Accountants: Financial advisers of the future?

Accountants are being encouraged to get into financial advice.

Friday, May 9th 2014, 6:00AM 13 Comments

by Susan Edmunds

Wealth management is a big part of many accountants’ practices in Australia – in some cases, the financial planning portfolios of their businesses are worth much more than the accounting clients.

Now it has been suggested that New Zealand accountants should follow suit as new software such as Xero reduces the need for the traditional bookkeeping aspects of accounting.

Ben Brinkerhoff, of NZ Wealth, said his organisation had noticed that clients that offered accounting as well as financial planning had successful wealth management divisions. “Accountants have to have 100% ownership and control [of their clients]. They think about clients differently.”

Brinkerhoff said the key was for them to completely outsource the aspects of financial planning they were not good at, such as the research and compliance. "They’re good at planning so if you take away all the stuff they don’t want to do, and let them keep the ownership and control, and work with the partners to get them onside and to build trust, it almost can’t not be successful.”

Matthew Bellingham, director at Bellingham Wallace and chair of the NZICA public practice advisory board, said fund managers and wealth advisers had been trying to target accountants’ client bases as long as he had been in business. “There hasn’t been a huge uptake from the NZICA membership yet.”

But he said the Australian experience had shown accountants were keen to get involved with financial planning.

“But I think at the moment there needs to be a lot of work done around it. Our firm is a bit hesitant to make the jump, we’ve got the Financial Advisers Act in play now so you’ve got to do another set of qualifications and there’s a strict code of ethics. The other thing that puts us off is what if the investment doesn’t perform well?  A lot of members are in an advisory role and are called in to have a look at performance of fund managers, there’s no way we can be independent if we’re doing everything.”

Brinkerhoff said there was strong client demand for financial planning advice from their accountants.

“People looking for an adviser were asked how likely they would be to go with their accounting firm if they offered wealth management and the answer was the over 50% were very likely.”

FMA spokesman Andrew Park said there was an exemption in the FAA for chartered accountants providing a financial service in the ordinary course of business.
“It’s important to point out the prohibition in the Financial Advisers Act, section 20B, making it an offence for anyone except an AFA to hold themselves out (directly or indirectly) as a financial planner or offering to provide a financial or investment planning service.”

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Comments from our readers

On 9 May 2014 at 9:29 am Bill said:
I don't think it's a fit

In the USA a number of big accountancy firms got out of investment advice over the past decade

I also saw some accountants in NZ get out after the GFC where their clients had lost money

One year in 5 or 6 markets turn down and then the accountant has to explain the losses

This can damage or strain an otherwise good relationship the accountant might have with the client

They don't get this problem when just doing accountancy work

If I was as an accountant I would stick to my knitting
On 9 May 2014 at 10:38 am Pragmatic said:
Australian accountants are the preferred "trusted advisors" due to the relative tax & superannuation complexity that necessitates a relationship by investors.

Whilst the NZ industry will undoubtedly head in the same direction, the absence of any true complexity (other than meeting regulatory hurdles) means that Accountants will probably be better staying in their day-jobs for the time being.

This will change over time - as the Australian example has demonstrated that Accountants are better positioned to become the one-stop-financial-shop.
On 9 May 2014 at 2:25 pm Matthew Gilligan said:
I think that NZ CA's would welcome the opportunity to have input into Financial Planning and it would be an excellent match of their skills to the processes involved. I call for self managed superannuation to be introduced to New Zealand. Australian SMS is very popular and preferred over public fund management by many in Australia, due to the ability to add leverage to SMS funds in a self managed capacity and or direct funds into investments that the Super Owner can add value to. EG Property. In Australia where the fund management industry is much more developed, CPA's work hand in hand with Financial Advisers in combined practices very effectively. The skill base of a senior CA is far more professionally qualified than the average AFA, who only has to do a 3 month course to qualify vs. a 7 to 10 year tertiary and post graduate path to become a qualified CA. With a bit of extra study, the CA qualification blends very well with financial planning. CA’s in NZ should take notice that in Australia, up to 40% of the work performed by CA’s in public practice, is related to the provision financial planning services and managing SMS.
On 9 May 2014 at 4:00 pm David Rey said:
An Accountant needs to consider their market strategy before making a decision to provide financial advice. Poor investment performance is not hard to explain once the client understands they are paying their adviser manage investment risk, not to guarantee an investment return.
On 9 May 2014 at 5:25 pm Pragmatic said:
@Matthew Gilligan - with respect, the dramatic growth in the Australian SMSF industry segment reflects the combined forces of a). a structurally corrupt financial services industry, b). the impact of the GFC on portfolios, c). demography (not dissimilar to NZ), and a significantly more mature financial services industry than NZ. Despite this growth (AUD420bn when I last looked), it is still dwarfed by the intermediated segment of the industry.

