Executive Summary
Virtually every practice management study for financial advisors indicates that most advisors generate most of their growth through referrals, and that CPAs are a good "Center Of Influence" (COI) for generating those referrals. Except in practice, most financial advisors struggle to actually generate any referrals from CPAs, and referrals given to CPAs – in the hopes of reciprocal CPA referrals in return – often feels like a long walk down a frustrating one-way street.
In this guest post, Dave Zoller - a financial advisor who previously worked in a CPA firm – shares his perspective on what it actually takes for financial advisors to generate referrals from CPAs, how most advisors fail to generate referrals due to a lack of differentiation (from all the other advisors who read the same studies and are asking for the same referrals), and how to establish a proactive relationship with CPAs – that can actually generate referrals – by first working with them proactive to help solve the common problems that arise when they're preparing tax returns for (your joint) clients.
In fact, Zoller suggests that the best way to cultivate a referral relationship with a CPA is to start by deepening the relationship with the CPAs of your existing clients, where you already have a natural introduction – your common client whom you both serve. By showing how effectively you work with the CPA of your existing (joint) clients, the more encouraged the CPA will be to refer new clients to you!
So whether you've been wondering how to break into the world of generating referrals from CPAs, or have been frustrating by months or years of referring out clients to CPAs and waiting fruitlessly for reciprocal referrals that never seem to come as desired, I hope you find this guest post from Dave Zoller helpful to understanding what you need to do to break through from here!
The Problem With Generating (More) Referrals From CPAs
Wouldn’t it be nice if you had a close relationship with a CPA practice that would consistently refer new business to you?
Being fortunate enough to have worked in the past at a CPA firm, I’ve learned that about 3 out of every 10 clients will ask their tax preparer for help with their personal finances during tax season. That’s an incredible opportunity for you as a financial advisor, if you’d like those tax preparers to refer their clients to you. All we need to do is find a way to be top of mind so that we’re included in the conversations they're having with their clients.
The problem is that every other financial advisor knows this as well, and is vying for the CPA’s attention, too. So how do you stand out from the crowd?
To get results, you have to understand the 3 biggest problems that CPAs face – that you can help solve for them. Only then will you have the necessary relationship to get them to refer their clients to you.
CPAs Can’t Tell Us Financial Advisors Apart
If you’ve taken a CPA to lunch for the purpose of earning their business and asking for referrals, you know it doesn’t work that well.
The fact is that most CPAs get solicitation calls from at least 10 Financial Advisors each year trying to do the same thing you’re trying to do. And every advisor says they give great customer service, they all have great investments, and they care deeply for their clients.
We all sound the same to CPAs. They can’t differentiate between you and the next guy (or gal), and they can’t see (and don’t really understanding) the true value that you are providing for your clients.
CPAs See Things Differently
One of the greatest benefits I had as a tax preparer in a CPA firm was the chance to continually get pitched by advisors on why I should refer business to them.
The advisor would come in with a presentation on why they were the best person to help my clients with their investments. It usually had a lot to do with performance, and expertise in the financial planning arena. It was always very professional.
But it was also nearly impossible to connect with them, because they were missing one key factor. Me! The guy doing the taxes for that client!
CPAs see things a little differently than most advisors think. They know investment performance and proper financial planning is important, but to them, it’s all the same exact pitch. They don’t really know how or care how one investment strategy is better than the next one. In order to be successful with CPAs, we need understand their point of view, and learn how to speak their language.
How To Get A CPA’s Attention As A Financial Advisor
When Financial Advisors are trying to earn a CPA’s referrals, they commonly focus on the benefits they provide for the client.
It’s true that we do some pretty great things for our clients and the CPA needs to know how we help people, but that’s not what’s going to make you stand out. It’s not what’s going to truly motivate them to refer their clients to you. We need to do something different than every other advisor.
In order to get the CPAs attention, we need to focus on W.I.I.F.M.
WIIFM – “What’s In It For Me?”
Like you, CPAs care deeply about their clients, and want to protect them from bad financial decisions. Unfortunately, since multiple advisors pitch to them every year, CPAs are on guard when they begin a conversation with you. We need to quickly disarm them by focusing on “W.I.I.F.M”. If they hear how you might be able to make their job easier and benefit their client, you’ll have their attention.
