The Modern CPA Success Show: Episode 25

Today, we are sitting down with Michael Frost from Heritage to talk about integrating a family practice into your VCFO firm, and how those two things can work together. Heritage Family Offices is a law firm, wealth management firm, CPA firm, and insurance company all under one roof.

In this episode, we are discussing how family offices work behind the scenes and how you can integrate CFO services into this business model.

Jamie Nau: Hello and welcome to today's podcast. Today, we are hitting on a great topic, so I'm joined once again by Adam Hale. and then our special guest is Michael Frost from Heritage. We're going to talk about integrating a family practice into your CFO firm and how the two work together. So, Michael, really appreciate you joining us. If you want to kick it off and give us a quick introduction to you and your firm so that listeners can know who we're talking to.

Michael Frost: Yeah. Thanks, Jamie. Thanks for having me once again. My name is Michael Frost, one of the co-founders of Heritage Family Offices. I started the firm with a co-partner of mine, Ralph Nelson, licensed as an attorney as well as a CPA, about 10 years ago. It's been a really, really fun journey. Our CPA firm is really at the core of our family office. And I think to start, I think we've got to clearly define family office, sometimes that term is thrown around pretty loosely in our industry. Other firms hold themselves out as a family office or maybe a professional service firm. They say we offer family office services, but once you look under the hood, it's simply just a referral relationship between an attorney and a CPA and a financial advisor. And so the name of our firm, Heritage Family Offices, we truly are a multifamily office. So we're a law firm, wealth management firm, CPA firm and insurance company all under one roof. So we have the ability to service our clients from a tax law, wealth management and insurance perspective. In the early years, it was just Ralph and I servicing our own clients. Our company has evolved quite a bit. And we did have the opportunity of acquiring a couple of CPA firms along the way. Learned a lot through that experience. And as we sit here today, we're now partnering with CPA from across the country to implement a true family office services into their existing CPA.

Jamie Nau: Great. A lot of our listeners are at different levels of the CFO or accounting practice part of their career. So if I'm at any one of those levels, where should I start? And why do you think bringing in family practices is a good complement to what I'm already doing?

Michael Frost: A good place to start is really having an understanding of all the disciplines and how they interact with one another. This was a really humbling experience for me when I partnered with Ralph 10 years ago. I think we got to call it the way that it is, by way of my background dually license in wealth management as well as insurance. And to me, CPAs were intimidating. And I think a lot of financial advisors and insurance professionals, I don't know if they'd admit it, but I think for the most cases they're intimidated by the CPA community. And now the humbling part, and this became true when working alongside Ralph is now my business partner. I think that most CPAs think that financial advisors and insurance professionals are overpaid for the advice that they're giving. Quite honestly, I would agree with that. I think you have to have a real good understanding of all the professionals and the advice that we give. Once you can come to that understanding with one another, then you can really start to incorporate family office services inside your practice. But if you can't genuinely respect, we have 4 professionals under one roof, and if you can't genuinely respect and understand everyone's industry, you're going have a really hard time implementing family office services into your into your practice. If you're looking at the client and you were to ask them, who's your most trusted advisor? You've got your attorney, your financial adviser, your insurance professional and your CPA. If you were to ask them who's your most trusted advisor, I think nine out of ten times you're going to hear my CPA is my most trusted advisor. Now we take those same 4 professionals and rank them from highest paid to so we pay in their profession. And I think all of us would agree that typically the CPA is falling towards the lower end of that deck. So you've got to step back for a moment and say something's not right. You’ve got the trusted advisor being the least compensated. Something's not adding up here. And it's been done that way for the last hundred years, and nothing has changed. We see that as a tremendous opportunity to really capitalize on the most trusted professional being a CPA. So we recognize that as the firm. So going into all of our partnerships with inside the culture of our own firm, keeping in mind we have our own CPA firm as well. We know that. Even though my licenses fall on the other side of our company, I know that the CPA is that most trusted advisor in such a key component of an integrated family office services. So your original question, where do you start? I think you have to have a good understanding and a respect for all the professionals involved in any family office.

