There has been an increase in the trend towards financial advice firms buying accounting practices for two main reasons. The first reason relates to the ability to create financial service firms that can deliver all of a client advice needs, commonly referred to as a one-stop-shop.
The second reason is that it makes economic sense. It costs maybe 90 cents in the dollar to buy an accounting practice, compared to buying a planning firm for maybe 2.5 times recurring revenue. This starts to make even more sense given the profitability of the two businesses can be very similar.
However, buying an accounting practice is not a cut and dried process, and there are some key issues that advice practices face in getting the maximum value out of such an acquisition.
The first key issue relates to the ongoing management of the accounting business and the handover of their clients. Structured correctly, this process works exceptionally well when the acquisition relates to the retirement strategy for the accounting practice principal.
The second and just as important issue, is that there needs to be someone in the merged practice who is capable of continuing to provide the accounting services and operating as a registered tax agent. If the accounting practice principal is exiting as part of the deal, someone in the remaining practice needs to continue to operate the license and hold that designation.
The third potential issue that an advice practice faces in such an acquisition is ensuring that client proposition of the accounting practice matches the advice proposition of the financial planning business. For example, there is no point in a financial planning practice that serves high net worth individuals buying or partnering with an accounting practice that specialises in doing mum and dad tax returns.
Referral and partnership arrangements between accountants and planners are only going to continue to grow. With the accounting profession facing similar demographic challenges to the advice industry, the trend towards financial planning firms buying accounting practices makes a lot of sense, as long as they can address key issues.
