Read The Transcript Below:

Steven (00:53):

Hello everyone and welcome to the next episode of the Retirement Tax Services podcast, Financial Professionals edition. I’m your host, Steven Jarvis, CPA, and this week I’m excited for a conversation with my guest, Matt Porter, who is a financial advisor himself and has firsthand experience with acquiring tax practices so we can have a conversation around the value of taxes and the financial planning process as well as what options are available to financial advisors who want to do more in that area. So Matt, welcome to the show.

Matt (01:21):

Yeah, it’s great to be with you. Thanks for the invite, Steven.

Steven (01:23):

Yeah, of course. I always like to give my guests a chance just as we kick off to give a little bit of background so that people listening know why they should pay attention to either one of us. So Matt, tell us just a little bit about your background and what it is you’re doing.

Matt (01:33):

Stuff again, just want to say it’s exciting to be on your podcast and share a couple minutes of some things that I’ve experienced. I’ve been a financial advisor since really 2006. I started with a large company in 2002 as an intern, but full-time in 2006. I’ve been with Cornerstone, my current firm since 2008 and bought it about eight years ago. My degree in accounting, I’ve always loved doing tax planning and being involved on the tax side and did an internship at Pricewaterhouse Coopers years and years ago. And so as I’ve kind of grown and matured in the industry, I’ve always kind of gravitated toward the tax impact of financial decisions. And as part of that, always really had a desire to do taxes but never really saw an avenue to do that. We had talked internally about do we hire somebody, bring somebody in, do we partner with someone to bring those services here inside the firm, but never really had a good option. So in 2019 I was able to purchase my first tax practice, had an opportunity come before me and decided to execute on that. And that was right before covid bought this first practice. It was a small practice, had a couple part-time team members and I was able to bring on some talent to help run that. Obviously Covid hit and did a number on everything and in particular an accounting firm with a lot of elderly clients. So it really kind of made it challenging and decided to double down on the accounting side in 2021 with a second acquisition. So I’m sure we’ll dive a little deeper into that, but that’s kind of my background on the tax and accounting side.

Steven (03:13):

Yeah, and I absolutely, I’ve got a whole list of questions I want to ask you about going through the process of acquiring accounting firms, but before we get into some of the details, which I know our listeners are excited to learn more about, I want to talk for just a second about taxes and the financial planning process as a whole. And for listeners of the podcast, obviously we talk about this all the time, the importance of tax planning, the value that creates for our client, but I think before we just get right into the details of acquiring a tax practice, we got to understand why this would be something that a person would even do. And I appreciate in your background, you had some exposure to this, you saw the value in it beyond just, hey, maybe double check with your CPA, because unfortunately there’s still a large part of the financial planning industry that I think recognizes that taxes are impacted by financial planning, but whether they feel they don’t have the expertise or they don’t have the access, they don’t have the credentials, whatever that limiting belief is, ah, well, I’m going to do this financial planning that has a tax impact, but it’s really up to my client and their CPA as far as how that’s going to get handled. And for people listening to the podcast, I know you’re already in the smaller percentage of people who say, Hey, I want to do more with this. And so really you have a couple of options. Obviously there’s always an option just keep doing what you’re doing, which is oh, go double check with your CPA doesn’t create the greatest client outcomes. Another option would be finding someone that you can partner with, which is why Retirement Tax Services was created, was to give financial advisors someone that isn’t going to run over the top of their planning, who isn’t going to throw ’em under the bus, who’s going to be transparent and collaborative. That’s what we do is we work alongside advisors as we do tax prep and planning, and we try to grow our team as rapidly as we can to serve as many advisors as possible, but they’re still limited availability for that. And there aren’t very many firms that I can find that are taking that approach. And so I think partly because of that kind of limited resource, I talk to a lot of advisors who start down this thought exercise of, well, what if I just go buy an accounting firm? And usually when I’m talking to advisors who haven’t been through that before, it’s this very kind of dreamlike idea of, well, I’m going to buy an accounting practice and I’m going to get all these new leads from it and all of my existing clients are going to be served perfectly and it’s just going to be lovely. How could it be anything? And then I jump at the opportunity to talk to people like you, Matt, who have gone through this because then we start to see what the reality is that there absolutely is the potential for value, but we’ve got to be super intentional about this because as you’ve experienced, there’s a learning curve to it, there’s some challenges to it. So maybe talk a little bit more about your mentality going into that first acquisition and then how reality turned out a little bit different than maybe the theory.

