Passing on clients to an accountant is a high-stakes decision most financial advisors face regularly. Veterans in the industry say it's worth taking time to find the right ones.
Seasoned advisors and former accountants say there are specific skills to look for—and some red flags to avoid. Each financial advisor, and even each client, might need different kinds of help from an accountant. But some skills—like the willingness to collaborate on client cases and the ability to return phone calls during tax season—show up on most professionals' must-have list.
The biggest nonstarter, according to many advisors, is an accountant that offers investment services—in other words, a potential direct competitor.
"Our first question is to call the accounting firm as a prospect and ask 'Do you offer financial planning strategies and can you assist me with my investments?'" said Robert Siegmann, chief operating officer at Financial Management Group Inc. in Cincinnati. The method helps avoid client poaching, he said, and also assures they end up with an accountant focused exclusively on accounting and tax preparation.
Even some former accountants say it's better to find accountants devoted exclusively to accounting.
"We actually tried to do both early on," said Erik Daniels, a former Certified Public Accountant, and now a managing director and principal at Ronald Blue & Co. in Roswell, Ga. "I think that worked for about six months and then we realized they are two different professions."
For clients, advisors can be a key source for finding accountants that match their specific needs, like an expertise in small business taxes or complex estate planning cases.
And yet, finding great technicians has limited benefit if the accountant doesn't cooperate well with other professionals—or disappears during tax season.
"It is very important that the CPA be collaborative and want to work as part of the clients' advisory team—along with us and their estate attorney," said James Miller, president of Woodward Financial Advisors Inc. in Chapel Hill, N.C. To make sure each professional is in the loop, many advisors say they get clients' permission to talk one-on-one with their accountant and attorney.
Client accountants also need to be good at managing their yearly business cycle. Tax season is a hairy time for bean counters, so advisors need to make sure a referral candidate won't short-change clients as tax files pile up.
Although advisors vary a lot in preferring to work with bigger or smaller accounting firms, they all agree the best firms have a plan for smoothly handling seasonal booms in workload. "The financial markets are not going to wait because the CPA's busy with tax season," said F. Dennis De Stefano, founder of De Stefano Wealth Management in Kihei, Hawaii.
Another red flag: Below-market fee schedules, which can be a sign the accountant's desperate for any kind of client.
To avoid sending clients into a nightmare scenario, informal background checks are also a good idea. Advisors should start by contacting states' accountant licensing boards. After that, check with industry groups, like The American Institute of Certified Public Accountants, some of which have peer-review programs that rate firms.
Russell McAlmond, president of Evergreen Capital Management Inc. in Portland, Ore., once referred clients to an accountant that later ended up in prison.
McAlmond's clients escaped being victims of the accountant's fraud, in part because they hadn't authorized him to sign bank checks on their behalf—a key difference between them and the victims.
Said McAlmond: "It was an excellent lesson."
Copyright (c) 2011, Dow Jones.