471 Should Accounting Firms Partner with Financial Planners?

Lots of chatter lately among small firms talking about partnering with wealth management firms, getting into wealth management themselves. A lot of it I think is driven by actual like financial planners having some, some bullish takes on rolling out tax or accounting in their firm. There's situations where I think this makes sense and situations where it doesn't make sense. That's what we're going to dig into today because this is something that I very nearly did myself at one point. I'll show you some of the traps, but I'll also show you like what a really cool opportunity it potentially is for some firms as well. Let's talk about it. Should we be marrying our accounting firms with wealth management? Okay, we've probably all seen some version of this in the wild, especially hang if you hang out on social media very long. Wealth management firms, financial advisors love to get in to tax. In fact, there's tools out on the market that seemingly make it easier for them to be a quasi tax adviser. And this isn't even just a thing for tax firms. This is something that's increasingly impacting bookkeeping firms as well. And it all starts at that sort of year end planning time where your financial advisor is doing one thing, the accounting team, the tax pros doing another thing. Hopefully they're working together in sync. But more often than not that's not the case. And so it leads financial advisors to try to take some of that tax advisory stuff in house, which is risky. I don't know, you can make an argument that like some version of it is better than absolutely nothing because most tax pros like still don't really proactively offer tax planning at the end of the year. And so you have tools like HolistaPlan is probably the primary one that comes to mind that were like tax planning tools that were originally built for financial planners. But when I look at a tool like that through the lens of, you know, being a tax pro, I'm like, really? You mean to tell me that you just whipped together this cute little cloud application that does like tax calculations like tax prep, essentially? I don't believe you because I can show you the stinky old machine that we use to calculate tax stuff on our end. And while it's not going to win any, you know, beauty pageants, it does do some pretty hairy stuff. And we've all seen, you know, the missed ticked box or like this, those little itty bitty mistakes or tipping points that vastly change a tax outcome. And so we're kind of allergic to the notion of somebody else doing this especially if they're not a tax professional and especially if they're not using tools that are as powerful as, as our tool. But as with most things, it's like a half solution because most folks have no solution. So this isn't usually a problem. If the Tax Pro is already taking the lead on tax planning, most financial planners like they'll happily defer to you. In my experience, it is oftentimes financial planners trying to come in and make up for something that the Tax Pro should probably be doing. I'll put a link in the show Notes to Holistic Plan list. Plan is actually a very cool tool. You give it a bunch of kind of tax info and it builds out this sort of projection for you. But if, if you're a Tax Pro with any sort of tool like this, you then immediately go and run with that same data to your, your bna, your tax software, whatever it is to double check those numbers, right? And I never, on any tax planning tool, I never was able to shake that fear that it was missing something, the value of tools like this to me and the other tools in the category. In fact, we'll just put all these in the show notes. The other tools in this sort of tax planning category are Core V and Tax Plan IQ and then actually tally. Doing a bit of this now. Oh, so many links to add a cool little piece of software doesn't make you a tax professional. But what these do really well is they communicate in a clear visual for the client what we struggle to communicate. Because what, what accounting firms most often do is a whole ton of work to kind of get to what the answer is. And then the deliverable is like go pay X amount into some retirement account like that. That's the extent of which we give them any sort of, sort of detailed information. In the past I've used BNA and then I use Planner from Thomson Reuters. Sometimes we would include the reports from these systems in the email. But for goodness sakes, like it's, I'm just pulling teeth to get clients to read a balance sheet and income statement. Getting them to read this like 40 page sort of year over year or scenario comparison like that is a tough hill to climb. So these tools, they give a much more modern like cleaner presentation of the work that you're doing, which I actually think is very important because ultimately when we're doing this work that clients don't understand what they're willing to pay for, it boils down to their perception of what we're doing. And if it's Presented in a very impressive way. As much as this kind of grinds our gears and might feel fake, it will have a, it will have a real impact on what they're willing to pay. And at the end of the day, it isn't fake. Like, it's real. It's a visualization of all the stuff that we know that we just take for granted. And for whatever reason, like in the world of professional services, there is still this, like, mystique, this really high level of trust into anyone that's touching your financial stuff. Like, you are more in the weeds, you are aware of more of what's going on oftentimes than an entrepreneur's spouse. Like, we've all experienced a version of this, probably. And this is the allure of financial planners, wealth management folks looking into bookkeeping practices, looking into tax firms. I'm, I'm going to try not to see all this through, like, rose colored glasses. Like, we, we definitely have a tendency