ACCOUNTANTS ALLY TO TAKE THEIR SHARE ON REFERRALS TO SELECT SECURITIES FIRMS: IT’S FEES OR FAMINE, SAY PRAGMATIC CPAS

A group of 40 certified public accounting firms from around the country has agreed to work within a handpicked network of financial organizations to provide their clients with investment services — and their CPAs with commissions or referral fees.

Under the terms of membership in the Accountants Financial Services Group, the CPA firms may offer services like asset management and insurance sales only through approved partners, such as New York-based CIBC Oppenheimer Corp. and Philadelphia-based Cigna Corp. The group also is negotiating with Worcester, Mass.-based Allmerica Investments Inc.

The CPA firms receive a percentage of the fee or commission that the financial service provider charges. If a CPA client goes to CIBC Oppenheimer for a wrap account, for example, the CPA firm receives 34% of the wrap fee. Clients of alliance members are charged lower than normal fees, says CIBC Oppenheimer executive director David Brennan. He declined, however, to say what the fees were.

To skirt the rules of the few states — such as New York — that still prohibit CPAs from accepting such compensation, alliance members are employing a rarely used corporate structure.

ready for a test

The alliance was quietly formed with a core group of CPA firms last year by Jay N. Nisberg, an accounting consultant in Ridgefield, Conn. It slowly built up membership and is now actively recruiting CPA firms.

The 40 members represent $100 million in clients’ non-insurance assets, which may seem paltry to full-time financial advisers, but consider this: Mr. Nisberg maintains that for every $1 million of a CPA firm’s annual billings, its clients control about $100 million in assets. That figure includes homes, brokerage accounts and insurance. (The average gross fee volume for the 40 firms is $5.6 million.)

“If CPAs were able to tap half that amount, they could have a significant influence in the financial services world,” Mr. Nisberg says.

Such influence could translate into lower fees for clients, he adds.

The alliance gives small to midsize CPA firms the wherewithal to offer clients they don’t provide with third-party statements the services of nationally known financial services companies, Mr. Nisberg says.

CPAs in most states, after sending clients to financial services providers for years, can finally be compensated for referrals through commissions and referral fees. Setting up a separate intermediary limited liability corporation between the CPA firm and the financial services firm makes the referral legal even in New York, Mr. Nisberg says.

Jeffrey Saltzer, a partner with Saltzer Lassar Piccinnini & Co. LLC of New York, is satisfied that SLP Financial Services, the CPA firm’s separate corporation, will meet any legal test.

“It’s been run by attorneys who said this should work,” Mr. Saltzer says about the arrangement. “I personally am a tax accountant and I know that laws can be interpreted different ways. But we’re comfortable with it.”

time to be realistic

One way to get around the New York rule may be to have one of the firm’s partners withdraw from the accounting side of the business, says Al Pasquale, a CPA in Syracuse, N.Y. His firm, Pasquale & Bowers LLP, formed a financial services corporation called Everest Consultants LLC.

Walter Primoff, deputy executive director of the New York State Society of CPAs, says collecting referral fees and commissions through a separate corporation is in the “gray area of the rule.”

“It’s OK within the letter of the law, but not the spirit of the law,” Mr. Primoff adds. “A legal opinion is good to have, but until it holds up in court, you never know what’s going to happen.”

Mr. Primoff calls the commissions dilemma “our profession’s gun control issue.”

“It’s the emotional issue for the CPA profession,” he says.

But the alliance members insist that accepting referral fees and commissions is a pragmatic move in light of the increasing competition both from within the CPA profession and from other parts of the financial services arena.

“It allows us not to be swallowed by American Express (Tax and Business Services),” says Mr. Saltzer, whose firm has annual billings of $3 million.

So far, CIBC Oppenheimer is pleased with the results it has seen with alliance members. But Mr. Brennan says it’s too early to disclose how much business it has received from referrals.