Advisors & Agents - Should You Share Fees with CPAs?

Summary

We get a lot of questions from financial advisors and insurance agents asking if they should/need to share fees with CPAs. This is an important question, and is more complicated than many assume. In this video, Anton Anderson talks through which fees can be shared, the pros and cons of sharing, and the different ways to set up the ideal strategic partnership.

Transcript

What's up everyone. Anton Anderson here, co-founder of Elite Resource Team. Hope you're doing well. It is summertime, August 2019. In the office here in downtown San Diego. Hope you're enjoying your summer.

So if you're already working with us, good to see you again. If you're not, let me just introduce myself and my company, Elite Resource Team. We've been working almost exclusively with CPAs and high net worth clients for about 10 years. We started training financial advisors and insurance agents how to build CPA partnerships just about five years ago now. We've worked with over 700 advisors, not only in the U.S. but also Canada and the UK as well.

So I like to do these blog videos once a week. And what I like to cover is things that I see, either common mistakes being made by financial advisors and insurance agents when they're trying to work with higher end clients, trying to work with CPAs or other tax attorneys, and also questions that we get in our community, whether it's through our private Facebook group or just on videos like this.

So I had two good questions come in this week, and since they're kind of related I'm going to go ahead and try to tackle both of them. One of them came in from Randy... shout-out to Randy... Should I split fees with a CPA? So I'll answer that in a second.

Other question from Chad. What if a CPA does audit work? I know a little bit of background from where that question came from, so I'll tackle that as well.

So let's start off with this question. Should I split fees with a CPA? First thing I want to tackle is what do we mean when we say fees, because this varies. We have, depending on what licenses you have, I can speak for ourselves, we have multiple different revenue streams coming in, and you probably too, if you have multiple licenses. So when people say fees, they might be referring to AUM, they might be referring to insurance, they might be referring to specialist fees, like referral fees. So specialist. Or they might be referring to tax planning fees. Tax planning.

Now if you yourself don't do tax planning right now, you need to kind of be aware of what that is, because a good CPA is going to do tax planning. Whether or not you participate in those fees is really related to these first two here.

So let's kind of talk about each one of these, because they're a little bit unique. The first one, AUM, what's the big question mark here? Is the CPA securities licensed? If you are securities licensed and you're managing assets and the CPA is not securities licensed, can you share fees? A lot of people think right away the answer is no, and that's a little bit too simplistic. There are things called solicitors agreements, if you're not familiar with those, good thing to look up, but they do allow you to share fees with a non-licensed professional. There are also some situations in some States where you can share fees with a licensed CPA. So whether or not you're going to share AUM fees is a big question mark. I would say it's the most complicated out of all of these, and it's probably the one that I would suggest doing last.

So from my opinion, unless the CPA is already securities licensed, I would not start off sharing AUM fees. If they are securities licensed, then you're going to need to ask them what percent of your current revenue, Mr. or Mrs. CPA, comes from assets under management. Typically what I like to say is if it represents any significant portion of their revenue, and by significant I mean more than like 15 to 20%, it's probably not a great relationship for you to even form to begin with. Because once a CPA's revenue and a percent of their revenue gets too high coming from activities that you already do, assets under management insurance, then it's unlikely that that's going to be a long-term relationship. Because as soon as you like get in there and help them get their business, help them create a machine, help them identify opportunities within their current clients, it's too likely that they're going to be like, "Okay, well now what do I need you for? I'm already getting 20, 25% of my annual revenue coming from those activities. Now I can bump it up to 30, 40, 50%."

So on the other hand if they are licensed but they've got like 5% of their revenue, and basically they don't do almost anything, then I'm not intimidated by that. It means they got licensed, they're willing to explore different revenue channels, but they don't really understand these activities, or they don't want to go that direction too much themselves because it's complicated, there's compliance, they're not very good at sales, or they feel like it's too salesy. So anything 20% or more of their current revenue, if it's coming from AUM or insurance, I probably personally would just say next.

On the other hand, if they are already licensed, then I would certainly consider sharing fees with them. And on the assets under management, it really depends on the role they want to play. But I typically would suggest between 20 to 50% of the fees you collect to share in revenue.