speaking through the lens of like, what we know and what we do always being more complex than what everybody else does. And so I don't want to oversimplify what financial planners do, but I'm going to oversimplify what financial planners do because I can tell you, when I went down this path with my firm, the financial planners were like the very first people to tell us this. As we got an understanding of their business and they got an understanding of our business, they're like, this looks kind of like, this is kind of a mess, isn't it? This is harder than we thought it would be. But they would argue like this was the pitch they would kind of make to us, is if we could bring our clients over. Wealth management, at least in this setup, was a more scalable moneymaker than trading time for money, than the doing of the tax, than the doing of the bookkeeping work. And I still believe that to be true, that it's easier to scale a wealth management practice than to scale a tax firm or a bookkeeping firm, but also that there's this opportunity to pull the clients that you already have over and make them fundamentally more profitable. This episode is brought to you in part by Cloud Accountant Staffing, who helps you hire staff. Come work for your accounting firm. But they live in the Philippines. I did it. My firm, my last four hires were in the Philippines. If you listen to the podcast, you know this by now. But when you're getting inundated with like, all sorts of offshore options every single day, how do you know what the right one is? Huh? Well, I can Tell you for one Cloud accountant staffing. We partnered with them because I actually know a bunch of firms that have had a very good experience with them, but they also used to be an accounting firm, so they get it, man. Now another reason we're heading into conference season, Cloud accountant staffing. They're actually going to be out at a whole bunch of the big accounting conferences, same ones that I'm going to be at. Which means, man, they're, they're part of the zeitgeist. They're out there jamming with accountants, hanging out. They get what's going on. They know about the new tax bill. They're in the thick of it, man. And I want that with the people that I partner with, not that random weirdo that just sends me a LinkedIn DM. Okay, that's not the move. If you never hired in the Philippines before, you're going to have a bunch of embarrassing questions. They can answer them for you. You got nothing to lose. To learn more, check out the link down in the show notes this episode is sponsored in part by Mercury, which I am also happy about because I am a actually a big Mercury fan, a user myself. So Mercury is a FinTech that over 200,000 companies trust for banking and running their finances because the traditional way of getting this done. Those platforms, big hot pile of new sponsor. There they go, walking right back out the door. Like I said, I'm a happy user myself. It is a modern platform. We liked it so much we actually moved all of my businesses to it. Now Mercury for accountants. It's a referral partner program that allows firms to give their clients VIP access to the Mercury product and unlock special perks. Tell me more. Dedicated onboarding and support for firms and clients. Thousand dollars referral bonus for every new what? Okay. Per eligible client. An advisor portal for easy team and client management. Mercury Pro for the firm. Nice. Check out the link down in the show notes to sign up and learn more. Disclaimer Disclaimer Disclaimer Voice Mercury is a fit tech company, not a bank. Terms apply for bonus eligibility. See Show Notes for details. I actually know of a number of firms even like up to big regional size firms where their tax and accounting practices are actually not that great. And in many ways the client relationship is held together by that firm doing wealth management really well. And because the client is so happy with that, there's some willingness to put up with some frustrations on the tax and the accounting side. In a perfect world you avoid all that stuff and and they're happy with everything that you're doing for them. But there is a very real element of stickiness that comes from this as well. If you've got their money similar to if you've got say their tax work or if you've got their bookkeeping work, they're more likely to do that other stuff with you as well. And they're less likely to bounce because you're doing so many things for them. Now I would argue many cases as folks are exploring these partnerships, oftentimes particularly when it's the financial planner coming to a tax bro, I think oftentimes there is much more in it for them than there is for you. And it particularly applies to the profile of accounting firm that is doing a high volume of 1040 work. And there's going to be exceptions to the rule here, but the reality is the majority of wealth management firms, they're going to make a killing on folks that are older folks that are sitting on a pile of money, are close to retirement or in retirement because that's just like where most of the assets are. In our firm we had a whole bunch of very entrepreneurial folks. We had companies with, you know, 401ks and stuff like that. Reality is these 401ks, like unless this is a company that's been around for a long, long time, they didn't hold that much in assets like the participants in that plan. The vast majority of them had a very, very small amount of money in that 401k. So you had all of the admin of the plan itself. But in aggregate, the assets could be less than just that single person who's retired and sitting on a pile of money. Those are the folks that most financial planners want to get their teeth into. And for most of us, they're actually the folks that accounting firms are sort of running away from the once a year tax work. Now anytime this happens and you have accounting firms dumping like 1040 work like, like crazy