As of October 1, 2020, out of 13,810 investment advisers registered with the U.S. Securities and Exchange Commission (SEC), more than 200 reported being actively engaged in the business of being an accountant or accounting firm. Almost a 1,000 reported an affiliation with an accountant or accounting firm. Another 28 reported being actively engaged in the business of being a lawyer or law firm. And 447 reported an affiliation with a lawyer or law firm. The growth in the number of registered investment advisers has seen an increase in the number of firms that offer legal or accounting services.
Investment advisory clients and prospective clients–especially high net worth clients– are continuing to seek out trusted advisers that can render investment, tax, and estate planning services under one roof (a “One Stop Shop”). Conceptually, it makes a lot of sense. Instead of seeing three medical specialists, wouldn’t it be more efficient to receive all those services in a single visit from one business? Wouldn’t you reduce your opportunity costs? Wouldn’t you expect to receive some type of pricing discount?
There are a number of competing forces that prevent everyone from engaging a One Stop Shop. Similarly, there are forces that prevent investment advisers from creating their own One Stop Shop.
Some clients are quite happy with their current tax professionals and estate planning lawyers. Some clients may have very simple tax and estate planning needs and believe that it would be less expensive to seek out individual practitioners instead of bundling their services. Some clients may prefer name recognition for their accountants and estate planning lawyers. Some clients may trust and like their other current professionals.
In addition, some investment advisers rely heavily on centers of influence for referrals. They might determine that bringing these services in-house or merging with an accounting firm or law firm could jeopardize these relationships and referral streams. This is a fair concern.
In any event, before expanding your services as an investment adviser to be a One Stop Shop, you may want to consider the available options and their pros and cons. Below is a short list of available options. I have counseled clients through each of these approaches.
- Enter into an engagement letter with accountant or accounting firm. This can be as formal or informal as your business requires. You may determine to start small and engage them to only prepare tax returns for your clients. You may also engage them to assist you with addressing issues that are important to your clients. For example, if one of your clients needs tax planning assistance, you could directly engage the accountant to render those services to your client.
- Pros: This is typically an inexpensive method. Easy to control costs by negotiating hourly rates or fixed fee in contract.
- Cons: May not be able to control work flow and timing of deliverables. Introducing other service providers may result in client poaching. Inability to closely supervise work product and client satisfaction.
- Hire an accountant or estate planning lawyer on staff. Another option to creating a One Stop Shop might involve hiring one or more accountants or estate planning lawyers. If you will be charging additional or separate fees for these services, this could present an ethical issue for the accountant or estate planning lawyer as it relates to sharing accounting or legal fees with non-lawyers, which most state rules of conduct generally prohibit. It is best to review those rules with any potential hire and make sure that your plan doesn’t run afoul of those rules.
- Pros: Better able to control work flow and timing of deliverables.
- Cons: Higher, fixed cost due to salary and benefits typically than entering an engagement letter. Expectation of increased cost in future years. Added liability for errors and omissions (can be offset with insurance).
- Enter into a formal merger, acquisition, or re-organize your business with an accounting firm or estate planning law firm. We are seeing more and more name-brand accounting firms push deeper into the wealth management space. A lot of regional accounting firms have also begun offering wealth management services. This trend appears to be continuing.
- Pros: Can provide in depth knowledge for clients. Likely have an accountant or lawyer with experience to address almost any client issue. Extreme efficiency of communicating between staff members, which are typically in the same office or on electronic communications platforms.
- Cons: Can create conflicts of interest for the accounting firm or law firm that jeopardizes independence or would require recusal. Additional regulatory, compliance, and disclosure complexity (primary issues include conflicts of interest, insider trading, confidentiality, and data security).
This list and the pros and cons are intended to be a high level discussion for investment advisers evaluating their options. It may not comprehensively address all of the possible options and risk and rewards of each option. You should consult with knowledgeable legal and compliance professionals prior to contemplating your One Stop Shop.