GET’EM IN THE DOOR, AND KEEP SELLING: TAX PREPARER REVS UP EFFORT TO BE KNOWN AS FINANCIAL HOME DEPOT

Gilman & Ciocia Inc. has stepped up its pursuit of the millionaire next door.

The New York-based financial services company has been on a shopping spree, snapping up an Internet tax-preparation business, two broker-dealers and an insurance company since the first of the year.

Gilman, which bills itself as the first public company to combine tax preparation with financial services, now has more than $5 billion under management. Annual revenues have tripled in three years to $28.5 million.

“We want to be the Financial Depot — you know, the Home Depot of the financial world,” says chief operating officer Tom Povinelli.

That means selling everything from mutual funds to tax-free bonds and from annuities to long-term health care insurance to clients Mr. Povinelli describes as the forgotten investors of middle America.

“Anyone can go out and buy mailing lists of people with incomes of $100,000 or $200,000; those people are being beaten over the head,” he says. “We want the other guys, the ones who may not live in fancy houses, but who may have socked away more money than you think.”

Although most Gilman & Ciocia clients are worth between $300,000 and $400,000, many, according to Mr. Povinelli, belong to the Oldsmobile-driving, Sears-shopping stealth millionaire club described in the current best seller, “The Millionaire Next Door.”

Gilman & Ciocia’s courtship of middle America rests on a simple strategy: Lure them into one of the company’s 135 tax centers in 15 states, do their taxes for around $150, then have a financial planner conduct an exit interview.

The planner — one of more than 500 independent or associate representatives now affiliated with Gilman through its acquisitions of Prime Capital Services of Poughkeepsie, N.Y., and North Ridge Securities of Melville, N.Y. — might suggest some munis to bring down next year’s bill, or recommend a mutual fund or annuity as a good place to park that refund. The firm has relationships with such vendors as Citigroup’s Travelers Group insurance unit, Alliance Capital Management LP and SunAmerica Inc.

In mature offices, more than 50% of tax customers end up buying something more, according to Mr. Povinelli. Newer offices have a 15% to 20% conversion rate.

crowded field

But Gilman & Ciocia faces stiff competition. Easing of regulations governing what fees CPAs can accept and what they can sell has generated a tidal wave of interest from companies that want to cash in on the trusting relationship between tax preparers and their clients.

American Express Financial Advisors, H&R Block Group Inc. and others are bidding up and buying up CPA practices in their race to get ahead in the cross-selling derby. Merrill Lynch & Co. Inc., Citigroup’s Salomon Smith Barney unit and other financial services behemoths are also reaching out to new customers by courting CPAs.

Still, analyst Scott Rich of Kenny Securities in St. Louis likes Gilman & Ciocia’s chances. Both the Internet tax business (called e1040.com) and the corner tax-preparation centers are profitable operations that also serve as “major platforms for low cost marketing,” he says.

“The story here is the real power of this company’s distribution system, between the offices on the street and the Internet. Their customer acquisition costs are much lower than their competitors’. People come in to do their taxes, which they have to do, and then they meet the financial planner, after the trust has been established. There’s very little advertising involved.”

Mr. Rich believes that Gilman & Ciocia, which is trading at around $12 a share, or 16 times next-12-month earnings, will continue to grow in the 40% to 50% range, and could sustain long-term growth in the 25% range. But it may not be around that long.

“This is a very attractive acquisition candidate,” for a regional bank, insurance company, or any financial service company, says Mr. Rich. “At any time an offer may come along that’s too good to turn down.”