All right. On the insurance, if they are already insurance licensed, this is the easiest one, because a lot of their revenue tends to be more upfront, obviously. It's front-loaded, whether it's an annuity or even a life insurance policy, whereas the AUM takes time. It's kind of a small percent every year. So insurance is easier. There's less compliance around it. It's also just easier to get the exam. It's less expensive to hold that license in terms of the CEs and the E&O. So I'm a bigger fan of sharing in the insurance. If they aren't licensed already, don't push it. It certainly doesn't need to be one of your unique value propositions, because any insurance agent can share revenue, so that's not really going to be that unique for them. You're going to want to focus more on the value that you can bring them in a process, in the relationship, in having proactive planning conversations with clients, in doing more comprehensive planning.

So we've got a lot of other videos on YouTube and stuff. You can visit our website to see more about how we talk about creating that unique value proposition. But in terms of the insurance, if they are not licensed and they are motivated to increase their revenue, insurance is the best way, easiest way, to do that. If they are already licensed, great. That's exciting to me. As long as it's not more than 20% of their revenue coming from that activity, I'm excited that they have the license because it makes it easy to share revenue. It means they're also more focused on exploring the opportunity, a little more opportunistic, so they're motivated.

And here's the way I would approach the insurance. If I'm working with them, not just in referrals, because that's really outdated, I try to get away from a referral type of concept. Like I'll give you a couple of referrals. You give me a couple of referrals. That's really outdated. We have other videos that talk about the team-based model and how forming more of like a family office, in 2019, is what you have to do. So if you have no idea what I'm talking about with a team-based model, be sure to look at some of the other training videos.

But for those of you that are already well aware of the team-based model, then I would focus on forming a partnership with the CPA. Doesn't need to be a legal partnership initially, but what you want to feel like is the two of you are coming together to offer more comprehensive and proactive planning to clients. And in that way I am sharing right out the gate with the CPA, 50% of the revenue that's coming from the insurance activities. 50% of the revenue.

You could argue either way. We have people that try to push that to 30%. They keep 70%. But I'll tell you, the relationships that we see consistently doing business and lasting for year upon year upon year, they're sharing 50/50. And they've almost become full partners. Like they're helping each other's businesses grow. So I'm a fan of sharing revenue, insurance licensed, 50/50 partnership. That's all good.

If they aren't insurance licensed, they aren't securities licensed, we still have a couple other opportunities here. We've got specialist fees. Now what the heck am I talking about with the specialist fee? Specialist fee. If you're at a broker dealer, you might have some restrictions. If you're at an RIA, there should be a number of specialist fees you're still allowed to share in. Depends on how compliant heavy they are. We also happen to own an RIA, so I know the compliance very well. We allow almost all specialists to share referral fees. And most RIAs, once they understand what you're talking about, do, as long as it's not related to securities.

So an example. Bookkeeping services, cost segregation services, cost remediation services, doing buy-sell agreements. Actually, let me back up. Buy-sell agreement's not a good. Business valuation. That's a better example. Business valuation. So things that aren't legal fees and things that aren't tied to securities.

So I don't know if you recognize any of the terms I just used, but let's use a term, let's say for example, a business valuation. And maybe the specialist you work with, who does business valuation, shares 15% of their fee. Maybe their fee's, well for easy math, let's just say 10 grand. So you have a client, they need a buy- sell agreement, and in order to appropriately design that buy-sell agreement, they need to know what's my business worth. Okay, they're going to pay 10 grand to a business valuation specialist that you have a relationship with. And because that came from you, that business valuation specialist is going to share with you 15%, which is obviously $1,500.