anytime this happens, it creates a killer business for somebody. Like you can still run a high volume tax practice that is like turnkey trying to crank through 1040s as much as possible. Really leaning into tech, so leaning into tax intake software, in all likelihood leaning into offshore hiring because this is just, this is a volume thing, a way that you can still run a really profitable, pretty heavily seasonable, seasonal business just cranking on tax work. And for those types of firms, this setup I would argue is, is more compelling. You do the tax work in the spring and the wealth management work is, is the focus. The rest of the year and you take what is a 400 to $1,200 tax client and you turn them into something much more, something you can make much more money on year over year. In fact, what brought us to this podcast episode was a question from a listener. Here's, here's the framing of the question. They said, maybe my situation is unique, but I've got an interest from two different investment advisory firms about working together in a combined business venture rather than just a strong referral relationship. It made me start thinking about the wealth management and accounting slash tax under one roof question. I was also approached by a successful growing commercial insurance provider that's looking to provide, looking to branch into employee benefits slash retirement, slash wealth management, and saw accounting and tax services for their ideal customer as another avenue into providing all those items under one roof. Got me thinking, what's your take Now? I know a bit of background about the firm, about the person that asked me this question. They do a high volume of 1040 stuff. And I can totally understand the other side, the wealth management folks who are kind of licking their chops and they see this sort of trusted advisor that has a really big percentage of relation or really big number of relationships tied to them. And, you know, we get like, we take for granted how much trust people have in us. When we were talking with some of our clients and we were exploring doing a partnership with a wealth management firm, I asked, you know, 5 to 10 of kind of our more premium entrepreneurial type clients if they would do something like this. Every single one of them in a heartbeat said they would at least bring some of our money, some of their money to us to manage. And it's funny why they would say yes to that. Like, we have expertise, but this expertise is in no way related to managing their money. Yet everyone was really excited by the idea of that, by, by the idea of everything happening under one roof. Ultimately, we decided not to go through with this. And the reason really had nothing to do with, like, the numbers, because the numbers were all very good, very impressive. What we ultimately decided is we didn't want to have to take on a whole bunch of partners because most of these financial advisor shops, like, they are set up where they have an abundance of owners and if they don't set it up that way, usually folks will just bounce and go do their own thing. And like, I'm a big fan of sort of optimizing for simplicity. And they had kind of some drama going on in their setup. And we're like, we don't really want to be a party to that. Like, we kind of got a nice thing going on over here. We're already referring a bunch of work. Well, we were referring a ton of work to them and didn't really feel like they had a ton to offer us because our client base was trending away from just the Once a year, 1040 retiree type person. But at the end of the day, it wasn't worth like the headache of involving that many more people in my business. If we were really more focused on just cranking on 1040s and we weren't in the process of phasing that stuff out, I think it probably would have been more worthwhile. But when you go down that path, like, especially if you're, you're teaming up with a shop that has a bunch of, of sort of financial planners within the group, you just have to draw some really clear lines there of like what you need to get like dragged into and what, you know, whoever's wearing the CEO hat on the other side, like what their job is to manage. And anytime you're going into something like this, like, I think it's always worth thinking about, number one, is there a not super permanent version of this that we could do? In the beginning, it's extremely risky to jump straight into holding equity in each other's companies. And like that's just, that's a very, very high stakes, oftentimes messy way to go to go about it. Like, we have to sometimes think about what ultimately is the benefit of going all in and like literally being in business together versus just having a really tight referral relationship. I think you get like 50 to 70% of the benefits of this arrangement just with a really tight referral relationship. And that, that probably comes with exclusivity, which is one of the trickier aspects of this because right now if you're getting referrals from a number of wealth management shops, get ready for those to all stop. As soon as you have like one preferred, go to. And this is a reason, like this is a rationale for a lot of firms to not do this. They don't want to return off, they don't want to turn off that referral pipeline. But at the end of the day, like I'm still more into owning a more profitable client myself, like that vertical integration, like I am happy to do more for a client and that's more my North Star than potentially turning off some financial planner referral pipelines, which for me in my business were never very high quality referrals. They were like People that wanted to get a basic tax return done. What I was interested in was whose accounting department can I run? And so my background was we had a big tax firm, then we opened a CAS firm like within that. And so we did not just bookkeeping, but like bill pay and payroll and benefit