Small CPAs living larger through new partnerships

Small and medium-sized CPA firms are teaming with other financial planners to expand their businesses and provide more services. The partnerships are classic cases of small businesses growing by working together. They give CPAs a quick way of earning money through financial planning, by referring clients to specialists they've vetted and helping to monitor the results. However, the partnerships are also raising questions such as how partners should be compensated, and who bears the ultimate responsibility if investments go south. "It becomes an integrated approach," said Kenneth Cerini, managing partner at Bohemia-based CPA firm Cerini & Associates. "The client is informed at the very beginning that we serve in a dual capacity as a representative of the financial advisor and a tax person." Cerini describes Melville-based Kuttin-Metis Wealth Management as his firm's "wealth-management arm," though Cerini & Associates is hardly the financial planner's first partnership. Kuttin-Metis has expanded from a handful of alliances with CPA firms five years ago to more than 50 today. "What a financial advisor and a CPA do is related," noted Kuttin-Metis Managing Partner Jonathan Kuttin. "The client benefits." Cerini cited a more unified approach to financial planning when accountants and advisors communicate and collaborate, adding extra expertise "to make sure decisions are appropriate." The partnerships also allow smaller accounting firms to get deeper into the complex business of wealth management and financial planning, without expending the resources necessary to grow that business themselves. The biggest reason for the multitude of team-ups occurring today, however, may be growing demand: Clients want CPAs more involved in their financial planning. "Baby Boomers and CPAs' clients want them to get involved," Kuttin said. "CPAs are very trusted by their clients and financial advisors are not." While alliances are a quick way to assume an investment role, some CPAs become licensed to sell securities and insurance. The North Carolina-based American Institute of Certified Public Accountants has even created its own professional designation, known as a "personal financial specialist." "If I keep that in-house, I don't have to worry about having a call from the client, saying 'I bought this policy from a guy you recommended who's not returning my calls,'" said Daniel Mazzola, a CPA and certified financial planner in Massapequa. "And I have another source of income. "But a lot of CPAs don't have the time or inclination to learn the securities business," he added. "I think the trend is toward getting involved in an alliance rather than doing it in-house." Providing financial planning is a different profession from accounting, Kuttin noted. "It's had enough to be an accountant, let alone to take on the responsibility and learn the skill set of being a financial advisor," he said. Alliances also shield CPAs from compliance regulations that planners face. Regulatory requirements are so extensive, in fact, that some institutions are getting out of financial-planning or wealth-management business altogether: Riverhead-based Suffolk Bancorp on Monday announced the sale of its wealth-management business to New Jersey-based The Provident Bank. "It's intensive in terms of compliance and technology," Suffolk Bancorp CEO Howard Bluver said. "To make it work, you have to have scale to spread the costs over a bigger base." CPAs face limitations: They can't be paid for investment advice or insurance for "attest clients" those for whom they prepare financial statements or conduct audits. But many say they can earn money by offering tax advice related to clients' financial planners. "We work very closely with all our clients' financial people," said Edward Vrona, managing partner at CPA firm Vrona & Van Schuyler in Island Park. "If our clients have a relationship with someone, we'll work with them." To fee or not to fee is another question for those who partner: Many CPAs believe it's better to be paid a percent of assets rather than transaction commissions. "It's better to have a fee," said Vrona, who leads a 10-person firm. "You're in lockstep with the client." In addition to the potential rewards, there's always the risk that clients' assets will lose value. The key, according to many CPAs entering into such arrangements, is to make sure clients aren't blindsided. "Work closely with them, so there are no surprises," Vrona said. "You have to monitor, get together and keep updating, which is in everybody's interest. "If the client's happy, everybody's happy," he added. "You have to make the client happy, or they won't be a client for long. If you make a couple of dollars, even better." Published: Wed, Dec 31, 2014