ACCOUNTANTS UP IN ARMS OVER BACKING FUND SELLERS: INSTITUTE MIGHT ENDORSE VENDORS FOR CPA-ADVISERS

The American Institute of Certified Public Accountants is pondering whether to endorse specific investment companies as vendors for the growing number of CPAs who want in to the financial planning business.

But there is a struggle within the group over whether such a move might compromise the institute’s reputation for objectivity and independence.

How the issue is resolved will be crucial to insurance companies and brokerages that are targeting CPAs for revenue-CPA shootout on endorsement

sharing alliances, now that a growing number of states are allowing CPAs to accept sales commissions. In recent months, investment companies have been targeting state CPA societies and other smaller accountant associations for alliances, but a deal with the 330,000-member institute would dwarf any agreements closed to date.

One thing is clear: If the institute follows through, it won’t sign an exclusive contract with a sole provider. The debate is over whether to negotiate arrangements with a handful of companies — perhaps three or four — with comprehensive programs to help CPAs provide investment services to their clients.

Not yet determined is whether the group would be paid for its endorsement, although similar deals with other associations usually involve money. There is no timetable for a decision, says an institute spokesman, who labels the proposal “exploratory.”

It may never get past that stage, because the idea is fiercely opposed by Phyllis Bernstein, director of the institute’s Personal Financial Planning division. She has spearheaded a 1?-year effort to put together educational materials and conferences for accountants wanting to enter the investment business.

“There is tremendous disagreement as to what the institute wants to do,” she says, adding that the main proponents of endorsing particular investment companies are in the group’s marketing department.

A call to marketing director Chuck Cohn was returned by the institute spokesman, who says simply, “Nothing has been decided.”

togetherness saves

“Affinity relationships” with product vendors are nothing new in the world of professional associations. These groups, particularly those representing small businesses, often use their buying power to negotiate favorable deals with vendors of products ranging from health insurance to rental cars. They then market those services to their members.

But these contracts enter a grayer ethical area when they involve peddling products and services to members’ clients, particularly for professionals like lawyers and CPAs who have fiduciary obligations.

A leader in this area is New York-based insurance behemoth Equitable Cos., which in less than two years has closed affinity deals with the American Bar Association, the American International Automobile Dealers Association and the National Association of Tax Practitioners, among others.

Last year the bar association tapped Equitable to provide support services to small law firms wanting to break into estate planning. Equitable pays the ABA an undisclosed annual “sponsorship” fee for the three-year contract, but lawyers don’t earn commissions for using the product. Instead they rely on new client fees for establishing trusts and wills in conjunction with the service.

There were initial concerns about issues such as the propriety of ABA-member judges ruling on cases involving Equitable, recalls Greg Winsper, Equitable’s assistant vice president for relationship marketing.

“There was quite a lot of (internal) lobbying,” he says. “When you have an association that large, it takes a while to get there.”

Additionally, Equitable recently made its first foray into the CPA world, striking an exclusive alliance with Miami-based IA Consulting, a for-profit association of about 50 accountant firms. (InvestmentNews, July 20.)

Still, the institute and the state CPA societies have been reluctant to negotiate such deals. For example, the Florida Institute of CPAs called off a proposed for-profit joint venture with Salomon Smith Barney Inc. a year ago.

Instead, the state group registered two months ago as an investment adviser and is considering setting up a for-profit subsidiary to aid members getting into financial planning. The institute would charge members for the service, rather than being paid by investment companies.

A decision on the plan is four to six weeks away and depends in large part on feedback from members, says Glenn McNorton, the group’s director of financial services. But if it goes through, the institute won’t recommend specific investment firms to its members.

“The greatest thing we could do for these people is to educate them on how this (business) really works,” he says.

Wariness about endorsements is understandable. Several American Medical Association executives, including the executive director, were fired last year after the membership erupted over a deal to endorse several Sunbeam Corp. medical products in return for a share of revenues. A Sunbeam lawsuit is pending.

more complex than cars

“I’m OK on (affinity relationships) for Hertz or a credit card or a copy machine,” the institute’s Ms. Bernstein says. “But I think it’s a little different with an investment management company.”

Instead, she wants to provide a “matrix” of the services available to accountants from investment firms, coupled with a lengthy list of companies and the services they provide. She would leave choosing vendors up to the individual.

That’s all well and good, counters one consultant, but the institute should help its members pick out the good apples, too.

“The AICPA really needs to do both,” says the consultant, Ridgefield, Conn.-based Jay Nisberg. He has formed Accountants Financial Services Group, made up of more than 50 CPA firms working with approved investment-product vendors to give investment advice. CPAs “don’t want to be told, ‘Here are the rules, now figure out how to deliver to your clients.’

“Who are the best people to discriminate the backyard broker-dealers from the reputable firms CPAs should be affiliating with?” he asks.

In fact, he argues, the institute crossed the line into affinity marketing two years ago when it agreed to deals with Microsoft Corp. and Great Plains Software Inc. to offer their systems and training to CPAs’ business clients. “The issue is commissions, not the product,” he says.

Whatever the institute’s decision, Ms. Bernstein says, time is not on its side.

Of the 90,000 institute members who have expressed an interest in financial planning, 12% already are receiving fees or commissions, 17% have registered as investment advisers and 10% hold a Series 6 or 7 securities license, according to a December AICPA survey. Fully half of those 90,000 see financial planning as a strong growth area for their firms.

“Our members are trying to get into the (financial planning) practice,” she says. “We are seeing that. They are starting to move.”