At one time, only the very wealthy could hire their own money managers. Today, many money managers have lowered their minimum account sizes so more individuals than ever qualify for this service. As a result, CPAs are increasingly being asked to make money manager referrals. What due diligence responsibilities do CPAs have? How can they ensure clients have realistic expectations about what money managers can and cannot do?
While there are no easy answers to these questions, the guidelines in this article should help CPAs ensure their referrals contribute to client satisfaction and add value to the CPA-client relationship.
A CRITICAL QUESTION
Should CPAs make money manager referrals? Most clients need, or would at least welcome, a CPA's objectivity and expertise in helping them select a manager. There are 8,000 money management companies in the United States, with a wide diversity of approaches - active versus passive, value versus growth, sector rotators and dividend yield managers - the list goes on. The number and diversity make selection a complex process that a professional adviser, such as a CPA, is better equipped to manage than most clients. And because CPAs understand a client's needs, they can help identify a compatible match.
Before beginning the referral process - if the client has never used a money manager before - it's a good idea to confirm that professional money management is the best approach. Some people will never be comfortable with someone else making day-to-day buy and sell decisions for them. Clients with less than $250,000 in investable assets might be better off getting help from a reputable stockbroker or financial planner or should consider using mutual funds.
DUE DILIGENCE PROTECTS CLIENT
For clients who need referrals, create a "short list" of qualified money managers. This way the client will make …