Adam Hale: Is there size or, because I actually was referring a client to you, a CPA firm that I'm working with. Actually, a couple of them I've been talking to about family office. I mean, it just seems like such a natural fit with a CPA firm. I think going back through my history owning a CPA firm since 2002, we would always get, I don't know, it's like every couple of years there was always financial advisers that would try to hit you up, take you to lunch, do those kind of things. Sometimes you get some heavy hitters come to board and the first thing they would want to do is like rank your tax clients. Which ones have this much money, which ones are doing this? And like here’s your A team, here’s your B team. It just always felt disconnected from our purpose as an adviser. Like what we were trying to do was trying to really help the client, help the client grow, do all those kind of things. It just felt really salesy. So it never really stuck with us as a firm at Summit. But then the other thing is too, is like even whenever you develop relationships with clients and you try to have this interconnectivity with their financial advisor or their attorney, again, that also felt disconnected as well. So I know there is a big push, probably about 10 years ago to get financial advisors in CPA firms. I think that kind of burnt out four or five years ago. And it kind of seems like that model kind of disconnected. And it seems like I hear more about family offices now. And I know personally from Summit’s perspective, I wanted to be able to offer a full solution to my client that felt connected like it was a part of us, is the legal services, all those kind of thing. I wanted to be able to bring a team in, but I wanted to do the least amount of work as possible. I know it sounds awful, but I think I even talked to you Michael like, hey, we have a pretty high white glove service. You know, that was a big thing that we were looking for. And then also, I didn't want people to show up at a meeting and feel like they're talking to somebody new. If I've already had 10 conversations with them, you're part of my team. I wanted them to feel like they didn't have to start over from scratch. Those were big obstacles for us working with people prior to the partnering with Heritage. And I think your team does a very good job. So kind of talk to me a little bit about what to expect from the CPA firm, like how that relationship works and what I would have to be responsible for, because, again, it's not like I was trying to walk away from it. I wanted to quarterback it, but I didn't want to necessarily, like, be the project manager and hold your hand through stuff and bump you for communication, stuff like that.

Michael Frost: Sure. I think I might refine your words a little bit in regards to not spending time on it or didn't want to spend that much time on it. It's we believe if we know that the CPA is that most trusted advisor, then I want their time spent in the office as most impactful and most profitable to their CPA firm as possible. And if we're recognizing that the that the client sees the CPA as the most trusted advisor, then I want the CPAs in front of their clients being strategists in consultants solving problems. If our venture is successful, our CPA partners should not spend another hour reviewing a tax return. That is not profitable time spent for CPA business owners and the CPAs that are client facing the ones that have the relationship with the advisor and the ones that are consulting the clients. And so if we recognize that we work towards that transformation with our CPA partners, you wonder why, to your earlier comment, you wonder why CPAs are so threatened by financial advisors, because that's exactly what financial advisors are doing. Knocking on CPAs doors saying give me your top ten list of clients and let me see what I can solicit them. I think I express to you very, very early on that we are not interested in all at soliciting anything to any of our CPA partner firms. Matter of fact, if any of our CPA partner firms bring up an opportunity, okay I think my client needs a life insurance policy we sell it to them. My answer is no. We're not in this relationship to sell anything to clients.

What we're able to accomplish through our CPA partner firms is a transformation of their practice so that all that we're doing is solving problems. There will be work as a result to come from that. But leveraging technology, leveraging outsourcing, leveraging the most we can out of the right type of staff that have a passionate desire to do that work, we can solve for that so that we can get our client facing CPAs in front of their clients, providing proactive advice. And what I kind of close with what the CPA partners can absolutely get out of, this is a better experience for the client. We hammer this home with our CPA partner firms that when the deliverable is sent to the client. So whatever was the result of the family office service, whether it was an advanced income tax planning strategy, an estate plan that we put together, some type of charitable plan that we put together, or maybe we were able to provide a solution that deferred or eliminated taxes associated with the liquidity event. It doesn't matter what it was, but it was the result of the family off the service, we want that value that the client received to be from your firm, or to be from our partner CPA firm. We do not want that value to be perceived from Heritage. We want that client to say wow, the white glove treatment, in addition to the family office services that we receive from Summit is unmatched. I don't want them to say the family off the services that we receive from Heritage is unmatched. We want that value that we can deliver through our partnership deliver to your clients. We want the clients to see that value coming from our CPA partner firms, not necessarily from Heritage.