Matt (05:52):

Yeah, so initially I was attracted to purchasing an accounting practice because I’ve always been excited about tax. I’ve always enjoyed that and to be frank, I don’t know how you can do financial planning without really touching on tax. Another attraction was typically you can purchase an accounting practice for about half the price of purchasing a financial planning practice with the same amount of revenue. And so that was attractive to me. So I jumped in, went and purchased the first firm, and I learned a lot of things. So you have to understand when you go into an accounting acquisition, you have to understand that it’s vastly different than running a financial planning practice. A lot of us financial advisors get excited. We’re entrepreneurs by nature and see an exciting endeavor, but you also have to understand that you’re going into a business that is vastly different than financial planning. Everything from pricing. Fortunately for us financial advisors, we can hide a little bit behind basis points in our fees. How much does this cost? Well, it’s going to cost you a hundred basis points and most people don’t ever question that because they don’t know what that means versus how much is this tax return going to cost me? Well, it’s probably going to cost you 500 bucks and you got to actually say the dollars, and that’s a different conversation than being able to be a little bit hiding behind basis points. There’s other things such as software, I’ve found it interesting how different the software is in the accounting industry versus the financial planning industry. I would love to say that this is a joke, what I’m about to say, but it’s not. The first firm that I purchased had a literal DOS emulator because they were using a fixed asset depreciation program that worked at dos and we didn’t really know that going in, but it was probably written around the time I was in the fourth grade. And so there are still firms out there who are using very antiquated tax and accounting software, and so there’s things like that that are vastly different. The way that the CPA industry has evolved over several decades is very, very hourly fee- There’s seasonality to the work and there’s seasonality to the cashflow, and so there’s a lot of different issues that you have to navigate. And so it’s been interesting to really learn as we go now, I feel like my accounting practice is in a good spot, but it’s taken a few years to be frank.

Steven (08:16):

Well, and Matt, I’d be curious to hear your perspective on this because it’s certainly come up as I’ve talked to other advisors who have bought tax practices and then just in working with other CPA firm owners, another big difference between just the business model is that on the CPA side, the owner of the firm thinks that they own a business. Really what they own is a job most of the time. And so if you go buy a CPA firm and you’re going to buy out the previous owner and they’re going to ride off into the sunset, someone else has to step in and do all of that work because CPA firms are very transactional. They might have recurring clients, they might have the same book of clients that comes back every year, but then you have to redo all of the work every year. And the way that the CPA industry has evolved over several decades is very, very hourly fee driven. And so I know CPAs who work 60, 70, 80 hours a week during the filing season and sometimes outside of the filing season. I know CPAs who will personally themselves without any support staff do a thousand plus returns. And so when you go and buy a CPA firm, it sounds like you went in maybe eyes a little bit more wide open than some others because you mentioned having some support staff that were working in that as you acquired the firm, but that’s one that turned to another advisor. His first couple of years of owning a CPA practice were just a nightmare because he didn’t realize exactly what that was going to mean as far as this person retiring and then it’s, well, who’s going to do the work?

Matt (09:43):

The ongoing joke that I’ve had is tax season. I feel a little bit like a 16-year-old girl who’s having her birthday party and she’s just wondering if anybody’s going to show up. You could literally hang a shingle and say, Hey, I’m doing taxes this tax season and have nobody come back because as you mentioned, it’s completely transactional. You also, if you’re buying kind of a solo practitioner practice, that solo practitioner is going to carry the relationships. And so if they really are going to be riding into the sunset, hopefully first off, you’d be able to negotiate a lower multiple to get a little bit cheaper because you will have attrition if that person is leaving. But hopefully as well you can learn from that person and they’ll provide some coaching and training rather than just leaving because generally they’re going to carry those relationships and a lot of those relationships can leave if that main practicing producing CPA walks out the door.