Now, can you and should you share in that fee with the CPA? Yeah, 100%. Why? I'm making the assumption that that client originally came from the CPA. Obviously if the CPA has nothing to do with it, it's your own client, your own prospect, etcetera, then no, you're not going to share. But if it is a client that originally came from the CPA, and you and the CPA are sitting down with the client saying, "Okay, in addition to retirement planning, or in addition to tax planning, what else is going on in your financial landscape? Oh, you have a business. You started it four years ago. You have 10 employees. You have one business partner. And you have no buy-sell agreement? What happens if something happens to your business partner tomorrow on the way to the office? Disability or death. What happens? You just got a new business partner. Your business partner's spouse." By default. Or if they're not married, the whole thing gets messy. "So yeah, you need a buy-sell agreement." "Okay." "Well, in order to get a buy-sell, we need to know what your company's worth." So that's where that came from.

So this $1,500 fee, should you share that with the CPA? Yes. 100%. And my opinion is, after working with hundreds of CPAs, hundreds of partnerships, share it 50/50. Same thing with the insurance. Share it 50/50. You're going to see a common theme here, because you really want to reinforce that mindset that we are equal partners in this venture together. You're helping them, they're helping you. It's not financial advisor, CPA. Or insurance agent, CPA. It's, we're two business partners, or two business owners. We both have problems, and we both can bring value to one another into our current clients. So share it 50/50.

The last one is tax planning. Now, not as many advisors, insurance agents are familiar with what is tax planning, and what fees come from tax planning. This is not doing a tax return. That's a very different activity. Tax planning would be unrelated to preparing a tax return. If I sit down and look at your financial landscape, maybe you answer a questionnaire for me. I roll up my sleeves, do a little bit of digging here, and I say, "Okay, Mr. or Mrs. Client, last year you paid 178,000 in taxes, With a little bit more advanced planning, my team and I are going to be able to get that down to about a hundred thousand. So we're going to be able to save you about $78,000 in taxes." And that's every year, on an ongoing basis. This is a tax plan. I'm planning for you, and I'm mitigating your taxes.

In order to get that done and save that 78,000, there's going to be some steps involved and quite a bit of work. So this is a separate engagement than what I typically do for my clients, which is tax returns. I usually have this conversation with my best clients, and I consider you one of them. So if you would like my team and I to move forward down this process, it's going to cost you $7,500 for us to do all of the work and put together a very comprehensive tax plan for you. So that $7,500 is now saving them 78,000. I would do it. I would do it every single day of the week. What didn't you? So that's a separate engagement. Many CPAs are getting more familiar with tax planning, because the compliance-based work, it's really commoditized. It's very outdated. So tax returns and tax planning is dead. If you've seen our other videos, you've heard us talk about that. That in itself is a dying industry. You have to be offering more comprehensive and more proactive planning.

So in a scenario like this, when somebody just charged $7,500, that's the CPA's client. Now can you share in that $7,500? I'm not speaking specifically to your individual circumstance because I don't know what type of BD restrictions you have or RIA restrictions or maybe you're a captive agent, but I can tell you, unless it's from any of the compliance restrictions, the answer is yes. You can share. If you're securities licensed, it's an outside business activity, as a consultant. And you can share in that tax planning fee.

Now do you want to? That is an interesting question, and it really gets up to what happens here. What I mean by that is if you are sharing your AUM fees or if you are sharing your insurance fees, then absolutely it's fair game to be on the table that you're also sharing the tax planning fees. If you helped that CPA and that client identify any of that $7,500 savings, which you should, because using a team-based approach. Think of it like a family office, and if you're not familiar with a family office, you've got to look into that a little bit, because it's definitely the direction both of our industries, the accounting, actually accounting, legal and financial, are going. Not a new concept, but just the commoditization and technology are making the traditional individual siloed industries outdated. So we have to work together to bring more value. So if you are helping them identify ways to bring more value to their clients, then this is absolutely fair game. So you're sharing in this 50/50, I think by all means you can share in that tax planning fee.

On the other hand, if you are not sharing AUM and you're not sharing your insurance, then don't expect any of this. Give the CPA a 100% of tax planning fee. Still split the specialist fee, in my opinion, because that's kind of like neutral ground. This is typically more of the CPA's ground. This is typically more of the financial advisor or insurance agent's ground. So if you're sharing here, you can share here. If you're not sharing here, don't expect to share there. Either way, share the specialist fees.