Surprisingly, most advisors leave this out of the conversation entirely. Even though the reality is that if you show them how you’re gonna make their life and work easier, they will definitely pay attention to you.
So how can we show the CPA “What’s in it for them?”
Solve A CPA’S Greatest Pain Points To Get More Referrals
Here’s the secret. There are 3 Big Problems that most CPAs face. These problems typically arise during tax season, when their time is scarce and stress is high. If you’re able to remove some of that burden from their shoulders, they’re going to remember you after April 15th once their head is above water.
If we know the 3 biggest problems that CPAs face and you can provide solutions to those problems that benefit them and their clients, you are going to stand miles ahead of other advisors vying for their business.
After we learn the 3 biggest CPA problems, you’re going to learn exactly how to find, start the conversation, and begin the relationship with a CPA so that they know, like, and trust you. Most importantly, they’ll understand how you can directly benefit them and make their job easier if they refer their clients to you.
The 3 Big CPA Problems Financial Advisors Can Help With
These scenarios to developing a relationship with the CPA work best if you already have a mutual client with the CPA. It’s the easiest way to connect with them to solve their problems, and start the relationship with a CPA.
Problem #1: Having To Explain negative tax consequences of decisions their clients made last year
From an advisor's point of view, I’ll sum this up as lack of coordination between tax and investment.
It’s very common for clients to make big financial decisions during the year, and then be surprised come tax time when they find out that they owe more tax than they thought. A lot of times the CPA gets the shaft, because they are the ones that break the bad news to the client.
This is not a great feeling for the CPA, because the client ties the negative results directly to the CPA! And what is the CPA thinking is “How am I supposed to magically know what you did last year? Why didn’t you or your advisor tell me about this ahead of time? This all could have been avoided.”
If we want to stand out from all the other advisors, we want to create an ongoing relationship with our client’s CPA. When you’re planning for your client throughout the year and there’s a possible event that could affect their taxes (ie, large capital gain/loss, Roth IRA conversion, etc.), we want to make sure we keep the CPA updated.
After getting approval from your client, a simple phone call to the CPA is the best method for starting the conversation. Both the client and the CPA will appreciate this effort to keep all parts of their financial life coordinated. (As you continue to read this post, you’re going to learn exactly what to say to start the conversation with your clients and their CPAs about this issue.)
Problem #2: Time Wasted Going Back And Forth With Clients Regarding Missing Tax Forms
A normal conversation at a CPA firm with a client during tax season goes like this:
CPA: I see that you had dividends from fund company last year but nothing this year for your taxes, did you get a 1099?
Client: No, I don’t remember getting one.
This will either result in incorrect info on the tax return and a letter from the IRS three months later, or it will hold up the CPA on completing the tax return for a few weeks. Both are an inconvenience for the CPA.
Since you know your client’s financial picture better than the CPA, you can clearly communicate to the CPA the correct answer. It’s very simple, but this one thing gives the CPA the ability to complete a tax return and move onto the next one, which is a big deal to them.
The best way to solve this problem for the CPA is to create a simple list of your client’s accounts. All that’s needed is the name of the custodian, the type of account, the last 3 digits of the account number, and whether the account has a 1099 for the year or not. (Of course, it’s very important that you first get client and compliance approval before communicating and sharing with their the CPA in this way.)
This simple exercise is going to save the CPA a lot of time. As the CPA goes through the client’s tax documents, they can use the list you provided to confirm that they have every 1099 from their client. If something is missing, they can ask you to get them a copy.
I’d recommend trying this out on only 10-20 of your clients. It’s a good way to test the process and make sure your client and CPA are getting benefit from the extra work you're doing.
Problem #3: Missing Cost Basis of Older Investments
This is the most common problem that CPAs face. It usually happens during tax season while the CPA is working on the client’s tax return, and they see a $0 cost basis. They call the client to ask them about it, and the client will have no idea. And then begins a time-consuming process to try and figure out what the basis is. This is also the one thing where clients usually end up paying way more to the government than they have to.
All CPAs want is a number to put on the tax return and be done with it. If you can help them with this in the height of tax season, they’ll love you. They will at least say yes to meeting you for lunch after tax season.
If you were involved in the account throughout and actually have – or can get – the transaction history, calculate the total cost basis of the investment, or at least give the historical purchase details to the CPA, so he/she can get it done quickly.
Alternatively, if there’s no record of basis and you can’t calculate it yourself, try running a Morningstar Hypothetical that works backwards to estimate what the cost basis might have originally been.
If you can work the hypothetical to show a sale price that’s close to the total proceeds on the 1099, based on at least an estimate from the client of when the original purchase may have occurred, you’ll have a pretty good idea of what the cost basis was, and the total amount of dividends reinvested over that time period.
I usually tell the CPA that I'm sending them a hypothetical example and it shouldn’t be shared with the client, but it will provide you with some idea of what the cost basis would be for this example. It may not be perfect, but the CPA can use it to make a reasonable estimate of the cost basis, that is better than just assuming a cost basis of $0… and you save your clients a lot of money by communicating with their CPA on the problem! (Again, make sure to check with your compliance department to ensure this is permissible for you.)
By solving one or more of these 3 problems for a CPA, you’ve instantly been brought to the head of the crowd. You’ve relieved their pain and stress when it’s highest, and they’ll be grateful for your help. And you can turn that positive feeling the CPA has about you into a prospective referral relationship.
How To Get CPAs Comfortable With Referring Clients To You
After you make their tax season a little easier for them, CPAs will be more inclined to meet with you.
To start the process, take the CPA to lunch or meet them at their office (we’ll learn how to do this next), saying that you’d like to discuss 1 or more of your mutual clients, and any upcoming opportunities that will involve tax planning. Plan this out ahead of time, so that you have real tax planning scenarios to discuss and get the CPA’s opinion on.
As you’re meeting with CPAs, though, they will still need to understand 4 Things in order to be comfortable referring clients to you:
- How are you going to help me?
Remember that the focus is on them first, then your mutual client.
- Are you Competent and Credible?
Give them examples/scenarios/stories of how you help your clients.
How have you worked with other CPAs like them?
- Is your process simple and easy to understand?
You’re not selling anything. You’re just telling them the 3 steps you take every prospective client through. An important part of that process is to highlight that you try to find out who the prospective client’s CPA is, so that you can coordinate tax and investment when needed. (To reinforce #1, that you will work proactively with the CPA!)
- Who is your ideal client?
What the real value you deliver to your ideal client?
What results do your clients get when they work with you? (Hint: It should be more than just investment performance.)
Help the CPA easily identify when one of their clients would be an ideal fit to refer to you. The key is being specific, because it’s easier for the CPA to remember one kind of client. For example: “A client who’s within 5 years of retirement and they’re wondering if they’re doing all the right things.”
If you can remember these 4 questions, and be prepared to answer them during your first meeting with a CPA, it will go a lot better than any other meeting they’ve had with other financial advisors.
What’s The CPA’s Secret Weapon, And How Can We Utilize It?
The really great CPAs out there all rely on a similar tool. It’s the upcoming year’s forward-looking tax projection. Those CPAs who are truly consultative and not just plugging numbers are using these tax projections to look into the future, and do their best to prepare their client for what’s to come.
The only problem is that the CPA doesn’t always know what changes are happening, because their clients tend not to remember to call them throughout the year.
It’s more likely that you have a deeper relationship with the mutual client and you know more of what’s happening in their life than the CPA does. So if we can keep our new CPA contacts in the loop, their tax projections will be very accurate, the clients will benefit by being prepared, the CPA will benefit by looking like the hero, and you will benefit by strengthening the relationship with the CPA.
Importantly, though, before the first time you ask the CPA to run a tax projection, you will want to get an idea of how they bill their clients. Is this going to cost your client? If yes, confirm with your client before moving forward to work with the CPA on this. Most of the time, clients will have no problem paying a little extra to get the coordination of the tax and investments, especially if it’s going to save them money or help them prepare for the upcoming year.
Also, keep in mind that not all CPAs practice this sort of consultative tax planning. They may not do tax projections for their clients. But the ones that do are the ones you want to find, because they will both better appreciate your efforts to work collaboratively with them, and are more likely to be engaged enough with their own clients to actually generate a lot of referrals!
What If You Run Your Own Tax Projections?
If you’re already running tax projections for your clients, you have the opportunity to really differentiate yourself in the eyes of CPAs. As long as you’re accurate, they are going to appreciate you doing some of the work for them. They’ll quickly realize that you’re much more than just an investment advisor.
To them, some of the most valuable time they spend is not inputting the data to get the result, it’s reviewing the draft tax returns or projections. They will appreciate that you’ve done most of the work, and that you are asking for their opinion on this matter before the decision has been made.
Here’s an example of how to continue to show your value to your clients, while also fostering the relationship with new CPAs.
You: Mr. Client, with some of the changes we’re thinking of implementing, I went ahead and ran a draft tax projection to make sure everything is working together. It looks like the result will be…(state the results).
I believe it’s worth keeping your CPA in the loop as well to make sure we’re all on the same page. Would it be ok if I share this projection and consult with them on your behalf?
Client: Absolutely. Please do.
As you talk with the CPA:
You: Mrs. CPA, I recently met with our mutual client, Mr. Client, and we’re thinking of making a few changes this year that will affect his taxes. We reviewed a tax projection that I put together but we both agreed that we’d like to consult with you to see if you agree. Could we have your opinion on what we have so far?
CPA: Yes, of course. Send it over. I appreciate you keeping me in the loop.
(We’ll be taking a look at more in-depth scripts further in this blog post)
Even though you’re doing most of the work, you’ll want to make sure your clients know that you’re consulting with their CPA, and working together for their benefit. Clients love the coordination between their financial consultants. It makes them feel good knowing that we are working on their behalf and they don’t have to do any extra work. And the CPAs will appreciate that you’re trying to make them look good in front of the client, too!
When’s the Best Time To Start The Conversation With CPAs
Now that tax season has come to a close, you may be thinking you have to wait an entire year to test out these problem-solving strategies. The good news for you is that the best time to start the conversation with CPAs is from May to September.
This is because the pressure of tax season is gone, but they are still coming into the office regularly to finish the tax returns of clients who were put on an extension. They will be much more open to talking to you and going to lunch as well.
We’re going to take a look at how to start the conversation right now, so that you can lay the foundation to be seen as a hero by the CPA next tax season.
If you wait until next tax season to start these conversations, it will be too late.
The 3 Step Process To Getting Meetings with Your Client’s CPAs (without being pushy)
In order to solve the 3 big CPA problems, we first need to start the relationship and get a meeting with them. We already know that they routinely get pitched by Financial Advisors trying to take them to lunch, so they will automatically be on guard when you contact them.
But the reality is that you can create an edge for yourself to get your foot in the door. Your edge is that some of your clients already have CPAs, which means there are already CPAs where you have mutual clients to discuss! Thu, the 3 step process that will help you find and begin the relationship with your new CPA Centers of Influence is:
- Step One: Identify your top 20 clients
- Step Two: Get the names of their CPAs
- Step Three: Start meeting with those CPAs about your mutual clients!
Here’s the example of exactly how to put this into action. I’ve included a sample script of how this conversation might happen.
Step 1: Identify Your Top 20 Clients
Look at your full list of clients, and Identify only your Top 20. This doesn’t necessarily have to just be your “biggest” clients (by assets or revenue). It’s the ones you wish you had more of.
Step 2: Get The Name Of Their CPA
You can do this 1 of 2 ways.
Option #1: Call your client and say,
You: Mr. Client, (your regular introduction/catch up). I’ve been reviewing your accounts and everything looks on track, but I noticed that I don’t have your CPA’s information. Do you work with a CPA come tax time?
Client: I do. Blank CPA Firm, they're not too far from your office.
You: That’s great. I’m familiar with them. I’d like to make sure we keep your tax and investments coordinated so that any future decisions we make, we’ll be able to keep everyone in the loop. Would it be ok if I called him to make the intro?
Client: Sure, here’s his phone number.
Or alternatively...
Option #2: Wait until the next meeting with your client when you will be making a portfolio adjustment that might affect the client’s tax situation. Look for opportunities to loop in the CPA. Examples include: stock/fund sales, large capital gain distribution, rollover, gifting strategy, transfers from one IRA to another, Roth conversion etc. Then tell your client;
You: You know, Mr. Client, what we’re discussing really makes sense. One thing I’d like to do is make sure we stay coordinated with the tax side of things so that everything is working together. Do you work with an accountant?