Steven (10:39):

And as we started Retirement Tax Services three and a half years ago now, I mean we could easily have started a firm that focused on helping advisors go out and buy tax practices. One of the reasons we went this route of saying, Hey, let’s build a team that advisors can leverage instead is because there are some other clear obstacles you have to overcome. If you go buy a CPA firm, which is all of the non-tax work that the CPA firm does, a lot of small CPA firms look for other things to fill up the rest of the year they’re doing bookkeeping, they might be doing small financial statement reviews, they’re payroll services. There’s these other things that as a financial advisor you probably have zero interest in, but that can also be part of those relationships that are out there. You’re also going to have this wide variety of clients that the CPA firm served. It’s probably going to look a lot different than what you’re looking for as a financial advisor because the magic number in the industry always seems to be a hundred that advisors are trying to get to a hundred households, a hundred clients, whatever that might be. That is completely different than the CPA world. Like I said, it’s usually hundreds if not closer to a thousand. And the CPAs are looking for different metrics. They want a particular type of filing, they want a particular fee that they’re going to charge, but a thousand dollars tax return does not in any way provide an indication of how much assets there are to manage the complexity of their financial situation. There’s a hundred different reasons that a tax return might cost a thousand dollars versus $2,000 versus what an advisor is going to be looking for. And so that’s why we went this route of saying, Hey, why don’t we build a narrowly focused team who works with the types of clients that advisors want to work with, and we can cut out all of this other bookkeeping and payroll stuff, but I also, again, get the appeal of having it fully integrated. There is a difference between partnering with someone like RTS versus, Hey, this is all part of what now, Matt, you are responsible and in control of, and it sounds like you’ve got a good thing going now. It just took some years to get there.

Matt (12:30):

Yeah, it did take some time and some intentional decision making of what do we really want to do? We work with a lot of small business owners. I’ve done a fair amount of 401k work on the financial planning side and was getting asked a lot, Hey, do you do taxes? And those types of questions from clients. But when you look at accounting, you’ve got to be really intentional and I think that’s why you give such a valuable service, Steven, because if most advisors are going to want to partner with a CPA, they’re going to be much more well-served, working with someone like you that understands our business. What I’ve found as well is a lot of the clients in tax and accounting, like in the software, you can go in and sort by who has the most qualified dividends or who has the largest IRA distribution. You can see all that data that flows in and that can oftentimes lead to good leads and that’s attracted to advisors. One thing that I found that was a little surprising to me is some of my smaller clients, and I’ll give an example here in a second, but some of my smaller clients have actually turned into larger tax and accounting clients, and it was a little surprising to me. I had a participant on one of my group retirement plans come to me and say, Hey, I’m thinking about starting up a new business and do you do anything like that? And I said, yeah, I do. And this was a client that I may not have even had if it wasn’t for their affiliation with a business that I worked with, and it’s now turned into a really nice bookkeeping payroll, a little bit of consulting and tax prep engagement. Even though they may not be big financial planning clients, they’ve turned out to be one of our larger relationships on the tax and accounting side. So sometimes those, everybody wants to look for if you’re buying an accounting practice like you got some whales in there, do you have some clients with some large assets to manage? And you may get some of those, but what I found is you may be surprised at who could actually turn in to be a really good client on the tax and accounting side.

Commercial (14:31):

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Steven (14:53):

Yeah, I know we talked about it before we hit record and it’s probably come up already in this conversation, but I think intentionality is really what it comes back to. What’s your goal in doing this? How are you going to serve clients as a result? Everything’s a spectrum. I know of an advisor who’s on the super aggressive end of this idea of really I’m buying tax practices to get leads, which I think is where a lot of advisors start, but they don’t realize what that looks like. And so there’s one advisor I know of, he’s doing an acquisition every year or so. He takes whatever leads he can, then he sells the rest h&r block basically. And so he’s super aggressive, acquire, call everything out, acquire and just on and on and on, which is not what most people have the stomach for or what they’re looking for because that comes with its own set of challenges. But short of that, unless you want to go to the super aggressive end of I’m going to pull every lead I can as quickly as possible and I’m just getting rid of the rest, you’ve got to really look at this as you are buying a business. You’re not just buying a lead list and you’ve got to figure out how you’re going to keep those relationships going, especially if you’re buying a local practice in a smaller market. What else does this relate to? I mean, what are the other impacts in the community that I’m in and the businesses that I serve? It can be hard to anticipate how all those things are interconnected out of the gate.

Matt (15:59):

You’re absolutely right. I was just had someone cold email me that they’re retiring here locally and sent some rough numbers and they sent it to me and a couple other firms here in our area and I got slicing and dicing the numbers. And it was really back to what you mentioned earlier, Steven. They really have a job. It’s something that’s run out of their home. And in the accounting industry, there’s been a real race to zero from a fee standpoint. And so if you’re going that route of, Hey, I want to do a lot of 1040, do a lot of individual type stuff, you are going to be competing with some firms that are going to be undercharging and not providing a ton of extra services. And so you have to compete with some of that, which isn’t overly fun if I’m being honest, because if you’re really trying to run an integrated financial planning tax and accounting practice, you’re not trying to do that on the cheapest scale possible. You want to provide a first class service and charge for it and get paid for it. And that isn’t necessarily what’s always happening on the accounting side, unfortunately.

