My opinion of licensing models for accountants is pretty simple… don’t do it.
I’m going to outline my reasons for saying this, and also suggest a more valuable (and profitable) alternative.
Stop, and make the right decision for you
In my experience, too many firms are launching into the licensing issue with the wrong perspective. Instead of starting with their 10 year vision and making a decision on what is the best for them, firms are often making the mistake of acting in response to popular knowledge rather than making a decision based on what is right for them. In general, the media makes out that firms have to be licensed to avoid failure.
The truth however, is that for most firms this is not the case.
Four things to consider with Limited Authority arrangements
- Licensing is about dealing with financial investment conversations with clients.
Starting or closing a superannuation fund is a financial/wealth conversation and too many SMSF are not performing compared to the corporate/managed super funds. The government is attempting to bring this into line and make sure SMSF provide for retirement.
- Becoming a Limited Authority is more complicated, and not necessarily more profitable.
Becoming a limited authority means you have to stay compliant, it’s another risk area, it’s more red tape and it’s another activity that spreads partner focus. Therefore I am asking; why should accountants take it on unless they are intending to creating a revenue stream?
- Have better conversations with your clients.
Not doing it creates a better focus and forces accountants to have a better conversation with client about what they really need. Better conversations lead to better relationships. For example, clients don’t need a SMSE to reduce tax, they really need an investment strategy that maximises wealth and minimizes tax.
- Outsourcing to a Financial Planner is a more valuable.
Therefore creating a more valuable solution for the client is to outsource to a FP, in a way that you remain involved. This creates a platform for the client that involves you and the FP sitting around a table and addressing all aspects of the client needs and issues. Concluding to a joint service outcome and from my experience, clients love this model.
You can do better than Licensing, here’s how…
Instead of complicating your life with licensing model, you should consider some more attractive options.
Create a Business or a revenue division within your business
Begin by considering your firm’s 10 year strategic plan.
Is the focus on…
- building net wealth (saleable asset)? and/or
- extracting cash (maximising profit)?
The best way to build wealth is to build a Finance Services Business (FSB). At the moment, these businesses sell for 2.5 to 3 times reoccurring revenue streams, which is more valuable than accounting firms that currently sell for less than a 1 times recurring stream.
There are alternatives to you building one yourself that is if you don’t want to be involved in managing and running an FSB.
Options for Building Net Wealth
- Create a FSB, set it up, run it and manage strategically and operationally
- Joint ventures with an established FSB
- Bespoke FSB, this is new to the market where for an agreed equity split someone else manages and runs the operation side of the business and you are involved in strategic decision making. The largest benefit of this model is the FSB is run in a way that matches how the operation culture of your accounting firm.
These options are summarised in the image below, If you want further detail or have questions, I’m covering this topic during my next live call on Thursday, 21 January 2016.
Becoming a Limited Authority is both more complicated for yourself and less profitable for your Firm. It is also more valuable to your clients for you to maintain an independent accountant’s relationship them and to outsource to an FP.
The road you take should be determined by what fits into your 10 year plan. For greatest success, fastest, it must be what is right for you, your firm and your clients.
Conversations and relationships will result in better service and client loyalty, plus clients will be more willing to pay for services.
A Strategic Approach to Licensing
Next Thursday, I will be hosting a live call where I go into a more depth about the licensing issue, and also take your questions.
Licensing Q&A Live Call at 1:30pm (AEDT) on Thursday 21 January 2016
Register here and pre-submit questions you would like me to address.
This is a live event, so you will have opportunities to ask questions during the call.
- Why the limited authority option is not right for most accountants – and how to determine if it is right for you
- How should we be making our decision – what’s the best path to follow?
- What is a bespoke Financial Service Business?