Surprise! Accountants can sell too
November 2, 1998
Accountants, sometimes maligned as trustworthy and deliberate to the point of dullness, are developing as the hottest new distribution channel for mutual funds.
Mutual fund companies and broker/dealers want to link up with accountants-turned-financial advisers who are selling or recommending stocks and mutual funds. The push comes as retail investors increasingly seek advice. At the same time, regulatory restrictions, which largely prohibited accountants from receiving commissions and referral fees from client transactions, are eroding.
Fund companies and broker/dealers are courting accountants in the hope of reaching the accountants' loyal, affluent clients.
"I think it's going to be a growing field," Jim FitzGerald, a senior vice president at MFS Investment Management in Boston, said of accountants as a channel of investment product distribution. "I can't think of a major fund company that is not actively pursuing tax professionals."
FitzGerald and others in the financial services industry say that accountants' clients appear less inclined to move in and out of funds. Such so-called "sticky" assets are particularly valuable for fund companies, which rely on fees based on assets under management. When assets are stable, the companies have fewer worries about managing cash flows and meeting unexpected redemption requests from shareholders.
Another advantage to distribution through accountants is the demographics of the investors themselves. Cerulli Associates, a fund research firm in Boston which is in the midst of a study evaluating accountants as a fund distribution channel, found that 40 percent of certified public accountants who are serving as registered investment advisers had an average account size of more than $250,000.
Also, because of accountants' in-depth knowledge of their clients' finances, they are well positioned to make suitable stock and mutual fund recommendations, industry officials said.
Yet another major reason for fund companies to reach accountants who enter financial services is that they come with a loyal client base. Fund companies who sell an accountant on their funds have gone a long way toward reaching the accountant's investors.
"Once you sell the accountant, it's done," said Holly Reimel, national sales manager for the independent channel at Delaware Investments in Philadelphia.
Reimel and others said that clients tend to trust their accountants because of their work on their taxes and because their relationships are often longstanding.
"The customer trusts their accountant more than any other professional they deal with," said Elizabeth Sorrells, a senior vice president and national sales manager for Phoenix Investment Partners, a Hartford financial services firm.
The sticky assets and client loyalty are attributed to the nature of accountants. Industry officials say accountants tend to be conservative in their investment preferences and careful in making investment recommendations. They said accountants are reluctant to risk a long-term relationship preparing a client's taxes with impulsive recommendations to buy a fund or stock in their new financial services role.
"Our representatives are very conservative by nature. They're accountants," said Roger Ochs, executive director of sales and marketing for H.D. Vest Financial Services in Irving, Texas. "The last thing they ever want to do is burn a client."
H.D. Vest has built a broker/dealer and investment advisory service by recruiting accountants and other professionals who have tax expertise. The firm now has about 6,000 representatives with a goal of 20,000 reps. New representatives join H.D. Vest with about 300 to 500 clients.
For accountants, the shift to offering financial advice provides an opportunity to tap into a growing market. Accountants are finding themselves squeezed as computer software programs simplify many of the tax and bookkeeping functions which have been their mainstays.
"The life and times of just doing tax returns is probably just a thing of the past," Ochs said .
Smaller certified public accounting (CPA) firms can earn "far more" than $250,000 a year in net income per partner from financial services, according to 1st Global, a financial services firm based in Dallas which affiliates with accountant-financial advisers.
"Given the high value placed on financial services income streams, a well orchestrated financial services division has the potential to double the value of CPA firms," First Global said in marketing material.
While the accountant channel is a promising one, developing it can be expensive and time-consuming. Accountants who sell investment products and securities tend to be spread out geographically. And fund officials said that accountants want detailed information about the funds and products they sell.
"The accountants are very technically oriented so they want more data," said Sorrells of Phoenix. "They tend to do lengthy due diligence."