Adam Hale: Yeah, I really liked how you, and I remember talking to Jamie about this too, whenever we were first bringing you aboard and doing all that stuff, I really like the intent of solving the problem, helping save taxes. That's like our entry point. So whenever you see that there's an issue, that's where we started and other things kind of evolved from the relationship naturally. But it wasn't like, you know, like you said, like with client number one, client number two, like there was none of that, which was really kind of the way we work. So it made me feel pretty comfortable with how we were going to work together.

Jamie Nau: And I could say to I think what I've seen to start working with you is oftentimes it's very easy for our CFOs to disconnect the business from the owner. And I think what I've seen since I started work with Heritage is they're making that connection. Like okay, I understand this client's business very well, but how often have I ask the owner some of these questions that he covers or things he needs to be working on. Now again, if we do the individual taxes, that makes it a little bit easier. But there's several clients where we don't touch their individual taxes, but we do all the work for the actual company of the owner. I never really dig into how we can help the owner personally. And I think adding that extra service level has made our CFOs a lot tighter with the owners, as well as being able to draw that connection from them. Is that quite frankly, what you see a lot with the people you work with?

Michael Frost: We do and throughout the industry. So something that we see that's pretty consistent with, there's a lot of this concept that we're discussing here today. It's not new. The thought of having a financial adviser, an insurance professional attorney and a CPA all work together in collaboration. That thought is not brand new at all. What we take a lot of pride in and obviously I'm biased in this statement, is our ability to execute. I feel like there's a lot of firms on the street from the outside looking in. They may look similar to Heritage. They can tell a really good story on why a CPA and a financial advisor should work together. And I think a lot of firms in our industry can tell a really good story when it comes down to that. Where we see a break in the chain is actually when it comes down to actual execution that we're not seeing much of that actually take place inside CPA firms. I get the opportunity to talk to a lot of CPAs. From a conceptual standpoint, I hear this time and time again where they'll say this is exactly what I need and I've tried this a number of times throughout my career and we just haven't been able to cross that road of execution. The difference between, I think, Heritage and a lot of other firms that tell the story is we're in the trenches. We're in the trenches with our CPA firms. We can relate to our CPAs from being a CPA firm ourself. We actually have the ability to execute. And it's usually that very first case that the light bulb goes off with our partner, with CPA firms, that they actually see an attorney, a financial advisor, a CPA and an insurance director working proactively delivering a like-minded solution. The client receives the value, maybe that was in the form of some type of tax savings. And that client looks at Summit and says, gosh, thank you so much. I've never experienced that before. It's the actual execution, that we can take something that's conceptual, come up with a solution recommended to the client and execute it all under one roof. You take that experience and you compare it to what usually happens out on the street. Client goes to meet with their most trusted advisor, which is a CPA. CPA comes up with a solution that's in the client's best interest. CPA then hands the client three business cards to go meet with the law firm across the street to draft something up by way of example. And that client goes in interviews three attorneys and picks the one that he likes best and something is now drafted. Now, that attorney says, sorry, I can't provide the life insurance to fund that. Here's three business cards. Go talk to three life insurance agents to fund it. So now you go and interview three life insurance agents pick the one that they choose. The life insurance is provided to go with the draft that the attorney created. And by the way, the attorney, the insurance person and the CPA that recommended this have not been proactively working or talking with one another. And then eventually it comes back to the client. The client comes back to the CPA that recommended it and says, here, I got it done. Do you agree with the way that it looks? Is this what you told me to go do? There are so many chances along the way. I just give you an example of execution. But there's so many different ways that that thing can just completely fall apart between trying to get all those professionals probably like one another. They refer business back and forth. But if we're being honest, there was a time that I worked at Merrill Lynch prior to cofounding Heritage, that I had great relationships with attorneys and CPAs. But if we're being honest, I didn't proactively work with them and it was good, but it would never be it would never be great. So when it actually comes down to the execution, that might sound oversimplified, but that is the biggest difference between what takes place inside this family office structure versus your more traditional relationship that CPA have with outside professionals.

