By: John P. Napolitano, CFP®, CPA, PFS, MST

Not all firms have a wealth management division. But all firms have clients who are paying for wealth management services one way or another. They’ve got attorney’s fees, brokers or asset management fees, insurance commissions, bank fees and little dings and charges just about everywhere in their financial world. But are they getting wealth management or at least good value for all of the money earned by their team of advisors?

As the Certified Public Accountant (CPA), during the tax preparation process, you see many issues that shed light on the overall health of your clients’ financial life. With that information at your fingertips, the opportunity to be a guiding light and help to pull all of the pieces together is as strong as possible. I’m still puzzled by the firms who choose to put the blinders on to slug through piles of tax returns rather than elevating the service experience. Your better clients would appreciate and pay for that attention.  I’m not saying that you must get into the wealth management business, but choosing to be a little more active in your clients’ financial lives by recognizing issues and assisting to close the gaps would be an elevation of their experience with you.

Today, I hope to shed light on helping to determine if your clients are paying a fair price and if they are receiving what a true wealth manager would consider pro-active and holistic services. At the end of this article, you will be able to either save your client some money in fees or help them get the services that they need to get their entire financial house in order and keep it that way.

The pricing services for traditional accounting work is a little different from firm to firm. But generally, most firms either work on a flat fee basis or a time and materials basis. Each firm’s clients adjust to their billed method and life goes on.

But when it comes to wealth management, the context for your clients’ perception on how much they are paying, how much they should pay and how that billing or payment occurs may be different. Their expectation on how to judge quality advice and how to pay for wealth management services may be distorted and have been created by their experiences with the financial services industry as it is today or as it’s been in the past.

One egregious example of this is a new client that a colleague had received from a local CPA firm who spotted a lot of trading activity and large net operating losses (NOL’s). The client was being served (or underserved) by a large investment house. He was entirely under the impression that he was receiving wealth management and thought that he wasn’t paying anything for the service. As it turns out, a little forensic research showed that his broker (note: not his wealth manager) was turning over his portfolio frequently and was generating about $250,000 per year in commissions on his $8 million dollar account. To make matters worse, this client has over $1 million in NOL’s and according to the new advisor, there is absolutely no evidence that there were ever any conversations about wealth management.

This client had no will, trust, or proper beneficiary designations on his qualified accounts. This client is 60+ years old, single, with a live-in girlfriend who has no assets and two needy grown children. This sounds like a future estate challenge made for TV.

There is a rental house that was improperly insured, without leases and tenants with whom he’s had a history of legal battles. He was also trying to settle a contested small estate of a deceased family member for over 2 years and the former advisor wasn’t even aware of his struggles with this. This client owes his CPA for the introduction. I know that you’ve heard me say this before, but I don’t know how any CPA firm can do this man’s tax and accounting work without recognizing the negligence and deficiencies of this client’s broker and understanding how poorly he was served.  

It was confusing to this client to learn that he had been so poorly served. It may be true that over a 25 year period of the incumbent broker’s relationship that there had been moments of good investment performance – but those days were not evident based on a three year review performance analysis performed by his new advisor.

It was further confusing for him to understand that he’s been paying approximately $250,000 per year in trading commissions and not getting anything but questionable investment guidance. He couldn’t believe it until he was shown, trade by trade, just how profitable of a client he has been for that large firm.

So naturally, when it came to pricing the financial plan, this client struggled to get his arms around the concept. The advisor agreed to do his plan for a flat fee of $7,500 and asked for half up front with the balance due in 30 days only if he saw the value in how his issues were addressed. Eventually, the assets followed but by the time this particular client saw the light – his portfolio had already dropped from $8 million to a little over $6 million in a strong US equities market. This client will pay over $60,000 in wealth management fees this year. A big number for sure, but far less than what he was paying in commissions and now he finally has the comfort that someone is really watching his back and truly out for his best interests.

Now, with this real life example from 2016/2017 as your context, let’s talk about pricing wealth management services for your clients.

There are a few ways in which the world currently bills for wealth management services. Flat fees, hourly fees, and Asset Under Management (AUM) fees or commissions. Let’s set this conversation with what I mean when I refer to wealth management services. I’m talking about truly pro-active and holistic wealth management – where the wealth manager is accountable, and possibly even responsible for ensuring that every moving part in your client’s financial life is lined up with purpose and a plan.  Whether it is their business succession, life insurance program or helping with the estate plan for their elder parents or special needs children– I mean everything.

Let’s eliminate the dinosaur right off the bat. Commission based financial planning is about to go the way of the dodo bird. In fact, for most progressive firm’s it hasn’t been a part of their compensation mix for years. The DOL rule has certainly accelerated this compensation methods demise – but it has been a long time coming.

If you intend to perform commission based work for your clients, I’d suggest that you go with a full disclosure method. That means that you should disclose the nature, frequency and specific amount of any compensation or commissions that you may be receiving. I’d also include something letting your clients know where else they may receive said products and what their alternatives may be in the marketplace. If you intend to give advice as a financial planner, the fiduciary rule will make this structure of compensation obsolete. If you can find similar or better products at a lower cost - you must also show them and let them know why the more costly option may be more appropriate.

Hourly fees and flat fees are generally the same. The advisor either sets a flat fee or an hourly billing rate. For those not used to time and billing, I do not suggest billing hourly. Personally, I feel that it would be in the best interests of the planning relationship for time not to interfere with the delivery of services. Over time, just like traditional accounting services, hourly billing builds a natural reluctance on the part of your clients to call. Just like Pavlov’s dogs, if your clients know that a phone call is going to generate a bill, they’ll call less frequently. Flat fees, on the other hand, may get your clients actively involved and looking to call you as much as possible to get the most out of the engagement. While this may yield a lower realization rate in certain engagements, it also helps to build a solid foundation for a long-term planning relationship that may save time later.

AUM fees are by far the most prevalent way that firms today charge for wealth management services.  This is where you, as the CPA must be most critical. Just because someone is “fee-only” or charging AUM fees doesn’t mean that they are providing wealth management services. Frequently you’re getting asset management services with a thin veil or even a disguise that telling you how your investments are doing and whether or not you’re on track for retirement is considered wealth management.

In the financial services sector of our capitalistic environment, nothing is sacred forever. Frequently, pricing for financial services sink to the lowest common denominator. The first place this is happening in the wealth management space right now is with Robo Advice. First of all, Robo Advice is misnamed, it really should be called Robo Investing. Advisors have used technology for years to build portfolios, so this in and of itself is not new.

What is new about Robo Investing is the pricing structure. Most Robo’s can be bought for between 25 – 50 basis points. That’s a lot less than the 1 – 1.5% that advisors often charge. So the focus is on the delta – how much extra does someone pay their advisor over what it would cost them to work with a quality Robo platform and what do they get for that. If you’re a wealth manager and overseeing the entire financial house of your client, you'll be OK with your pricing. But if you are giving lip service to wealth management, and your clients have lousy estate plans, poorly planned beneficiary designations, or no business succession plan… you are on the road to becoming a dinosaur.


*Published on October 2, 2017 in Accounting Today

John P. Napolitano CFP®, CPA is CEO of U.S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or . The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. U.S. Wealth Management, U.S. Financial Advisors and LPL Financial do not offer tax advice.