Whilst SMSFs (investor choice) will no doubt be a feature of the NZ financial services scene in years to come, investors need to a). growth their balances and enthusiasm towards superannuation, b). restore their confidence in the financial services industry (on the mend), c). have an industry that has an ability to earn their confidence

In short: the NZ financial services industry is embryonic in comparison to the Australian counterpart which is closer to maturity. We need to walk before we can run....
On 12 May 2014 at 7:58 am btw said:
Isn't the SMSF industry simply a by-product of the compulsory super scheme in AU? We already have the equivalent here by virtue of KS being voluntary. All those individuals out there with non-KS investments are in effect running their own SMSF aren't they? Unless KS becomes compulsory I don't see why a SMSF industry would ever develop here. And introducing a SMSF is merely going to introduce a whole layer of costs to investing - better I would think for advisors to focus on individual investors as they are now rather than through future layers of SMSF red tape.
On 15 May 2014 at 12:31 pm Kevin said:
Accountants tend to be analytical 'numbers' people not 'people' people. Can't see them do a great insurance review/recommendation? Bit like mortgage brokers...think they can do insurance they then many fail miserably...that's my two cents worth anyway...better off referring to a specialist...let's all stick to our knitting I say...
On 16 May 2014 at 10:23 am Dr Mike Naylor said:
The majority of accountants in NZ have no educational background which would give them competence in giving financial advice. An general exemption for accountants was debated at the time of the introduction of the current code, and it was rejected by both the committee and the govt.
Matthew Bellingham's comments above highlight the problem - he is worried about the recommended funds not performing! This shows that he had no concept of the scope of a financial adviser's role and the fact that guaranteeing fund performance is not part of that role. The fact that he doesn't understand the benefits to be gained by accountants teaming up with professional advisers underscores this.
There are far more important reasons why accountants can't do the job well.

However, if accountants upskill, if they do the same education pathways as financial advisers, if they join the financial adviser professional bodies, if they spend the time and effort to learn the business well, then they can quite good. However they cannot dabble, its not a part-time job.

@btw, @pragmatic, isn't it time you used your real names on this website?
On 16 May 2014 at 10:25 am Mac said:
Kevin, accountants are 'process orientated" and their view of advisers is that they are "sales orientated". Process and advice orientated advisers have been highly successful in Australia (and to some degree in NZ)in building relationships with accountancy firms to deliver high quality advice to the firm's clients.
On 19 May 2014 at 4:48 pm Kevin said:
Hi Mac
Yes agreed (sort of) but how many Accountants have 'must check clients insurance/investment/mortgage/estate planning needs' as part of their process? - not many that I've dealt with. I've found that they are pretty bad at referring to experts for advice so they are obviously not uncovering the need in the first place - failed process. As Dr Naylor says there's also a lack of education - as an example there seems to be a lot of Accountants that have no idea of how ACC and income protection and other disability products work together. There's a huge and obvious opportunity for all of us but maybe the fact they see us advisers as 'salespeople' is part of the problem also?
On 20 May 2014 at 9:17 am btw said:
@ Dr. Mike Taylor.

Haha. Perhaps. However, I think there is often too much focus in these forums on the messenger rather than the message. I assure you that if I ever start colouring my words purely on the basis of anonymity then I will stop.
On 21 May 2014 at 11:38 am Kevin said:
Mac I don't see many Accountants with a process for identifying a need when it comes to anything other than doing the books and working out tax...major shift in thinking required..most have their heads in the sand even if it may be an obvious opportunity...
On 22 May 2014 at 9:27 am Mac said:
Kevin, new generation accountants have a keen interest to deliver business consultancy services to their clients due to reducing revenue opportunities in the tax and governance areas. These accountants are willing to work with financial advisers who can compliment their value add to clients, e.g. specialist advice in areas such as forced succession planning.

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