Adam Hale: Yeah, what I think is cool is and you kind of hit on it there is the opportunity. A lot of times if we have to meet with an attorney, it's like, cool, but make sure you know what you're talking about first. Because they are three hundred and fifty bucks an hour, and so you almost have to ask permission from the client, you feel like you're on the clock and you don't have the rapport and the relationship a lot of times with the attorney. So it's not like you're getting to the fact. That's what I find super helpful. And I think a lot of CPA firms can relate to this, there's a lot of those things like eyelets and other stuff that we just don't have the time to experience all of those things. But having people were connected to just like if you're a smaller firm, if you only have 5, 10, 15 people in your firm, you don't have everybody with that wide breadth of experience. But being able to tap into it and have access to your team is amazing. And to be able to do that behind the scenes without the client asking permission, getting intros to people doing all that kind of stuff, that's what I find the most valuable. I can have a conversation with the client and I can say, hey, Jamie, that sounds great. Here's kind of what I'm thinking. Let me connect with a few people on my team and come back to you. And then I can come to you, Michael, and we can assemble a little small counsel and say, okay, here's what the fact pattern is. This is what everything looks like. What are our options? Do you think we should pursue any of these now? I come back and I look like I have all the answers. And really what I did was I just tapped into your team. I think that's so invaluable. And then, of course, if the clients like I want to hear more about this one or that one, then I can bring somebody on your team and we go through that and we truly are quarterbacking it, because I think sometimes it's a recommendation. You mentioned in your example, the CPA firm having that initial recommendation. There is a lot of times where we're just kind of like, I don't know. So I don't know what the recommendation is. That sometimes is the hardest part and having access to your team gives us the ability to do that.

Jamie Nau: I think to like the nice part is, is to your point where we're running the point on it, like, right? They're reaching out to us and we're going back to you and we're coming back with solutions and we're actually running point. Where the other time, the other example you gave, I've been in those situations before. I would throw the throw the recommendations over to them and then a month later wonder how that's going. I would check in with the client. How's that going? Nine times out of ten it didn't work out. To your point, but again, I did my job by throwing the recommendation over, but that's all I did. And I was out of the loop after that. And that is not a good way to work with a relationship when you're supposed to be the CFO. I like the way we do it now. We're actually running point on it. We're bringing actions to them, asking questions, and then we're behind the scenes working it. It's a much better relationship than we've done in the past.

Michael Frost: I appreciate the kind words. And when I give an example, I'm going to have to check my ego at the door. When I became partners with a CPA, with Ralph, in admitting that I was intimidated by the CPA industry and that we were just flat out overpaid for the advice that we gave clients compared to the advice that CPA gave clients. Ralph had to check his ego out the door, given he's one of the most brilliant business partners I could ask for, I also found out that, hey, CPAs don't know everything and clients and most financial advisors speaking as one, they think that the CPAs know it all. The CPA industry is such a time intensive profession that they don't have that much time on their hands to study and to sharpen their technical skill set when it comes to advance. I think at the very basic level, that usually covers everything for the client, they are the most educated profession. But what I found, I found myself actually coming alongside Ralph and learning with him, with a lot of our advanced planning strategies. And so we have a platform that's called Heritage University. It's only available for our CPA partner firms. We don't let the outside community in. Ralph as the head CPA he leads us in a technical session every other week. And so what we do not need our CPA partner firms to be is a subject matter expert. We want to be there back office support. And where we internally spend a lot of time and resources is making all of our professions, not just financial advisors, not just attorneys. This is also the CPAs and the insurance professionals, as well-rounded as possible and then give them a deep bench of resources to execute upon that. So when I started in this journey ten years ago, I was a very narrowly focused wealth manager and even with inside comparing me against my peers I would actually probably put me at the lower percentile in regards to how did I compare from a wealth manager to another wealth manager. But how I've evolved over the last ten years and surrounding myself with other attorneys and CPAs is I now have found myself to be this very well-rounded professional. I am not an attorney, I'm not a CPA, but I can understand the language. I understand the advanced planning strategies, and I've got the ability to speak technical on those particular topics simply because I surround myself.

