WHO NEEDS REFERRALS? AMEX BUYS OWN CPA NETWORK: LATEST DEAL IS BIGGEST, FOR $50M N.Y. FIRM

As brokerages scramble to attract more referrals from certified public accountants, American Express Co. is creating a potentially formidable network under its own roof.

Last week, Amex completed its latest, and largest, CPA firm acquisition, boosting its accounting revenues by 50% to $150 million.

The firm, New York-based Goldstein Golub Kessler & Co., has $50 million in annual revenues, and more than 400 employees, serving 1,500 businesses and 3,500 wealthy individuals in and around New York.

But the question remains whether Amex will move aggressively to sell investment services provided by its Minneapolis-based American Express Financial Advisors unit to clients of the CPA firms it’s buying.

The deal, first revealed last December, was slow in closing as financial arrangements for Goldstein Golub’s 55 partners were finalized, an Amex spokesman says. Terms weren’t disclosed.

Amex has made more than 30 CPA acquisitions in the last three years and about 70 since 1991, including recent purchases in Baltimore, Washington and Fort Lauderdale, Fla.

For now, contact and cooperation between Amex’s advisers unit and the CPA shops, which are housed in Amex’s Tax and Business Services division, is encouraged but not mandated, the spokesman says.

If Amex is treading lightly in this arena thus far, it’s understandable. As a rule, CPAs prize their objectivity and independence above all else. Even the appearance of being a sales rep for a parent company is anathema to many in the profession.

“We have sort of internal mixers,” says spokesman Richard D’Ambrosio of efforts to acquaint Amex’s accountants with its advisers.

But that’s as far as it goes. CPAs who refer their clients to outside brokers or financial planners can continue to do so.

“We’re letting customers, individual accountants and the adviser in that city work it out together,” he adds.

But that’s not stopping CPAs around the country from increasingly entering the personal financial advice business and teaming up with outside brokerages or insurance companies, either to refer financial planning business to them or just to process transactions. The pace seems to be accelerating as more states allow CPAs to accept commissions or referral fees. (See related story, page 11.)

So, is it only a matter of time before Amex goes beyond merely “encouraging” referrals to its own reps?

Some observers think so.

“I think Amex is in the business of making money for its shareholders,” says Doug Thompson, chief executive officer of Gainesville, Fla.-based Accounting Firms Associated Inc., which recently established an investment unit catering to CPAs. “These firms are going to have to generate increased revenues. They’re going to have to expand their services somehow.”

That expansion, he says, is more likely to come from the high-growth investment sector than traditional tax and business consulting, where margins are becoming stick thin.

are they upscale enough?

Others question whether Amex’s advisers, who generally serve a middle-market clientele and sell mainly Amex’s homegrown insurance products and mutual funds, are well-equipped to handle investments for the wealthy business owners often advised by independent CPAs.

Stephen Miller, a Tampa, Fla., CPA who sold his practice to Amex seven years ago, refers about one-quarter of his clients who need investment advice to Amex planners. But he maintains referral relationships with outside brokers, too.

“There are circumstances where Amex is not the appropriate adviser,” he says, referring, for instance, to clients who want to trade individual stocks rather than to invest in mutual funds.

“I like to give the Amex guys the opportunity,” he adds. “But ultimately it’s a personal relationship.”

Perhaps as important, referrals are a two-way street. If Amex were to bar its CPAs from sending clients to outside brokers, those CPAs would see a falloff in tax and consulting clients referred by those same brokers.

“In some markets, that’s not important,” says Lisa Collins, a CPA with who runs a three-person financial planning operation for Evansville, Ind.-based Harding Shymanski & Co. PC. “In other markets, it is. In our market, it would be very important. We rely on referrals from a host of different sources.”

Still, one Amex competitor thinks the company is being too timid.

“Most of our clients would look positively at American Express (for their investment needs),” says Irwin Friedman, chairman of Chicago-based CPA firm Friedman Eisenstein Raemer and Schwartz LLP, which has an asset-management arm, Essex LLC, that oversees more than $600 million.

“With our client base, maybe one-third want (separate-account) money management. But I would bet two-thirds of our clients would fall into the category Amex would be interested in.”