Using Strategy to Change Your Business Model & Improve ... · Using Strategy to Change Your Business Model & Improve Client Communication Presented by: Rochdale Investment Management

FOR INVESTMENT PROFESSIONAL USE ONLY – NOT TO BE DISTRIBUTED TO THE PUBLIC 1

Using Strategy to Change Your Business Model & Improve Client Communication

Presented by:Rochdale Investment Management

July 22-23, 2009

FOR INVESTMENT PROFESSIONAL USE ONLY – NOT TO BE DISTRIBUTED TO THE PUBLICThe investment ideas developed herein are intellectual property of Rochdale Investment Management. Any use of the investment ideas,

portfolio allocations or other ideas contained herein requires written authorization from Rochdale. ©2009 Rochdale Investment Management


Garrett R. D’Alessandro, CFA, CAIA, AIF®

Chief Executive Officer & President

Mr. D’Alessandro is Chief Executive Officer and President of Rochdale Investment Management. In addition to setting the strategic direction of Rochdale, he leads the firm’s portfolio management and investment research functions. In this capacity he determines the macroeconomic outlook and strategic asset allocations for the firm’s strategies.

Prior to joining Rochdale in 1986, Mr. D’Alessandro was a Certified Public Accountant and an Audit Manager with KPMG Peat Marwick. Mr. D’Alessandro received his M.B.A. in finance from the Stern School of Business at New York University. He holds the Chartered Financial Analyst designation and is a member of the New York Society of Security Analysts and the CFA Institute. He also is an Accredited Investment Fiduciary. Mr. D’Alessandro makes presentations on current investment issues to financial professionals throughout the country and has been featured in various media including CNBC, The Financial Network, Practical Accountant, CPA Wealth Provider, and New Jersey CPA. Mr. D’Alessandro is an Ironman tri-athlete and supporter of numerous charitable and civic organizations.

Today’s Presenter

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Integrating Wealth Management to a CPA Practice

• You are well positioned to capitalize on opportunities that exist in the financial planning/advisory market

• Currently, many CPAs are successfully operating and growing their financial planning practice within their firm

Source: 2007 AICPA/Moss Adams CPA Financial Planning Practice Study --The American Institute of Certified Public Accountants (AICPA) and Moss Adams LLP


CPAs – The Trusted Advisor

Percent responding "8-10" on a 1-10 scale of importance and trustworthiness, U.S. Trust Survey of Affluent Americans, June 2004. Source: Financial Planning - July 2004

Ranked as "Very Trustworthy"

19%

20%

21%

25%

29%

32%

33%

38%

41%

53%

0% 10% 20% 30% 40% 50% 60%

Stockbroker or brokerage firm

Insurance company

Mutual fund company

Investment bank

Commercial bank

Financial Planner

Attorney

Fee-based investment manager

Private bank

CPA or accounting firm


Your Role as the Client’s Trusted Advisor

What Clients Value Most FromTheir Financial Advisors0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Trust and Integrity

Knowledge and/or Competency

Understanding Client's Needs

Availability of Professional

Responsiveness to Requests

Price or Cost of Service

Overall Value for Cost of Service

Broad Range of Services

Education and Professional Designations

Source: Financial Planning/January 1998

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High Net Worth Client Requirements

• Conflict-free investment advice• Investment intelligence and experience• High value proposition: high quality investment counsel at a

fair price • Practical solutions given risk and return objectives• Portfolio coordination across accounts

– With existing assets– Of taxes, estate, and financial planning

• Completeness of service• Reduced focus on performance, best of breed

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Business Models for CPAs

There are three main business models for CPA firms that are looking to integrate financial planning to their practice:

1. Sole practitioner: Do it yourself!2. A preferred referral partner or strategic alliance3. Third-party money managers

Source: 2007 AICPA/Moss Adams CPA Financial Planning Practice Study --The American Institute of Certified Public Accountants (AICPA) and Moss Adams LLP


The Sole Practitioner



• Educate yourself on investment advisory services and offerings

• Hire experienced staff of professionals• Additional costs to the firm:

– Salaries– Materials– Space– Continuing Education

Model # 1



• You maintain control of the relationship• You are the trusted advisor• Your practice will see an increased revenue stream

Benefits



Source: Rochdale Investment Management and Succession Planning for the Solo Professional Practitioner, The Attorney-CPA, Winter 2008 by Martin M Shenkman

• Steep learning curve in investment advisory• Takes resources and effort to keep up with new developments• Increased costs for your practice• Resource allocation is often an obstacle• Compliance standards can be challenging• Time management can be challenging • Licensure, ethical rules and guidelines, and strict regulation govern

advisory practices - will have to conform to these requirements

Challenges


Preferred Referral Partner or Strategic Alliance


Preferred Referral Partner or Strategic Alliance

• Network and set up alliances with advisory firms• No effort or extra work is needed• No additional costs• Possible supplementary revenue• Natural extension of existing relationships and an excellent

opportunity to leverage those relationships• Can offer clients an expansive range of financial products

Model #2


Challenges Faced When Aligning with a Preferred Referral Partner or Strategic Alliance

• Lower revenue than services provided directly in house• Fairness of referrals – One way street• Loss of complete control• Concern about financial services professionals not

understanding how CPAs do business – the classic cultural conflict

• Fear of losing clients because of actions by financial partner (i.e. giving advice on risky investments)


Third-Party Money Manager


Third-Party Money Manager

• Outsource the expertise – don’t learn a new profession• Keep doing what you do best; adapt when required• Align with a partner to implement your services • Have a professional team of experts guide you• Have a focused business plan with measurable goals• Obtain clients from inside and outside the current practice• Keep overhead down and satisfied clients up

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Model # 3

Best Practices for CPAs Offering Financial Services:


Partnering is the Most Desired Model

57%

25%

9% 9%

0%

10%

20%

30%

40%

50%

60%

Option 1: Option 2: Option 3: Option 4:

Refer to professional

moneymanagers

Get licensed, refer with increased

involvement

Hire planner Become expert

57%

25%

9% 9%

0%

10%

20%

30%

40%

50%

60%

Option 1: Option 2: Option 3: Option 4:

Refer to professional

moneymanagers

Get licensed, refer with increased

involvement

Hire planner Become expert

In offering personal financial services to your clients, what would be your ideal model?

Source: Rochdale CPA Financial Planning Practice Survey 2005. Surveys were completed between June 16, 2005, and November 17, 2005, by 103 Florida CPAs.

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CPAs are Pressed for Time

8%

13%

35%

44%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

A turnkey modelrequiring a

limited amount of my time

and providing highly personalized

client service

Training ininvestmentsand planning

A business plan

A marketingplan

8%

13%

35%

44%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

A turnkey modelrequiring a

limited amount of my time

and providing highly personalized

client service

Training ininvestmentsand planning

A business plan

A marketingplan

In offering personal financial services to your clients, what would you need the most to succeed?

Source: Rochdale CPA Financial Planning Practice Survey 2005. Surveys were completed between June 16, 2005, and November 17, 2005, by 103 Florida CPAs.

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Marketing vs. Maintenance

Meet quarterly or as neededReview performanceReview investment vehicles and present new opportunitiesRebalance portfolioBill feesCoordinate tax planningUpdate cash flow scenariosRevisit asset allocation Update investment policy

Business Development Conundrum

-

200

400

600

800

1,000

1 20 40 60 80 100

Number of Clients

Tim

e R

equi

red

for S

ervi

cing

OUTSOURCE TO

PARTN

ER

CPA

Net result: More time to win more clients

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The Value of Partnering CPAs who partner with outside investment managers are more successful

Gatherers versus Managers Net Income and percentage of financial advisors who consider themselves

money-management specialists or asset gatherers

32% 27%14%

68% 73%86%

0%

20%

40%

60%

80%

100%

< $75K $75K - $150K > $150K

Advisors' Average Net Income for the Last Two Years

Advisors asAssetGatherers

Advisors asMoneyManagers

Source: Bowen, John, “Rising TAMP,” Financial Planning, December 2001. 011408


Develop a Recurring Revenue Stream Revenue Generated by 10 Accounts Per Year

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

New Financial Planning Revenue

Cumulative Financial Planning Revenue

New Financial Planning Revenue $150,000 $150,000 $150,000 $150,000 $150,000

Cumulative Financial Planning Revenue $150,000 $297,645 $442,972 $586,017 $726,817

Year 1 Year 2 Year 3 Year 4 Year 5

For illustrative purposes only. Assumes 10 new HNW portfolio relationships of $2,500,000 each, annually; 0% increase in market value annually; 100% client retention; total client fee of 1.60% including financial planning fee of 0.60%, paid from the account. 061808


Partnering for Success: What to Look for in a Partner

• Cultural fit• Expertise and assistance with

– Administration– Operations– Sales/solutions– Marketing– Investment management– Investment reporting

• Experienced team/employees you can leverage

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Best Practices for Fee-Based Investment Management Services

• Investment plan• Recommend

manager(s)• Report investment

performance• Annual reviews

• Manager implementation• Report investment

performance• Ongoing portfolio

monitoring• Integration with

retirement, estate, tax planning

• Semi-annual reviews

• Investment policy development

• Ongoing portfolio and manager monitoring

• Ongoing integration w/estate, trusts, insurance, budgeting, and cash management

• Quarterly reviews• Unlimited advisor contact• And more…

Basic

Less Service, Lower Fee More Service, Higher Fee

Regular Full

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Third-Party Money Managers Outsource for Success

• Optimize the use of your time • 4 Important Steps to outsourcing effectively:

– Planning• Partner with the right firm• Carefully anticipate issues and define needs and skills required

– Selection • Do what you do best – due diligence• Make sure firm gives you seamless support

– Implementation• Start your implementation slowly• Carefully negotiate agreements with every detail spelled out

– Ongoing management and monitoring • Make sure benchmarks and dashboards are clear and understandable• Delivered on a daily basis• Should not have to dig out information to efficiently monitor

Source: Patricia J. Abram, “Outsource for Success,” CEG Worldwide.com – reprinted from Research Magazine, June 2009


Partnering Business Model for CPAs

• Maintain control of client relationship• Complement your successful relationship by offering investment

management services• Access to a team dedicated to serve your high net worth client

needs, including: – Portfolio managers communicating and coordinating the investments– Senior investment consultants for new client presentations– Research analysts to prepare comprehensive client portfolio analyses– Highly sophisticated, proprietary technological and operational support

• Collaborate in the development of individual marketing plans– Sales lead generation– Targeted seminars

• High win rate with senior investment consultants making the presentations with you

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Tools for Integrating Wealth Management to a CPA Practice


Practice Tools• When adding financial planning to your practice, keep in mind that many

decisions will need to be made in regards to electronic business applications

• It is a necessity to enhance client service by using software programs, online services and application service providers for financial planning, asset allocation, portfolio management, data and research services, and more

• Web-based account aggregation tools allow CPA advisors to quickly obtain comprehensive client financial information

• The ability to obtain updated information online is a powerful tool for the CPA

• These tools can be quite expensive, so picking the right application is necessary to keeping a positive revenue stream for your practice


Advanced Tools for Portfolio Analysis and Implementation

• Example of tools for Analysis:– Galaxy – Rochdale’s proprietary software – Barra – Portfolio management tools– Morningstar Principia Pro – Mutual funds– Bloomberg Terminal – Comprehensive database– First Call – Research database– Baseline – Fundamental research– Various publications – Special needs analysis

FOR INVESTMENT PROFESSIONAL USE ONLY – NOT TO BE DISTRIBUTED TO THE PUBLIC

Rochdale’s Private Investment Counseling Service vs. The Traditional Money Manager

Characteristic / Service RochdaleTraditional

Money Manager

Personalized Investment Policy Development• Integrate economic and market outlook into portfolio

goals and parameters• Focus on Asset Allocation

Active Risk Management• Volatility Based Downside Parameters

Focus on Tax Efficiency

Portfolio Transitioning• Seeks to achieve cost effective and pragmatic

implementation from existing to target portfolio

Proactive and Responsive Portfolio Manager Consultations• Ensure the portfolio remains on target to meet goals and

stays within established volatility/ risk parameters

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Money Manager

Qualified Investment Professionals• Focus on Portfolio Strategy LevelEmploys Fundamental and Quantitative Research

Methodologies to Manage Investment Portfolios• Seeks to achieve returns in line with benchmarksUses Institutional Modeling and Optimization Tools

on Non-Institutional Size PortfoliosFull Access to Wall Street Companies Economic

Research

A Team of Specialists Provides Conflict-Free Advice


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Money Manager

Dedicated Support Team

Instant Access to Account Statements/ Activity

Liquidity• Funds available within 5 business days or lessAccount Custody at Pershing LLC• One of the largest and well-known financial

institutions in US• Insured asset protection: $100,000,000(Insurance covers financial institution failure, not account performance)


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Important Disclosures

This presentation is for informational purposes only and is not intended to be a solicitation, offering, or recommendation by Rochdale or its affiliates of any product, transaction, or service, including securities transactions and investment management or advisory services. These views expressed in this publication represent the opinions of Rochdale Investment Management and should not be considered investment, tax, legal, or other advice and should not be relied on in making any investment or other decision.


For more information, please contact

Rochdale Investment Management570 Lexington Avenue New York, NY 10022 [email protected] www.rochdale.com


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Using Strategy to Change Your Business Model & Improve ... · Using Strategy to Change Your Business Model & Improve Client Communication Presented by: Rochdale Investment Management