Adam Hale: All I think of whenever you were saying that was the classic response, we always hear: check with your CPA and then I'm always like, what the hell you mean check with your CPA? This is a financial advisor question and your financial advisors don't need to check with me. Like, I don't know what that date is or what that thing is. So I think most CPAs right now, that would resonate with most of us right now, is just always getting those and being like, seems kind of like your thing Michael. Like, I don't know why you're taking that back to me. I'll look it up on the Internet.

Jamie Nau: Google.

Michael Frost: And you wonder why the majority of the CPA community gets frustrated with financial advisors. Prior to the tax cuts and jobs act, you used to be able to deduct the management fees that I would charge as a wealth manager, yet my clients would go to you to ask advice that I should be giving. Yet you're deducting the twenty thousand dollars of fees that they pay me and they're paying you twenty five hundred dollars for the for the tax return. And you're wondering why the CPA, they're already frustrated with us as financial advisors before we even have the opportunity to meet.

Adam Hale: Yeah, that's totally true. I mean, I know we covered kind of getting started, but, you know, obviously I know how it works with us. I always go into every relationship and just tell people, you know, treat me like them to and explain everything to me. Heritage University, like you said, I think is a very cool tool. A lot of resources there. But then even just from like how we work together, I know we talked about kind of a lot of the behind the scenes stuff where we can do that. I think one of the coolest things that you have all delivered for us, and I think it's a good Segway for a lot of our clients, is we as CFOs, we heavily look at financial forecasting for the business. And so what we have started to pivot to is asking clients, what do you want out of the business because the business is just an extension of you. So what do you need out of it? Do you want to work 10 hours a week? Do you want to, like, retire when you're 40? What do you want to do? And in order to answer that question, we really need to understand what their financial plan is. So one thing that you all have offered up to us, which I think is amazing, is to run all of our clients through kind of a comprehensive financial plan. Most of our clients, business owners for many years, don't have that. And so being able to do that and then give us the opportunity to align it with what the business needs to feed has been a big help. So, I mean, is there any other things or is there any other better way to introduce a client other than, you know, we talked about the problem was first things first. And then for us, I think one of the things where even when we haven't identified a problem for a new perspective client is just making sure we understand the whole, you know, the whole picture with the individuals. Is there anything else you can kind of think of, opportunities to bring clients in?

Michael Frost: Yeah, that process. And now that you've had the opportunity to walk through together. Now, Adam, since our partnership is we are very disciplined, no matter the facts and circumstances. Every prospective new client goes through the same due diligence process. And the reason that we do that is we want to organize the client's goals and objectives, not organize our goals and objectives. I see so many firms that will prioritize their assets under management target or their insurance production or how much legal work they want to do or whatever they may they may do. If you go into any meeting with the expectation of closing an insurance case, you've never met this person before. You've never met the prospective client and you're going into the meeting with I have an insurance goal to meet. Heritage is not the right firm for you to work for. The reason be is if you have any of that expectation going into the meeting, you have blinders on. If you are just searching for your priorities, then I'm sorry. It's completely backwards. So every prospective client, no matter the facts and circumstances, go through the same three meetings and you've seen these meetings Adam. The first one is just exploratory. We want to get to know the client as intimately as possible, assets, income sources, liability and most importantly financial objectives. Once we get to the financial objectives, then we help prioritize them with the client. Whatever the client's priority is. If the client's priority is I need a basic estate plan. I've done no estate planning. I need some estate planning. Shame on us if the next thing that we're moving into is an investment recommendation. The very next thing we should be working into is an introduction in our second meeting with one of our attorneys to start gathering the information to make sure to execute their basic estate plan. So we let the client drive the goals and expectations and let them prioritize it. All firms, in our opinion, should operate that way. You'll end up meeting all of your internal sales goals along the way of prioritizing what the client's goals, objectives, not with your professional goals.

