Tom Karsten, CFP, managing partner of Karsten Financial, a financial and tax planning practice based in Fort Worth, Texas, has acquired seven practices since 2000, all of them accounting firms. The first belonged to his father-in-law. Once he acquires the practices, he offers his firm's comprehensive services to the accounting clients. Since implementing this strategy, Karsten Financial has grown its client assets under management (AUM) to $180 million from $25 million.

The formula has created a good growth strategy for Karsten Financial. Roughly 80% of its clients are over 50 years old, so the company gets a lot of business through rollovers from qualified retirement accounts. Once an acquisition is complete, Karsten Financial, which employs two other CFPs, carefully goes about offering the firm's financial planning services. The firm is not pushy about it. If a client mentions concerns about his or her investments during an annual tax-planning meeting, for instance, the staff will discreetly tout the firms' investment management offerings. It also does non-intrusive mailings to clients about their financial planning services. And now, the firm gets 75% of its revenue from advisory work.

Buying and integrating an accounting practice is an unusual step for a financial advisor. More often, accounting firms buy financial advisory practices. But there are pockets of interest among financial advisors to do these deals, according to advisors who have done them and other industry participants. At Jersey City, N.J.-based Pershing Advisor Solutions, for instance, financial advisors frequently ask about the pluses and minuses of buying or merging with an accounting firm, according to Chief Executive Officer Mark Tibergien.

PUTTING HEADS TOGETHER

The accounting and advisory professions have a long history of cross-selling services, so advisors considering such a deal would be in familiar territory. According to its 2008 membership study, The Financial Planning Association (FPA) says 2,675 of its 25,000 members are certified public accountants (CPAs) and 23% of its members provide tax return preparation. What's more, 910 FPA members have the personal financial specialist (PFS) designation, awarded to CPAs who also complete a rigorous course of study in financial planning. On the accounting side, the American Institute of Certified Public Accountants (AICPA) says that 4,300 of its 350,000 members hold the PFS.

Like financial planning, the accounting profession is graying, and most accounting firm principals do not have detailed succession plans. In its 2008 Succession Survey, the AICPA found that 63% of the 500 firms surveyed expected at least one owner to retire in five years, and 52% of senior partners were age 60 or older. The study looked at sole proprietor firms as well, and found that just 17% of them had succession plans in the works.

Another reason for financial planners to consider these deals is to stay ahead of the competition from younger CPAs who are integrating investment management services into their practices, says Karsten. Financial planners might rely on CPAs for referral business now, but that will change dramatically over the next 10 years, especially as new federal regulations spawn tax implications for investors. For instance, Karsten notes, recently passed healthcare reform laws call for a 3.8% tax on investment income for anyone earning more than $250,000, beginning in 2013. That's just one example of how more investment decisions will be driven by tax considerations.

HANDLE WITH CARE

It can take years to convert accounting clients over to a financial planning practice and bolster a planning firm's AUMs. Those potential clients have to be handled gingerly from the start. This is a point that Roger Ochs, president of H.D. Vest Financial Services, an independent broker-dealer that also consults on these types of transactions, says that he cannot emphasize enough. "If you cannot get the client comfortable with the new group, your whole deal is going to blow up," Ochs says. "That new client is not a commodity. This is a living, breathing person."

Pershing Advisor Solutions maintains a network of professional consultants, called Value Alliance Partners, which it makes available to advisors to help educate them on a wide range of practice management topics, including the implications of buying or merging with an accounting firm. "People forget accounting is a people business," Tibergien says. Advisors should think carefully about their motives for buying accounting firms, he continues. Is it a natural extension of their expertise? Are their clients demanding the services? If advisors are simply looking for another source of incremental income, the deal probably won't work.

One advisor who did make it work is Kyle Brownlee, chief executive officer of Enid, Okla.-based Wymer Brownlee, a $350 million firm. (Both Karsten Financial and Wymer Brownlee are on the H.D. Vest corporate RIA and broker-dealer platforms.) Wymer Brownlee has done six deals since 1999, and expected to complete a seventh by July 1. But Brownlee is not laser-focused on racking up AUMs at all costs. He recently walked away from buying a smaller accounting firm that didn't share his motives for doing the deal.