By: John P. Napolitano, CFP®, CPA, PFS, MST

The wealth management business as we currently know it is far less mature than the Certified Public Accounting (CPA) or legal professions.

After all, the Certified Financial Planner (CFP) certification was born in 1972 and the Certified Financial Planner Board of Standards was founded in 1985. With far less history than the CPA profession, the Financial Planning or wealth management business is still evolving into a profession that can be broadly respected and somewhat consistent from practice to practice. As of this writing, it’s my opinion that the wealth management business at large still has a long way to go.

How that relates to the wealth management business inside a CPA firm is an interesting paradox. It seems as if many CPA firms still take their lead and direction on how to staff and compensate your team from the wealth management business. When the reality is that most advanced and progressive wealth management firms now agree that their staff and compensation models are derivatives of what they see in the accounting and legal professions.

This issue goes deeper than the affiliation models for CPA firms and whether you are affiliated with a broker dealer or not. The issue goes to practice management and the business plan for your firm.

If your firm is looking for extra cash flow by grabbing any low hanging fruit that originates from the CPA firm, than a loose staffing and compensation model is likely the lowest cost way of running the business. Note I didn’t say the best way, simply the cheapest way. This is typically done as joint work where staff simply gets a ‘piece of the action’. This means that staff is paid a percentage of the business revenues derived from wealth management activities for the clients that they serve. This is similar to the Wall Street Wire House model or insurance agency model where the firm sets up split revenue codes to compensate an advisor according to a pre-arranged revenue split. I believe this method is old, outdated and ineffective for firms that are serious about having a significant wealth management division.

Rather than taking guidance from the insurance or securities industry, I prefer the staff and compensation model that has emerged from the larger investment advisory firms.  These firms typically are Registered Investment Advisors only, with no broker dealer affiliation.  When you go deep and learn about their business model, it is very similar to the CPA firm method of building teams and compensation with a little modernization.

Before a firm can be serious about staff and compensation, you need a business plan. If you were assisting a client with a business plan, you would insist on building a staff that can consistently deliver the desired experience and outcomes for your clients that the plan articulates. For your wealth management business plan, treat yourself as important as your best clients.

One of the first issues when taking staffing serious is the chicken and the egg question. Do you build your staff first or do you generate income and cash flow first? My choice would be to build your staff to the business plan and then let your marketing drive the revenue and cash flow. It isn’t hard to market wealth management within the walls of a CPA firm. Your clients already love you, want more of you and much has already been written about just how much clients want tax advice from their wealth manager.  The wealth management community at large falls far short of delivering that tax advice. In fact, did you ever notice the disclosure at the bottom of many firms written materials? It is often prominently displayed that the advisor does not provide tax advice and that you must seek a qualified tax professional for that. What an opportunity for CPA firms.

The trend amongst the highest performing advisors is to build client service teams. These teams resemble the CPA firm hierarchy; partner, manager, staff… augmented with subject matter specialists as needed.

The firm needs a leader to start. Someone who is responsible for everything from marketing to delivering the experience promised to clients. Most firms choose an accounting partner to do this, with mixed results. Perhaps I’m being generous with the characterization of mixed results, but let’s just say that most CPA firms are falling far short of their potential mark.

The leader shouldn’t be a CPA partner who is running the wealth management division on a part time basis. The leader needs to be full time and completely dedicated to the wealth management business. If this leader has a good wealth management technical background, then your next hire would be a good administrative assistant/para professional. Someone who can help with the minutiae of gathering documents, data input and setting meetings to discuss the plan.

The leaders compensation should look like a traditional CPA partner comp plan. It will be low to start, with an aggressive bonus program. Eventually, this leader will rise to the compensation level of a managing director or partner as this unit grows and flourishes. My experience is that many firms ‘cheap out’ here and get sub-par leadership. View this division as a private equity firm would view it had they just invested in your wealth management division.

Building out the rest of the team will be similar to your CPA staffing.  Each client should be serviced by a team.  This team should have a lead advisor and a lower level advisor.  All meetings with clients about planning matters should include both team members. This is the best way to lead and train your junior staff and it allows the lead planner to be 100% focused on the client, the conversation and the agenda.

I believe it is best that these team members become W2 employees of the planning entity.  In most firms, the planning entity is a separate entity as it should be.  The benchmarks for these W2 employees is based on the market in which you are located.  For example, in my home market of Boston, salaries for team leaders are considerably higher than they are in more remote or less expensive areas.

Some of the firms that many advisors deal with publish detailed staffing and compensation surveys and studies.  Some of the more popular ones that I’ve seen come from Charles Schwab, Dimensional Funds and the CFP board of standards. Become familiar with these in order to structure your plan or to revise the plan that you currently use.

Just how many clients one team can properly serve depends on the scope of work, complexity and size of each case. As far as scope of work goes, my advice is not to compromise your firm’s business plan for deliverables and the client experience.  The best models for the most successful firms is a heavy wealth management service model compared to the ‘asset grabbing lip service planners’ of yesteryear. Those without robust service models will suffer if they are narrowly focused on any one service.  Particularly if that service is investment advice and retirement forecasts.  Clients do not need you for that commoditized part of the relationship. 

The robust wealth management offering leaves no gaps in your advice.  You will give advice on all of the major areas of the CFP playbook, and take accountability for the implementation with the other professionals needed. This may include Bankers, Attorneys, Insurance Agents, Investment Professionals, Real Estate Professionals and anyone who is material to your clients financial well-being.

But the robust service model also includes many family office like services, such as family governance, domestic employee guidance and HR, helping your clients’ children find purpose and meaningful careers.  In fact, my experience with high net worth clients leads me to believe that these non-traditional services are more valuable to the client than the core offerings.

Next you build on your subject matter expertise.  In the early days, it is ok to obtain these on a virtual as needed basis.  But the growing firm is going to build these specialties in house.  These may include specialties like social security and Medicare, investing in alternatives such as real estate and private companies, investment analysts, insurance analysts (NOT insurance sales), international expertise, estate planning expertise etc.

As you would in your CPA firm, have a solid career track for wealth management professionals.  Too many firms simply advance careers with production bonuses, and we all know that it is about a lot more than the money. Hold reviews at least annually.  More frequently for those who are at the entry level through manager level.

I also like the idea of tying compensation and bonuses to more than just new revenues in the door.  For staff on a career track, these incentives may include passing the CFP exam, being able to lead client meetings, train other staff or attending offsite educational meetings.  Be creative, and tie your bonuses to the tactics that you believe will advance the firms client relationships and are in the best interests of your clients, the employee and the firm’s business plan.

 

John P. Napolitano CFP®, CPA is CEO of US Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200. 1-963269