Adam Hale: That make sense. I mean, another question, too, is like if somebody is looking to partner with a family office, this comes up a lot. What questions should they be asking of a family office? I mean, what comes up a lot of times for us is like what services they offer. Really, a lot of times it even comes just a split, like money splits, like what's kind of standard. How does that work? Because for us, I think that as CPA firms you mentioned we might be on the lower paid of the professionals. This is low hanging fruit. These are things that clients need anyway. And you're going to give them a much better experience if you're the one quarterbacking it and you're really not charging them extra because you're partnering with these firms. So it's not like it's costing the client extra money. And it's a way to pick up a nice revenue stream for the firm, which I think is really cool. But what kind of questions should a CPA firm be asking of a family office? When do you know that you've landed like a good CPA partner? Like whenever they've asked you what?

Michael Frost: Yeah, the first thing I would say is when a CPA is looking to partner with a family office similar to Heritage, first of all, do deep due diligence. Meaning the last 10 years have not been a straight line up, total success for us. We have learned so much along the way. I've fallen on my face so many times. And the reason I fall on my face so many times, it is really, really difficult to successfully get a law firm, CPA firm, wealth management firm and an insurance firm collectively under one roof working with one another. So do your due diligence. And in most cases, and I can say that because we've looked at what else is in the marketplace in regards to other family offices, you can partner with is most of them are outsourcing at least one component. They genuinely do not have the law firm under the same roof or one of the other disciplines is being missed because it takes a lot of work not only to get all those professionals under one roof, but now you're partnering with another CPA that you do not we do not own our CPA partner firms. We do not run their businesses. We don't influence their culture, that is completely on the shoulders of the business owners that we partner with. So first and foremost, do your due diligence. And then as far as the tail end of your question. What do we see as a leading indicator of what's going to be a successful partner? I appreciate the kind words out Adam, but I guess if I can throw some back at you, I can count on one hand how many CPA firms and we've spoken to hundreds of CPA firms that are as forward thinking as Summit is. And so when I start getting questions from our CPA partners that are much more forward thinking in nature, where they are passionate, they share the same passion. We want to radically change the CPA and we felt like it's been stalled out. And if CPAs are not willing to adapt, I think they then run the risk of being extinct in the next 10 years. And I think our window of opportunity is right now. And so when we get the CPAs to ask questions that are much more forward thinking, they're asking questions of how are we going to change our industry? Those are the relationships that are wildly successful. We believe in regards to your comment about compensation. We believe that the CPA firms be equally compensated amongst all the other professions. So everything that we do from a revenue sharing standpoint is 50/50 with our CPA partner firms after our relationship manager is compensated and then essentially the net income from that particular relationship gets shared with our CPA partner firms. So that's how it started when Ralph and I originally got into business. It eliminates that pointing fingers. Who's more valuable? The wealth management firm or the insurance company that provides the scalability and the profitability, or is it the CPA that holds the trust of the client and we never would get in that without the CPA firm. We believe they're equally as profitable and in the revenue share.

Jamie Nau: Awesome, hopefully our listeners heard that last statement. I think the big part is the forward looking. I think if you are not forward looking you are going to be extinct. And I think getting the family office practice helps you be more forward looking, and especially when it comes to the individual owners. So definitely appreciate your time and coming on today. Michael, I want to throw our email address out there real quick just for our listeners. So if anyone is listening to this podcast, has a question, has a topic they want us to cover, or even wants to be a guest on the show, please email us at: cpa@summitcpa.net. If you want to get a hold of Heritage, we'll have all of their information in our show notes so you can see them on there. Also on the YouTube video show notes. So you can reach out to Heritage and see if they are the right fit for you. So I appreciate the time today, Michael and Adam. I think this was a great episode.