admin and kind of some light advisory stuff, more like controllership sort of accounting department in a box for these companies. And that was a really great opportunity for us because on the tax side we already had 1800 clients and something like 850 of them were small businesses. So building the cast practice then was much easier because we kind of hand pick from that client list who we wanted to work with. Now if you just look at, at that approach, like pulling from your tax list to do additional services, it's an argument for wealth management as well, because you kind of have this arbitrage opportunity where you could buy a tax book of business and then roll out a CAST practice and roll out wealth management. It's a simplification. It's never quite as easy or quite as juicy of an opportunity as that seems. The biggest blocker being what we talked about, where actually the really good CAST clients oftentimes aren't real big money makers on the wealth side, but we're thinking about that like that's kind of the opportunity here is if that's the type of firm that you're going to run is going to be a high volume 1040 shop, that is a very real arbitrary arbitrage opportunity where you can even like if you run a, say a regional firm. Not regional, that's the wrong word. If you run say a local firm where a lot of your business is within the region. If you nail down that model where like, okay, we're going to, we're going to do some tax planning at the end of the year, in most cases we're going to get your tax return done in tax season because they don't still own a business and things are pretty cut and dried. And then up until year end the focus is wealth management and you figure out how to say, you know, let's be conservative, double the, double what you can make on one of those clients in the course of an entire year. Then when you start looking at the other local accounting firms and these, these old farts kind of going out of business and they are very 1040 heavy shops. The notion of rolling some of these up and also pulling in wealth management, that gets a little juicier, right? So that's a possibility. But the big thing that spooked me and what I try to steer clear of is like, am I just going to end up with a whole bunch of just people that I gotta worry about in my business when I'm kind of trying to optimize for simplicity. So like suggestion number one is if you're thinking about doing this, see if there's a just a referral version of this and really push the envelope to say like how tight of a referral deal could this be? You're gonna get a much better taste of working with these people and see if the benefits you perceive long term will actually pan out. Because most of the benefits of being in business together, like externally, how we present that to clients, most of those benefits can be had without actually having to go into business with these other people. Today's episode is sponsored in part by ClientHub, the practice management system that delivers wow seasons year round. Not busy seasons. Seasons that will dazzle your clients for two reasons. 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If you'd rather sort that stuff out in QuickBooks Other cool stuff it'll identify automatically expense inconsistencies, purchases without a payee purchases and parent accounts. Why is why can we not disable that QuickBooks Large transactions, new accounts, new vendors, new customers It's Magic Books review inside a Client Hub. I think you might like it. Learn more about ClientHub check out the link down in the show notes Team up is a recruiting firm that helps you hire direct in the Philippines. Talented accountants that's different from the outsourcing or offshoring companies you most Commonly hear about where you're actually hiring the company with Team up just hiring a person. Because you can just hire people in the Philippines same way that I may hire somebody in Reno, Nevada actually. Great example. That's a pretty, pretty suspicious place. I'd say the Florida of the west side of the United States. How do I trust them? How do I train them? How do I do xyz? Well, how do you do it for like your onshore people? But you really are just working with them. They're an extension of your team. That's what Team up specializes in. So with Team up you do a flat one time price to recruit that person. Most hires are about four grand this one time fee. Team up, no ongoing costs. Most offshoring groups, about half of what you're paying is actually going to the company, not to the person. Team up even has a guarantee if that hire wasn't a fit for the role that you put them into in the first six months, Team up will find you a replacement at no cost. Does indeed do that. They don't do that. Hiring in the Philippines is simpler and easier than you think. My last four hires in my firm, this was like three, three and a half years ago. They were all in the Philippines. If you want to learn more, check out the link down in the show notes to schedule a call with Timo. Second suggestion is always think about what the reversible version of going into business with somebody looks like. Like as you're headed in, it's, it's basically like kind of designing the prenup as you are getting things started. And I don't think that's, I don't think that's like a signal that you're not committed. I think it is more just like the intelligent thing to do because the reality is like virtually no business relationship lasts forever. And when it gets really, really ugly is when you didn't have an exit plan. So figure out what the exit plan is when you're coming into it. If either party wants to be able to pull out, what exactly does that look like? And if you can see a clear, simple way to do that, it does make it much easier to step into it. That's actually a lot of our, of our stress is all the ways that it can go sideways. Been listening to the, one of Richard Branson's autobiographies and