Accountants should choose JV strategy

Cutting joint venture deals with financial planners is the best option available for accountants wanting a slice of the action in the financial advice game.

Garrisons executive director and head of distribution Michael Spinks told the Law & Finance Corporate Superannuation conference yesterday that few accountants realised the benefits of the joint venture model, and had opted to refer clients to a planner or exteneded the existing business into financial planning, two options which are generally not as successful.

Spinks says accountants who make joint ventures with financial planners find the best way to make use of opportunities within the financial advice industry. The advantage is that both parties can split the equity in the business while sharing the profits between the accounting and planning firm.

“Rather than making accountants into financial planners, accountants need to find a compatible financial planner to work within the practice,” he said.

Spinks outlined a three stage development of the joint venture. The start-up stage is where the business is worth around $250,000 dollars and involves getting the ball rolling in areas such as marketing, technology, compliance and administration.

The second phase is the growth phase, between $250,000 and $1 million, in which the business focuses on client management, product development and business coaching.

Beyond the $1 million mark is the mature phase of the business which is characterised by succession planning, corporatisation (which sees “the personality extracted out of the business”) and maximising of the business value.

A natural extension of the joint venture model, and one supported by Spinks, is the consolidator accounting group. Driving the accounting consolidators — which have been snapping up accounting firms around the country for the past 18 months — is the demand for the one-stop-shop, Spinks says.

Spinks says small scale, or “cottage style” accountants are faced with the difficulties of exiting their businesses, plus competing with larger firms offering multi-faceted levels of financial advice. The accountant should be aiming to become part of one-stop-shop approach which means making inroads into the provision of financial advice.

Spinks predicts the consolidator juggernaut will “move forward a lot more”, but conceded it has slowed down of late.

The main advantages of the consolidator model, according to Spinks, are that the problem of exiting is removed; the one-stop-shop can be implemented; and the model provides the opportunity for the practice to cross-sell financial products.

“Ultimately, accountant firms are another channel of distribution,” Spinks said.

Spinks says the referral model is the most popular among accountants and involves the accountant referring clients along to the financial planner. It naturally involves the least work or changeover complications, but its reactive rather than proactive nature means it can miss out on opportunities there for the taking.

The other model is one which Spinks says is least successful, in which the accounting business merely extends its existing business into financial planning only through a cosmetic shift. This ignores what Spinks called the cultural difference between accountants and financial planners.

To illustrate his point, Spinks compared the two breeds of finance professionals as members of the same species, but of different sex. An accountant renaming himself a financial planner would be like a man calling himself a woman on the basis of wearing a dress, Spinks said.

“Accountants moving into financial planning need to understand that what is required is a sea-change, not a sex change,” he said. “It is not enough to hang out the shingle and say ‘Now I’m a financial planner’.”

Accountants in these models invariably run into problems because they find it difficult to swap the accountant’s mindset for the planner’s. Examples are the difficulty in adapting their fee structures to suit those of planners (charging fees and trails rather than charging by the hour) and failures to specialise in specific areas of financial advice.