Strategies to Implementing a Wealth Management Business

1. Strategies to Implementing a Wealth Management Business Michael Tate, CPA, PFS 916-929-1006 www.tpbscapital.com

2. The Opportunity for CPAs • You’re committed to determining the needs and then delivering the right services to your clients. • You play an important role in the lives of your clients and in the success of their businesses. • However, there is a very real opportunity in today’s marketplace to do more. • Industry research tells us that affluent individuals, including business owners, are very interested in obtaining more than tax services from their accountants.

3. Business Models of Financial Advisors • Investment generalist:Advisors who offer a broad range of investment products and do not specialize in a single type of product. Conduct brief fact finding sessions and then offer clients a suite of possible products based on their needs. Transaction focused • Wealth managers:Advisors take a comprehensive approach to meeting client needs by using a highly consultative approach to construct integrated, personalized solutions.

4. Business Models of Financial Advisors N = 2,094 financial advisors Source: CEG Worldwide, LLC., 2007

5. The Two Business Models Compared N = 2,094 financial advisors.Source: CEG Worldwide, 2007

6. CPA Opportunity Key Points • Substantial numbers of clients would like to obtain additional financial services from their accountants. • Despite this, relatively few accountants offer financial services, meaning that relatively few clients obtain these services from their accountants. • When clients are able to obtain financial services from their accountants, they report very high levels of satisfaction with both products and service. • The interests of clients point to a wide range of financial services needs, including investment management, insurance products, financial planning and estate planning. • Only a small percentage of financial advisors are offering wealth management.

7. How to Implement a Wealth Management Business Buy It Build It Joint Venture Strategic Outsource

8. Buy It Advantages Disadvantages Capital requirements make this option suitable only for large firms. Firm assumes all risk associated with the acquisition and new service offerings. Lending in this economy • Proven talent can be acquired immediately • Allows leveraging of existing clientele of both organizations • Control over existing client relationship is retained • Scale can be obtained quickly

9. Build It Advantages Disadvantages Requires substantial commitment to new resources, including additional expertise and expanded infrastructure. May distract from core competencies. Firm assumes all risk inherent in new service offering. Custodian minimum • Allows leveraging of existing clientele. • Control over client relationship is retained.

10. Joint Venture Advantages Disadvantages Requires a close match between the firm and the partner in terms of culture and requires significant time commitment to ensure success. Equity left on table • Requires minimal commitment of resources. • Allows leveraging of existing clientele. • Control over client relationship and level of client service can be retained. • Risk inherent in new service offering is shared with strategic partner.

11. Strategic Outsource Advantages Disadvantages Some control lost Possibly cost • Requires minimal commitment of resources. • Allows leveraging of existing clientele. • Control over client relationship and level of client service can be retained. • Adopt best practices through experienced provider • Maintain all ownership • Quick startup time

12. Gross Revenue per CPA Firm from Financial Services N = 394 CPA Firms 3 or fewer partners= smallSource: CEG Worldwide, Capturing the Opportunity, 2004

13. RIA or Registered Representative • Options on how form business: • Create and oversee own RIA practice • Affiliate with an entity as a registered representative • Become a broker of a broker dealer • This comes down to fee based or commission • All have pros and cons, but primary issues would be equity, control, compliance and perception

14. FINRA vs. SEC

15. RIA Formation • SEC vs. State Registration • $25,000,000 assets under management requirement for SEC • Net Capitalization requirements - $12,500 • Timing • Costs – Minimal • IARD Filing • U4 • IARD Example

16. Licensing Exceptions to 65 • CFP - Certified Financial Planner • Awarded by the Certified Financial Planner Board of Standards, Inc. • ChFC - Chartered Financial Consultant • Awarded by the American College, Bryn Mawr, Pennsylvania • PFS - Personal Financial Specialist • Awarded by the American Institute of Certified Public Accountants • CFA - Chartered Financial Analyst • Awarded by the Association for Investment Management Research • CIC - Chartered Investment Counselor • Awarded by the Investment Counsel Association of America, Inc.

17. Courses for License • www.firesolutions.com • http://www.kfeducation.com/securities/ • http://pfp.aicpa.org/ • http://www.cfp.net/

18. Compliance • Integral part of practice which cannot be overlooked • Must have individual overseeing the compliance • Chief Compliance Officer • Outsource opportunities • Email/File Storage/Manuals/Procedures • ADV Part I and II • Investment Advisory Agreements • Privacy Policy • Business Continuity • Code of Ethics • Organizational Chart • Policies and Procedures • Gift Log

20. Technologies • Portfolio Management, Reporting, Back Office • Customer Relations Management (CRM) • Document Management • Financial Planning • Risk Assessment • Investment Policy Statement • Email Compliance