he does a lot of really weird, big ambitious, off the wall Stephanie said. He said what I think I'm probably better at than most folks is simply planning for the downside because if you can really get explicit about what all the potential ways are that it could go sideways. And having a plan for those things, it opens up a greater amount of sort of creativity and opportunity and doing off of the wall things as long as you have sort of a backup plan to fall back on. So if you do go all in on this, just have a plan for how to get out. And in my case, when we were exploring doing this, I think that was, that was the messy thing for us. We didn't want to have a whole bunch of partners all of a sudden. And it wasn't clear exactly how you could get out of this once you went into it. I don't, I mean I am, I'm like biased just from my background, but I do still think what we're doing on the accounting and the tax side, just from a workflow and logistics standpoint is very, very challenging. If you think about in a small business, what changes? If a small business is a half million dollars a year in revenue versus $5 million in revenue a year, that's a very, very different business. On the wealth management side, if you're managing $1 million of somebody's money versus $10 million in somebody's money, things change. But the complexity of that machine is vastly different than a business 10xing in size. And it's why you see like wealth management folks coming into tax and they're like, oh yikes, this is more than we thought it would be. Or sometimes we will see tax returns from wealth management shops and we're like, okay, we got some things that we got to fix here. And so for us, I do think it's a little bit easier for us to consider doing that. I don't know if necessarily you want to be the one to build that expertise and do it yourself versus partnering with a group and doing some sort of roll up. But I myself, I'm actually not as concerned with the nuts and bolts of how to do that stuff well, because the folks that I got a partnership that I got to partner with, they have to be able to sort of self manage there. I'm more concerned about like, is this just going to make my life more difficult? Am I going to enjoy going into business with these people and is like the perfect customer for them, the same as the perfect customer for me? Because the most profitable way to run an accounting firm these days is to be very, very embedded in the customer's business where you are like wearing the hat of multiple FTEs, they're paying you on recurring revenue, you know, 2 to 20 grand a month. You are a really core part of their business. And that's the version of running an accounting firm that most folks are trending towards right now. And that version of an accounting firm is not suited for a deal like this. But as with all things, as accounting firms move to one thing, it will create opportunities for accounting firms to do the opposite. And those are probably the folks where a deal like this makes the most sense. They want to do like a high volume of tax work. They're not interested in getting into bookkeeping and all that other stuff. For those folks, something like this probably makes sense. If this is something you've explored before, drop that wisdom down in the comments. Either good or bad. Things that went well, things that didn't go well. I'm interested in this because this is kind of a little bit my background, like starting in tax, but then adding in all of the other stuff. I saw the very real power of that. We had like it's about a $3 million tax practice and ended on, ended up bolting on another 2 million in cash revenue. And honestly the client acquisition part of it, it was pretty easy, wasn't all that hard. So when I hear people talking about like what are the other kind of adjacent things that we could pull in, my ears kind of perk up because I've seen that work very well. But it's got to ultimately come down to like what your goals are and running a firm and what's the sort of future version you can envision that you're going to be really excited about. For most people who run accounting firms financially, we're beyond the threshold of what will ultimately make you much, much more happy. So if your accounting firm makes 800 grand instead of a half million, but you got to turn up to work today and deal with all these partners now that you just don't enjoy. I'll take the half million dollar firm like every day and not, not everybody is, is wired that way and maybe it's even a stage of life thing where I've got young kids that I'm just, I'm very precious about my time and attention. But I do think it's a bit of a trap to like go chasing a bit more money if it comes with a whole bunch more headache. That's it for today. Hey live events buddy. I wouldn't come to a come to a city near you. In fact, the events I've been teasing are now up. Head over to jasonon firms.com events next week as you're listening to this or as this is coming out. I'm going to be in Orlando, Florida July 14, I'm going to be in LA. July 16 I'll be in Denver. July 22 I'll be in Chicago. July 25 I'll be in Atlanta. Tickets are now available for all of those events. Head over head over to jasononfirms.com events to learn more about what those are. Would love to see you would love to see your team come hang out. Coming off the back of several conferences and meeting a whole bunch of people for the first time. It's so much fun. And what you will find in those meetups is like you got a bunch of a lot of podcast superfans actually in those groups. But then how many other podcast superfans do you know? And to be standing in a group like with a whole bunch of other folks around that are very like minded and excited about that stuff too, that's actually really cool. And you almost always will will leave that stuff with a couple more friends. Anyways, we'd love to see you there. I'll see you in the next one. Sam.