Accountants Are the Last Trusted Advisors

Businessman talking with mature coupleHow to quantify your level of trust.

By Rob Nixon

I believe accountants are the last natural trusted advisors.

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Think about it…

  • In the 1970s the insurance people lost their position of trust when they started selling "whole life" policies and other "products" – trusted advisor status revoked.

  • In the 1980s the banks started closing the branches down and subsequently the bank managers had their status revoked.
  • In the 1990s we had the rise of the investment banker and by 2010 they had destroyed their position of trust with the global financial crisis.
  • The financial planners started off OK but got their trusted advisor status well and truly revoked with "less than above board" commissions and failed investment (typically property- or agriculture-related) scheme after failed investment scheme.

And the lawyers ... some would say they never had trusted advisor status in the first place!

Sure there are some less than scrupulous accountants who put their fingers into the trust accounts (always with the view of paying it back) or blatantly stealing from clients.

I remember one memorable meeting at a "soon to go into liquidation" accounting firm for well below the line (illegal) activities. I casually asked one of the long-standing employees, “So how much of clients’ money did you put into these failed investment schemes?” Answer: “I dunno, somewhere in the order of $200 million to $300 million over a 10-year period.”

I was utterly gobsmacked. Even though the track record was failure over the years, they still had enough trust to extract $20 million to $30 million per year from the client base. The firm was getting 10 percent to 15 percent commission on the money regardless of the success of the program. Incentives like that drive the absolute wrong behavior. No wonder most of the financial planners who have been selling commission-based products get themselves into so much trouble!

Even with big accounting scandals like Enron and Arthur Anderson, the trusted advisor status of the accounting profession remains.

It’s almost like when you become qualified you get your fancy certificate that you proudly hang on the wall and it comes with a permanent tattoo for your forehead that says, “Trust me – I’m an accountant.”

So why do we trust accountants? Is it the ethical standards that they are bound by? Is it that there have not been that many (in the scheme of things) scandals? Is it that we are told to trust them? Is it that the professional bodies (that all real accountants are members of) actually mean something? Is it the piece of paper on the wall? Is it that clients are typically referred to an accountant and we trust the referee?

All of these certainly help. However, I think the main reason we trust accountants is because they know more about our financial affairs than anyone else. And financial affairs are a very personal and confidential matter. Accountants know the intimate details of our profit, debt, wealth, revenue and cash flow.

Accountants can influence our profit, debt, wealth, revenue and cash flow positively (by offering additional help) and negatively (by doing nothing).

To give you an idea of the size of your level of trust, consider the following equations.

Profit trust equation: Using the annual compliance results, add up all the profit that your business clients achieved over the past 12 months. If your average client did $250,000 in profit and you had 200 of them then that would be $50 million of profit that you could positively or negatively influence.

Debt trust equation: With this equation add up all of the business and personal debt of all of your clients – business and personal clients. You might have 200 business clients with an average business debt of $350,000 and 300 personal clients with an average household debt of $250,000 so that would be $190 million of debt that you could positively or negatively influence.

Wealth trust equation: Take the net balance sheet position of your business and personal clients. If you had 200 business clients with a net balance sheet average of $1 million and 300 personal clients with a balance sheet position of $500,000 then that would be a whopping wealth under your custodianship of $350 million that you could positively or negatively influence.

Revenue trust equation: Again with the annual compliance results, add all the revenue that your business clients achieved for the past 12 months. You might have 200 business clients and they had average revenue of $1 million each; that would equate to $200 million of revenue that you could positively or negatively influence.

Cash flow trust equation: If your business clients have an average free cash flow balance of $100,000 per year and you had 200 clients then that would be $20 million of free cash flow that you could positively or negatively influence.

Having trusted advisor status is a very privileged position to be in. It’s a big responsibility as well.

I think it is the accountant's duty of care to leverage off the trusted advisor status and positively help clients by offering additional services that really make a difference to the clients' financial condition.

2 Responses to “Accountants Are the Last Trusted Advisors”

  1. Green Charles H.

    I actually think there’s a lot of truth to this idea. I think of it this way.

    For an accountant, there is a such thing as objective truth. Furthermore, such truth can be revealed. Debits must equal credit, assets must equal liabilities, and there are rules governing the definitions of all of these.

    By contrast, the highest calling have a lawyer is not to serve the truth, but rather to serve the client. Nothing wrong with that, but it collaterally means that you can’t trust anything a lawyer will say. As a lawyer friend of mine put it, “in the lot there is no such thing as truth – there is only evidence.”

    The best financial planners have escaped the centrifugal force of their money-drenched profession. However, all too many of them think a like brokers – continuing to resist the notion of a fiduciary responsibility.

    Architects, God bless them, are aesthetes; and actuaries live in an abstract world. Strategy consultants seek market dominance for their clients.

    But accountants grapple with the first-order reflection of reality. As you point out, they understand a business and its foundation better than any other profession.

    This connection to reality, together with a penchant for attracting middle children, I think actually provides another anchoring reason for why I too consider accountants to be the most natural candidates for TrustedAdvisor ship.

    Reply

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