Setting up a wealth advisory arm within a CPA firm can provide promising opportunities for both parties, but is not without its challenges, says Jack Thurman, president of BKD Wealth Advisors.

Editor’s Note: This is the second part of an interview with Jack Thurman, president of BKD Wealth Advisors. To view the first part, on knowing your prospects and “the ideal client,” click here.

Talent management

Jack Thurman believes there’s plenty of growth in the “millionaire next door” market for the firm to own a good share of, but he notes one of the biggest challenges to this is hiring talent: “Going out to market is not our biggest challenge – but it is if we don’t have the talent.” And having talent is a crucial part of delivering on client expectations.

The firm’s strategy on this is two pronged: recruit from the colleges and the wealth advisor market. However, it is only interested in bringing in advisors with five to ten years’ experience as beyond that he believes advisors have “so many habits” that it is hard to retrain them in the firm’s culture. This gives an idea of the importance BKD places on having a defined culture, which is perhaps linked with its emphasis on delivering standardized client service.

“You can have the best financial planners…the best portfolio managers out there but in all truthfulness the greatest need within this marketplace to compete with the major brokerage firms is a client service model,” says Thurman.

There are visible efforts in this area in the industry: Schwab Advisor Services has been running a program on client profitability that focuses on standardization and creating service models. Critics of this might argue that wealth management is all about individual relationships, but “you can build standardization with customization,” says Thurman.

“You build a structure. And people are people to a large extent, yes they have their…idiosyncrasies …but what we do is make sure we’ve got it in our system… We are very dedicated to putting our clients’ preferences into our system.”

He likens it to being a regular guest at a high-end hotel: you would expect consistency of service, but if they know your individual preferences – the type of pillow you like, for example, or your favorite brand of soft drink – they can just pop that into their system. With this in mind, BKD hired Ritz Carlton to help it develop its client service model.

Targets

When asked what the firm’s targets are – growth in assets, for example – Thurman’s immediate response is refreshing: “We’re looking for client retention to be at 98 per cent or better. Our first focus is: keep what we have.”

Next on the list is the client survey, which BKD carries out every other year, and on a scale of one to five tasks itself with achieving 4.8 or better. “We scored 4.8 in our last survey, which was 2011,” says Thurman.

Only third does he bring up assets: “And then we want a 10-15 per cent growth rate in net new assets. So we’re looking at a ballpark of $200-$300 million net new assets over the next 12 months.”

Meanwhile, it is planning to slowly “progress both east and west as the accounting firm does.”

“We’re about the tenth largest accounting firm in the country; we have offices throughout the Midwest, and I would expect the CPA firm [to] expand both east and west to the coasts, and we will be able to expand also. But we will also be expanding within the footprint, for example we just opened our Dallas office.”

For this the firm hired David Richards, office director; Justin Luddeke, advisor; and Matt Wahl, portfolio manager.

“I think the trust of the CPA and professional alignment versus a sales environment [is] the momentum of the future,” says Thurman. It may “take a while,” but he predicts that firms like BKD or “Oxford Financial in Indianapolis, IN, or Moneta Group in St. Louis, MO,” or the “numerous” other firms operating with this model, will become better known in the wealth space.

A “bumpy ride”

However, just because he believes accounting and wealth advisory is a good fit, doesn’t make it easy.

“Many CPA firms have gone into wealth management…and many have failed. We’re probably one of say 10 in the US that really has succeeded in developing a wealth advisory practice,” he says. “And that’s not so much a testament to me and my team as the dedication of the CPA firm.”

Since BKD Wealth Advisors’ launch in 2000 there’s been the tech bust, 9/11, and the financial crisis. The 1990s were a relative paradise. Any firm’s dedication to stay the course, or not – through years when the market dropped month after month – is essentially based on its understanding of the business, says Thurman.

“Many, many firms saw in the late 1990s that wealth management or brokerage firms were making money by the bushel-basketful and they said, ‘you know what that’s easy, let’s go do that’. And they didn’t understand, number one, the cyclicality of the industry. They didn’t understand the compliance complexity, the personnel complexity. Because wealth advisor folks are different from brokerage folks, and brokerage folks are different from CPAs, and they didn’t understand the talent they needed to attract and the complexity of the structure.”

What’s more, he says there are few economies of scale other than sharing clients.

Despite these challenges, today the wealth advisory arm is “very much a contributor to the profitability of the firm,” he says. “We’ve been consistent for several years. Even in the midst of 2008/2009 we had some bottom line problems, profitability wasn’t what it needed to be, but we’ve more than made up for it since then. We are a net contributor to the firm.” The CPA firm is “very profitable,” he says, raising the chin bar for the wealth advisory arm.

“It makes it a challenge but most of our people in the leadership of Wealth Advisors are very challenge-oriented.”

Speaking of challenges, one of the main businesses BKD believes it provides an alternative to is the traditional family office, as Thurman says many sophisticated clients value the breadth of tax advice a firm like his offers. “We have 1200 CPAs and I can pick up the phone and say ‘hey, my client has a business in Singapore…what do we need to be doing?’” he says. “We’re actually housed... within the CPA firm. We don’t have separate offices; we work very, very closely with our clients’ CPAs.”