I think that's all I wanted to cover in terms of the should I split fees. And this is why, obviously, it's a little bit more complicated than just a simple yes or no.

What do we mean by the fees? So let's take a look at the second question from Chad. Chad asked... and where this question came from is he was at a lunch meeting with a CPA, which is what we teach the advisors in our training program to do, is get together in a neutral playing field. I personally prefer lunch because it's a good 45 minutes to an hour. But if you don't have that, you can get together for coffee. You can get together for happy hour after the office, whatever you need to do. But I strongly prefer the first time you meet another professional, certainly a CPA or an enrolled agent, even an attorney or banker, payroll specialist, meet them on neutral playing field. That way you get to focus more on the inefficiencies in each other's business rather than anyone getting to control the variables within their office space.

So what if a CPA does audit work? And the reason this came up was Chad was meeting a CPA for lunch, and the CPA said, "Hey, I really like this concept of working together on a team, bringing more proactive planning, bringing more comprehensive planning to my clients, but I do audit work. How does that affect my ability to share in referral fees?" And Chad said... what we teach people to say when they don't know... "I don't know. Let me ask my team and I'll get back to you." Perfect answer. So here is the answer. It is a little bit more complicated. If a CPA is offering audit services or any type of work that requires them to go through and do audit work, or attestation, then they really should not be sharing in commission, sharing in fees like this.

So does that mean you shouldn't work with the CPA? I wouldn't go to that conclusion. I wouldn't jump that far down the road. It is going to pull away some of the motivation for them to explore this relationship further. If they are purely motivated to just do what's best for the client, they still might see the value of offering more proactive planning, more comprehensive planning. But human nature is, unless there's something in it for me, it's probably not going to be the best partnership that takes off.

So there're two things I would ask an individual like this, is one, what's your goal? Where do you see your practice going, and is your focus on audit work going to get you there? Doing what you've been doing, typically doesn't get you to where you want to go. It got you to where you are. But in order to get to that next level, typically we need to change something fundamental. So do you want to keep working focusing on audit, or can we hire like a junior accountant? They come in, they take over the audit work, allowing you to focus more on your A and B level clients, and doing more comprehensive proactive planning, charging larger fees, and working in a more rewarding space, in my opinion.

So if they say, "No, my goal is to build the best audit practice in my community and this is what I'm going to stick to." Okay. In that case, the only other option we have is, do you have a business partner? And the opportunity there... a business partner or even another CPA that works in your office, that doesn't focus on audit services and instead focuses more on the tax planning, or even the tax preparation, and we can help them evolve in the tax planning. So somebody else in your firm that is working with clients, that's not tied to the audit work.

So that's the conversation I would have. One, your audit services, or your audit focus means we probably won't be able to share it in commission. Are you still motivated purely by the opportunity to bring more proactive and comprehensive planning to your clients? If that's a yes, you can explore that relationship as is. If that's a no, then I'm going to, okay, tell me about the goal you have for your business. What does this look like, one year down the road, three years down the road, five years down the road, 10 years down the road? And is this work going to help you get to that goal? If yes, do you have a business partner or a junior accountant, somebody else at the firm, that doesn't do the audit work, that we can form the partnership with?

So I think that's it for those two questions. Randy and Chad, appreciate the questions. Hope that was helpful. And for those of you that are already working in our training program, I look forward to connecting in the next couple of weeks on a call. If you're not already working with us, feel free if you're watching this on our blog, there should be a learn more button below. If you're watching this on YouTube, feel free to go to our website, elitert.com.

Also, my next video will only be dictated by what questions we get coming in. So I'd love to hear your feedback on these videos. Are they helpful? If you're a financial advisor or insurance agent and you're looking to work with either more affluent clients or strategic partnerships such as CPAs, tax attorneys, we have a full-time tax attorney in-house. One of our partners is an accountant. We have financial licenses, securities, insurance, etcetera.

So if you have any questions at all about working with affluent clients, working with tax planning, working with CPAs or attorneys, please post them below on the YouTube channel, or email them to info@elitert.com, and I will be more than happy to answer them on a video like this.

So that's it. Hope you have a great afternoon.

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