Financial Services—Acquire a Practice or Grow Your Own?

Source: CPA Wealth Provider

CPA firm acquisitions of financial services firms typically fail to produce the cross-selling results on which the acquisition was predicated. Financial services firms don’t get the expected access to CPA firms’ clients and vice versa. Likewise, when CPA firms start de novo financial services practices, they fail to adequately access their own client bases.

CPAs are reluctant to introduce their clients to other departments of the firm because they:

• Fear losing their client relationships.
• Fear clients won’t be serviced adequately or treated properly.
• Are uncomfortable talking with clients about unfamiliar subjects.
• May feel financial services will violate ethics rules.

When analyzing acquisition candidates, make sure they have strong marketing capabilities and are not trying to compensate for internal inadequacies by merging.

Evaluate the client base of the acquisition candidate. Are the clients the kind you want to serve? Will these clients need other services provided by your firm?

Will your entry into the financial services market create conflicts with your clients in this field? Will these clients leave you? Is the potential success of your financial services business realistically greater than the potential loss of clients?  

Financial services firms generally don’t keep time sheets since their performance measurement is not dependent on hours of input. Will this cause a culture conflict?

Will the compensation policies of the two firms conflict? Financial services firms may have low base salaries and high incentives, whereas CPA firms may be the opposite.

Client service in the CPA firm usually involves higher level personnel than in financial services firms. Your clients may not be accustomed to this, and your partners may not want to refer them into that kind of system.

Tax season is the best time to market financial services, but CPA personnel are too busy. Will this cause a conflict with financial services personnel?

When you acquire a financial services company, it generally comes with the required licenses and this is a significant benefit to the CPA firm. But, there are some issues that should be addressed:

• Does the financial services company have the appropriate licenses to serve the needs of your clients?
• If some people in your firm have licenses, they may be held by a different broker/dealer than the one used by the acquired firm. This can be cumbersome.
• If clients are to be transferred from one broker/dealer to another, the process can be onerous and some clients may resist.
• Since the financial services industry is highly regulated, due diligence is easier. Take advantage of it.

From CPA Wealth Provider, April 2005 (Source Media, Inc., 800-221-1809)