Steven (17:05):

I’d be curious to hear your experience with is how the tax piece and the financial planning piece actually integrate in practice. Because before I started retirement tax services, I worked at a large national accounting firm that had wealth management in-House is under the same roof, under the same name, but tax and wealth management never talk to each other because they’re different business models. There are different thought processes. I mean, even as we partner with advisors at RTS, we have to be super intentional about how we incorporate the advisors, how we keep that transparency there, how we make sure that we’re being proactive and creating great outcomes for the clients and advisors both. So that’s something we’re constantly working on to build that relationship. And for us it’s front and center because that’s why we started all of this. So I think we do a really good job with it. But I’ve talked to other advisors even in smaller settings where again, their thought process is I’m going to go buy this accounting firm and now all of a sudden everything’s going to work seamlessly across all of the different things we do. But it comes back to this intentionality of if you go buy a different business line and don’t recognize, hey, this is a different business line, different mentality, you can just end up with two different silos you happen to own. So I mean maybe your experience is different, maybe it was great from day one. What have you seen as far as getting those pieces of your service model to make sure they really integrate?

Matt (18:18):

Yeah, so you have to come at it. There’s two different things to look at. So you have not only the service model integration but the team integration as well. And so what I found was, and maybe I’ll start with the team side and then get back to the service model side. It was kind of like I woke up one morning after the second tax acquisition and realized like, oh my goodness, I’ve got 10, 11, 12 people that work here and I’m used to having a team of three, four or five that I’m working with. And so it created the necessity to look at ways to kind of bring this team together and not have them operate just in silos. Now our tax and accounting team does operate a bit in a silo with the work that they do and same with our financial planning team, but we have to have consistent systems across these organizations.

(19:09):

So I ended up hiring a director of operations to look at things from a global scale of how do we create efficiencies not just in each silo but across the organization. And started reading the book called Traction by Gino Wickman implementing the entrepreneurial operating system EOS. And that was a game changer for our organization because up until then we were very much siloed from a team standpoint. I was really the only one that was working in both businesses and that’s not the way that it should be. And now we’ve got several team members that kind of work in both sides and also we’re getting a lot more communication between the teams on, Hey, we’ve got this client that has this issue, Hey, can you help us out? And that’s starting to go back and forth, but it didn’t happen initially. And so you’ve got to be really intentional about how do we get these teams to start communicating? How do we set goals in each business? Everything from having a Christmas party together and nobody knows each other. So you got to do those kinds of things, but it does take some work to get the teams to come together. And then when you start looking at the service model, you have to start really again, back to intentionality. How do we want this to look? Are we catering to a certain segment of clients? Are we just going to bring in a bunch of 1040 clients and hopefully get them to do some financial planning and wealth management with us? Are we going to start cross-selling our financial planning clients and bringing them over? What’s their service model going to look like? Are we going to be just doing strictly tax preparation? Are we going to do some tax planning so you have issues like on the individual level and what’s that service model going to look like and are people going to be open to perhaps paying a little bit more for a financial planning experience that’s also integrated with tax and accounting? The other level of that is you go from the individual stuff to the small business owner. So small business owners, as you kind of mentioned earlier, are going to have some of those needs for payroll services and bookkeeping and accounting and those types of things that are also part of tax planning that lead into tax planning and tax preparation. So do we want have that in house and if so, who’s going to do the work? So in our best engagements, we have myself as the advisor or one of our in-house, other advisor. We also have kind of a client facing relationship managing accountant are typically in all the meetings with those clients. And we’ll also have a bookkeeper and accounting specialist that works through the day-to-day reconciliation type stuff. So then you’ve got to look at that service model and say, okay, well what are we doing in Q1? Well that’s going to be preparing for the tax preparation and doing the actual tax preparation. Well then in Q2, what are we going to do? Well, then we’ve got other things like, hey, now it’s time to review the retirement analysis and perhaps like the investment allocation and Q3 is going to be more preparing for your end tax planning and Q4 is going to be implementing those strategies. So it gets really involved really quickly as you look at the service model when it’s integrated between the two sides because if you have a small business owner, there is a lot of things to talk about.