21. Technologies Must Work Together

22. Solutions • Portfolio Reporting • Portfolio Center • Black Diamond • Advent • BridgePortfolio • Custodian – New Requirements • Fidelity • Charles Schwab • TD Ameritrade • Scott Trade • Rebalancing • Tamarac • I-Rebalance • TRX • Financial Planning • Naviplan • Money Guide • Money Tree • CRM – Client Relationship Management • Outlook • Sales Force • ProTracker • Retdtail • Junxure • Position Analysis • Morninstar Advisor Workstation • Principia

23. Strategic Action Plan for Implementing a Wealth Management Business • Define the Vision • Identify Needed Resources and Support • Create a Marketing Plan • Bring it All Together: The Business Plan

24. Reasons Why CPAs Fail at Implementing a Wealth Management Business Too Busy with Core Tax Practice Not Willing to Risk Losing Clients in Order to Transfer Their Practice Are Not Able to Change Their Mindset to That of A Financial Planner Do Not Achieve Full Partner Buy-In Champion???

25. Business Plan • Interview partners asking: • What have we done in the past? • What will stop you from referring? • When a client asks for a referral, how are you handling? Worked out? • Your approach to managing money? • In looking at your client base, what is the approximate net worth of your top 15 clients?

26. Quantify The Opportunity • Extract the following from Lacerte/Pro Systems into Excel: • Interest • Dividends • Capital gains distributions • With this information, assign a relevant interest rate to extrapolate the potential assets under management opportunity. • Compare to partner responses for largest 10 clients. • Taking the potential assets figure, multiply by an advisor fee rate – 1% is a good approximation.

27. Present findings • With your partners “why”/“why nots” and revenue potential, have an offsite meeting to discuss if this truly warrants an opportunity for the practice. • Are the dollars enough? • Can the practice be of the same quality? • Cost to start? • Can the “why nots” truly be overcome?

28. Should You Even Be in the Business?

29. Champion • Each firm needs a champion to head up the new offering. • Will need to obtain their Series 65 or CFP. • Any partner sharing in fee revenue will need to have a Series 65 or equivalent. • Critical area to discuss with compliance for structuring.

30. Company Kick Off • Host an event at a local establishment and invite all potential clients – XYZ University. • Purpose is to announce new service, but must be educational. • Do not make a commercial. • Invite local attorney to present on estate planning issues. Be very clear on topics and client level of sophistication. • Invite independent insurance agent to discuss relevant insurance topics • Tax partner to discuss tax planning • Champion of wealth management offering to discuss new approach

31. Wealth Management Offering • Be very clear in your approach and the value of having a CPA maintaining your portfolio • Knowledge of taxes • Coordination with other tax professionals • Independent and unbiased • Conservative • Most trusted advisor • Offer clients a second opinion analysis of their portfolio. Explain your process of working with clients.

32. Essential Strategies of Elite Financial Advisers Focus on Affluent Private Clients Use the Advanced Planning Consulting Process to Differentiate Yourself From the Competition Manage Your Practice Like a Business Partner with Financial Institutions Make a Lifelong Commitment to Learning

33. Focus on Affluent Private Clients • What Type of Clients Do You Have Today? • Are They Suitable For Your Services? • How Would You Qualify Affluent Clients? • How Would You Approach Them and Position Yourself as an Expert? • How Would You Communicate With Them? • How Would You delight Them in Order For Them to Become Your Marketing Apostles?

34. Use the Advanced Planning Consulting Process to Differentiate Yourself From the Competition • How Do Affluent Clients Buy Financial Services? • What Can You Do to Eliminate Client Turnover? • What Should Your Investment Policy Statement Look Like? • How Can You best Demonstrate to Your Clients the Value You Bring to Them?

35. Manage Your Practice Like a Business • Which Financial Services are Affluent Clients Looking For? • How do You Spend All Your Time on Revenue-Generating Activities? • Where Can You Grow Income, Even With the Downward Pressure on Fees? • What Do You Need to do to Sell Your Practice For Significant Value? • How Do You Find the Right Balance In Your Personal and Professional Life?

36. Partner With Financial Institutions • Where Can You Get Extensive Practice Management Support From Financial Institutions? • How Can You Leverage the Technical Support Available to Advisors? • Where Can You Get Advanced Sales and Marketing Training?

37. Consultative Client Process

38. Discovery Meeting • Record meeting • Thorough and detailed questions • Always allow both individuals to answer • Do not focus on the assets – focus on: • Goals • Values • Relationships • Process

39. Create Investment Policy Statement • Create your own or use an off the shelf solution: • IPS Advisor Pro • Mind Map • Mind Mapper • Goals analysis • Looking at where client is and where they want to be – you are there to help them fill in the gaps • Monte Carlo Analysis

40. Financial Planning • Two approaches depending on solution: • Goal Based • Cash Flow Based • Need to address clients major concern: • Do I have enough? • Should have “what if” functionalities • Asset allocation models built in

41. For a consultative conversation on the concepts in this presentation or questions about TPBS Capita Management, please contact: