Accountants Take Wing as Investment Advisers
Sometime in the near future, if it hasn’t happened already, you might start receiving mutual fund advice not from a broker, financial planner or insurance agent--but from an accountant.
Forget that old stereotype of tax preparers who seem to go into hibernation once April 15 passes. Many accountants are growing new wings that will make them adept at various personal finance topics, including investments.
In fact, accountants might have a leg up on other financial professionals when it comes to providing investment advice, given that they appear to enjoy a relatively high level of public confidence.
For example, a 1993 survey of 1,000 consumers by the International Assn. for Financial Planning ranked accountants as the second most qualified professionals to give advice, second only to planners but well ahead of bankers, attorneys, stockbrokers and insurance agents. Furthermore, the gap between accountants and planners in the 1993 study narrowed from an earlier survey.
As another plus, a dominant trend in the investment business today involves mutual fund advice that is rendered on a fee rather than commission basis. This fits nicely with the way accountants have traditionally earned their keep.
The personal finance division of the American Institute of Certified Public Accountants (AICPA) held its national conference in Phoenix last week, and workshops on picking stock mutual funds, planning global asset allocation and designing fund-heavy investment portfolios were heavily attended. In the conference’s exhibit area, one-third of the companies sponsoring booths were mutual fund firms.
“The number of questions and the level of interest quadrupled from last year’s conference,” says Peter Moran, a vice president with Montgomery Funds of San Francisco, one of the exhibiting companies.
Many accountants have come to the conclusion that they can no longer avoid investments, says Lyle Benson, a CPA in Baltimore. An accountant who doesn’t recommend investments, he suggests, is like a doctor who diagnoses a malady but doesn’t prescribe treatment.
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Traditionally, most accountants have been content sending clients with investment questions to brokers or financial planners. But with a referral, there’s always the danger that the accountant’s own relationship with the client could be damaged should the broker’s recommendations sour.
“Legally, we can give referrals, but ethically we know that commissioned products are not best for the client,” says Andrew Blackman, a CPA with the accounting firm of Shapiro & Lobel in New York.
Still, change comes slowly.
In an industry of 400,000 CPAs, probably fewer than 5,000 actively help clients manage their investments, estimates Benson, a member of the AICPA’s financial planning executive committee.
Most of those in the investment advisory camp have earned a designation as either a certified financial planner or a personal financial specialist.
“Some CPAs actually sell investment products for commissions,” Benson says, but the practice is prohibited by accountancy boards in most states.
An arrangement in which accountants collect a fee of perhaps 1% a year for helping clients select and monitor portfolios of no-load mutual funds is the niche offering the most promise for CPAs. As noted, those in the accounting profession seem more comfortable with the idea of charging fees for advice rather than commissions for selling products.
Besides, fee-based compensation also happens to be the way more and more people want to pay for help.
“No-load investors are turning more towards various forms of guidance at the same time that traditional load investors are increasingly asking for fee-based services,” reads a report from Cerulli Associates, a Boston consulting firm.
“These are both part of a broader trend of customers seeking . . . ‘personalized’ service.”
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From the accountant’s perspective, mutual funds work better than individual stocks or bonds for the following reasons:
* Funds can be purchased on a commission-free basis by clients acting on an accountant’s advice.
* With their built-in diversification, funds are a quick and easy way to construct a well-allocated portfolio. An accountant need recommend only half a dozen or so funds to gain a client exposure in most major investment categories. Pulling the same trick with individual securities might require the purchase of dozens of stocks and bonds.
So look for accountants to become more involved with investments generally and mutual funds in particular, though it will take a while before even a sizable minority of CPAs are competent in this area.
In the meantime, fund companies--particularly no-load firms--hope to build brand awareness among accountants.
“We’re not here to sell funds today but to sell them five years from now,” says Moran.
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Buying last year’s hottest no-load stock fund can pay off as a long-term strategy, says the No-Load Fund Investor newsletter in Irvington-on-Hudson, N.Y.
In 14 of the past 19 years, the previous year’s top-performing general stock fund beat diversified equity portfolios on average, with a tie in one year.
Most recently, PBHG Growth was the No. 1 no-load portfolio in 1993, and it returned 4.8% in 1994, compared with a loss of 0.7% for the average rival. Investors following this strategy today should switch into the PBHG Emerging Growth Fund, the newsletter says.
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Despite atrophy in the bond market, mutual-fund assets will grow 8.3% to $2.41 trillion by year end, predicts Dalbar Inc. of Boston. That compares with an estimated figure of $2.23 trillion as of Dec. 31, 1994.
The research firm expects both stock and money-market portfolios to gain assets, more than offsetting an expected slide for bond funds.
Stock funds will account for a 50.7% slice of the industry by the end of 1995, Dalbar predicts, up significantly from 41.3% currently.