Steven (22:16):

Yeah, so much great insight in there Matt. One of the things that stands out to me as you talk about that, which definitely influenced how we set up our relationship with advisors is the advisor does have this great advantage in how the financial planning business model is already set up in that as a financial advisor, everything you’re doing is balancing different aspects of a client’s financial life. So you already are not an estate planning attorney. Depending on the advisor, they might use a variety of different insurance providers depending on whether we’re talking about life insurance or casualty or property or whatever it might be. Most advisors aren’t CPAs, they’re not doing tax prep themselves. So an advisors already coming from a place of, I know I’ve got to balance these different things and these different people, which is complete complete contrast to the tax side where it’s, Hey, I do taxes or I do accounting and that’s it. Best of luck. And so that’s where when we set up our model, we said, you know what? We want to keep the advisor in that role. And so again, whether an advisor is looking for something to partner with or they want to acquire a tax practice to bring this in-house, but you’ve got to make sure you don’t lose that perspective, that you still need to be that person intentionally and proactively bringing these different aspects together. Just because it’s in-house doesn’t mean it’s just going to happen magically. It takes that intentional effort both with the team and with the service model. We can’t take for granted that just because someone’s on your payroll or under your brand name that it’s going to magically work well together.

Matt (23:39):

Correct. And they also may not know that, hey, we should be referring back and forth or if they see opportunity, I was having this discussion with this client and they’re retiring, are they having those discussions? And you do have to train. You can have accountants that are amazing tax accountants, but they’re trained to be tax accountants. And so unless that is being discussed openly and they may not refer that to you, and that may be something that if you do go out and acquire, you’ve got to be looking for those opportunities to really cross sell between both sides and making sure that your team understands. One thing that we’ve been working on lately is we do book club and so we’re on a book club and I think we’re on our third or fourth book now, which has been great. By the way, if you’re not doing book club with your team, do book club. It’s been one of the greatest things ever. But after book club, we were talking about just some team issues, some things that we wanted to just kind of discuss. And one of our team members was like, I don’t really know what this team member does. And they weren’t trying to say, this person’s not working, they were just saying legitimately, I don’t know what they do on the financial side. And it was kind of an aha moment for me that, well, maybe we need to talk about it. So that’s something that we’re now working on is we’re going to have a team meeting where we’re all just going to talk about what we do. So helping each other understand that it can be challenging at times. So you just have to understand that as we’ve talked about intentionality, you have to be intentional with your teams. You have to be intentional in the acquisition, but how you run it, creating a cohesive and integrated organization is not just buy it and just say, okay, here we go. You have to train and you have to teach and you have to coach. And it does take quite a bit of effort.

Steven (25:31):

Yeah, absolutely. Well, Matt, I really appreciate you being willing to take the time to come on and share all this experience. It’s so helpful to be able to learn from other people. Try to always remind people that no matter how smart of a person you learn from, you got to remember this stuff takes hard work. But learning from other smart people who have come before you is a great way to shorten that learning curve. So if you’ve ever had that idea in your mind of, ah, someday I’m going to acquire a tax practice, highly recommend you take seriously the things that Matt has shared today that you look for people that you can connect with and network with who’ve been through that before so they can share what some of those painful things are and maybe help shorten that learning curve. And as we have this conversation, you think, Hey, you know what? Maybe that tax practice acquisition isn’t for me, but I still need someone to partner with. Reach out to advisors@rts.tax is our team’s email address. If you’d like to reach out and learn more about what we do and how we partner with advisors, we’d love to share what we’re doing and what our opportunities for working together going forward are. So Matt, again, really appreciate you taking the time to be here. It’s been great connecting with you.

Matt (26:28):

Yeah, Steven, thanks a lot. It’ss been really fun. It’s my first podcast episode, so really appreciate the opportunity. I also do have to, as with all things, there are compliance requirements. So I’ve been told that I am supposed to read the following just really quickly. Securities and advisory services are offered through Cetera Advisors, LLC, member finra, SIPC, a broker-dealer, and a registered investment advisor. Cetera is under separate ownership from any other entity. It’s not as catchy as your song, your intro and outro, Steven. But I tried really hard.

Steven (26:59):

Well, hey, we always want to be inside the lines on compliance, so thanks for getting that in there to make sure that we can have you back someday. For everyone listening, thanks for being here and until next time, good luck out there. And remember to tip your server, not the IRS.