Client: Yes.
You: Great. Would you be ok if I gave them an update on what we’re deciding here so that we can ensure everything is coordinated?
Client: That sounds like a great idea. Here’s the CPA’s info.
Step 3: Start The Conversation With Their CPA
Now it’s time to call the CPA to really start the relationship.
Again, though, to ensure you can have a great conversation with the client’s CPA, you need something good to talk about. Make sure you have a portfolio event, a planning strategy, or something else you may be implementing with your client that will affect their taxes, and merits a conversation with the CPA about your mutual fund.
You: Hi Mrs. CPA. I’m Mr. F.A., and I'm helping Joe Client, a mutual client of ours.
CPA: Oh yes. Joe’s great.
You: He sure is. I’m Joe’s financial planner and I'm helping him plan for his retirement. Your name came up as we discussed the tax effect of a strategy we may be implementing. Is this a good time to fill you in?
CPA: Sure thing. I have 10 minutes.
You: Great.
Tell the CPA the details. The end goal here is not to give the CPA work to do, but just let her know you’re competent, and you know the answer already. Alternatively, if you don’t know the tax effect, you can tell the CPA what you’re thinking and you can ask her to run a tax projection of that decision. These tax projections usually take less than 15 minutes, but the CPA will appreciate the opportunity to add value for the client as well. (Important note: It’s always a good idea to get clarity from the CPA on how they charge their client, and to get approval from your client before the CPA spends time on the projection if the CPA will bill the client for time spent.)
CPA: Thanks for keeping me in the loop here.
You: Absolutely. I know Joe really values the proactive planning approach we’ve been taking. Would it be ok with you if I kept you in the loop when other big events happen? If we can eliminate any surprises for Joe and for you next tax season, that’s a win.
CPA: I completely agree.
You: Great. Quick question, are you currently accepting new clients at your firm?
CPA: We are.
You: Oh good. Every year I get asked by a few clients looking for a good accountant. The next time I'm in your neighborhood, can we set up a meeting so I can learn more about your process and how a client would begin working with you?
CPA: We should be able to find a time.
You now have an initial relationship, and a meeting with a CPA. You haven’t tried to sell yourself. All you did was communicate you have your (mutual) client’s best interests at heart.
The CPA already understands you do more than just investments. You care about the proactive planning and coordination with all parts of your client’s financial life.
When you meet with your new CPA contact, keep the focus on them, their business, how they get new clients, and what new clients can expect from them when they start working together.
Keep the 4 questions that they are asking themselves in mind as you’re talking with them and look for ways to insert them into the conversation.
If there’s rapport, keep the conversation going after the first meeting. Check in one more time before the end of the year regarding something affecting your client’s taxes. As the relationship develops, you will have an open invite to call or meet with the CPA and have them continue to learn more about how you help people. And how to refer clients to you (and who is the right kind of client to refer to you).
When next January arrives, you’ve already done the work to create a few new CPA relationships. It’s time to remind them why it’s great knowing you and having mutual clients with you. For the mutual clients that you have with the CPAs, proactively reach out with the solution to Problem # 2 that we talked about earlier: Create a simple list of your client’s accounts, with the name of the custodian, the type of account, the last 3 digits of the account number, and whether the account has a 1099 for the year or not. Tell the CPA that “These are the accounts that I know about, and here are the ones to look for 1099s from. If the client forgets to bring one in, let me know and I’ll get you a copy.“
If you can think of any other big changes that happened in the previous year that the CPA would find useful, put that on the one pager as well. I’ll often include a big life event, or highlight of my client’s year, so that the CPA has a good conversation started with their client after not speaking with them for some time.
If you follow this process, and start it right now, you’ll be surprised at how quickly you’ll add new CPA contacts to your network. More importantly, you’ll be excited at how many quality referrals are coming your way over time from these new relationships as well.
(Michael’s Note: For advisors who are interested in additional tips and scripts on working with CPAs, Dave offers an additional CPA Referral Guide here.)
