct the kind of business your client base requires.

Many states require professionals providing insurance advice for a fee to have a life insurance policy analyst license. Some CPAs know a great deal about insurance and advise their clients accordingly, adding this service to their hourly bills. Nevertheless, they may need a license to do so. CPAs should check with their state insurance department as to the licensing requirements in their state.

A firm should make sure all representatives of an insurance company who handle client accounts carry the appropriate licenses. If your firm’s insurance business plan calls for selling variable annuities or variable life policies, your insurance partner will need

An NASD series 6 license (investment company and variable contracts representative license) or the series 7 license (general securities representative license).

An NASD series 63 license (multistate license).

An affiliation with an NASD licensed broker/dealer.

Personal qualities. CPA firms should choose an insurance partner that has a reputation with clients and other CPAs that will reflect favorably on the firm. The partner should also have a background in providing services to similar types of clients. Look for a partner that meets exacting standards in terms of its financial solvency, reputation and the lines of business it offers. Perhaps most important, the partner should have a professional attitude that enhances the firm’s goal of providing clients with access to specialized expertise—not on the number of policies sold or the amount of money made.

Core competencies. An insurance partner should understand and be experienced in delivering the types of transactions and insurance services the firm’s client base needs most. If your client base most often uses whole life, you shouldn’t select a term-life expert—the two specialties aren’t interchangeable. The partner should know how to evaluate and sell policies on the open market when and if this becomes necessary. For example, your practice may include privately held companies that carry key person life insurance. As the company’s ownership changes, or if the business is sold, some policies may become redundant.

The most valuable trait you’ll find in an insurance partner is creative thinking about how to use insurance as a tool to accomplish a client’s financial goals (charitable bequests, income for surviving family, business succession). That’s where so many CPA/insurance relationships fail the test.


CPAs have a right to expect an insurance partner to take responsibility for several things, among them

Identifying clients who need insurance advice and policy changes.

Analyzing and implementing specific insurance solutions for unique client situations.

Maintaining the back office needed (recordkeeping, underwriting, medical expertise and annual policy reviews) to run an insurance practice.

Providing descriptive and collateral sales and marketing materials.

Training your professional CPA staff.

Be sure your insurance partner is willing to undertake the continuing responsibilities essential to managing this part of your practice. It’s best to agree to your insurance partner’s responsibilities in writing before the first transaction. Verify that he or she will properly

Conduct annual policy reviews with the client and the insurance partner’s own professional staff.

Receive and discharge all customer service inquiries (such as ownership transfers, annual review with illustrations and lost policies).

Maintain all necessary records (such as policies-issued illustrations and all materials and correspondence given to clients) in their original or duplicate forms.


Forming a new enterprise separate from the CPA firm is often a helpful way to comply with contingent fee as well as insurance industry rules. In structuring the business arrangement, a CPA firm should make sure the enterprise is appropriately licensed to receive commissions from an insurance company. The enterprise can then receive payments directly from the company. For added protection, the insurance enterprise should buy the low-cost errors and omissions protection that insurance companies make available to their agents. For added protection remember to disclose to clients in writing that you will receive a commission on their insurance transactions.


CPA firms recognize how much their clients need insurance services. In the future, look for accounting firms to become even better at providing these services as the client benefits and profit potential become even more apparent. Some CPA firms may even establish dedicated financial services departments to offer management and organizational assistance, just as they now do for tax and litigation support. Many CPA firms are still likely to continue turning to outside specialists with good track records for help establishing efficient insurance departments. These professionally created CPA insurance departments will maximize the benefits to clients and enhance the contribution to firm profits.

Neil Alexander, CFP, is founder and president of Alexander Capital Consulting, LLC, in Los Angeles. His e-mail address is .

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