As the 2024 education mandate deadline looms and thousands of advisers either bring forward their retirement or move out of the industry, accountants will be the ones to fill the void according to CountPlus chief executive Matthew Rowe.
“The deficit will be filled by professional accountants, in whom the public has greater confidence,” Rowe says, referencing a study he commissioned conducted by CoreData, which found that people believe accountants are 82.3 per cent likely to act in the best interests of their client, while advisers are only 41.2 per cent.
Rowe says there won’t initially be enough advice graduates to replace the ones that either choose not to meet the FASEA-mandated education standards or decide to leave due to any of the “possible extinction events” facing advice firms, such as the looming ban on grandfathered revenue.
“There’s going to be a number of ‘career changers’, and a great number of those are going to come from the accounting profession because [it] probably lends itself more to financial advice than say, engineering, the law or medicine,” Rowe says.
Rowe has reason to believe in the convergence between the accounting and advice worlds. CountPlus invests in converged accounting and advice firms and then provide limited services and “intellectual capital” to help improve their governance levels and profitability. Rowe calls it the “owner-driver-partner” model.
Rowe reveals the average profit margin of CountPlus’s 19 affiliated firms has improved from 12 per cent to 20 per cent during his tenure. The premise for that success, he believes, is that advice and accounting go hand in hand. The caveat, however, is that he believes the accounting/financial advice convergence has to be on even terms.
“Traditionally you would have joint ventures where the adviser would come in and the accountant would own 25 per cent of their business while the adviser would own the rest, but the adviser was never a partner in the accounting business so there’s a natural conflict in that scenario,” Rowe explains in a sit down interview with Professional Planner. “In our model the accountant and financial adviser are equal and they become partners in everything.”
The model Rowe speaks of is gathering momentum; after carrying a $25.5 million interest-bearing debt at the end of 2016 the firm’s net cash position improved to $9 million in 2018, according to the company’s most recent half-year results.
Rowe is quite well known in industry circles. Harvard-educated, he is a former managing director of top accounting firm Hood Sweeney, ex- Chair of the Financial Planning Association and a current board member of the Financial Adviser Standards and Ethics Authority.
While he understands some confusion between the role of CountPlus and the Australian Financial Service License holder – both provide operating services to advice firms – he is keen to separate the two.
The primary difference, he says, is that CountPlus has a hand in “the commercial drivers of the practice”.
“CountPlus is a custodian in the firm; succession and capital are big parts of it, as is the layer of expertise that sits behind that,” he explains. “An AFSL is a ticket to trade in advice, and it’s around quality assurance risk management framework, training etc.”
He freely admits that CountPlus didn’t always have the right operation model.
“With the original 100 per cent ownership model the people in the firms got to cash out all their equity of their private company and replace that with equity in CountPlus as a listed entity,” he says.
The problem, Rowe explains, is that it didn’t work.
“All of a sudden the principals – the talent, the assets – became employees, rather than owners. The alignment, that link, starts to diminish over time.”
Rowe and the CountPlus board now aspire to a 40 per cent ownership level, which they’ve attained for most of the incumbent affiliates. “We’ve still got five or six to sell,” he says. This limits the risk to Countplus and maintains the incentive for the affiliates, with ‘skin in the game’ both ways.
‘You can’t be half pregnant’
Countplus targets existing converged accounting and advice practices but Rowe says they are also looking to play matchmaker with firms looking to marry up. “That’s part of my role,” he says.
Their preference is for firms that have at least four principles. A sole practice “won’t end well for us”, he explains, and if they take on practices with two principles they end up “being the third wheel in the marriage”.
“We believe that at four they have reached a scale where there is the right dynamic and they are open to governance.”
He won’t be drawn into any negative criticism of the SMSF Advisers Network, which is owned by the National Tax and Accountants Association and has become a successful provider of limited licenses to accountants wishing to provide self-managed superannuation advice (only) on top of their accounting services.
“I wouldn’t want to comment on somebody else’s business model,” he says. “It’s entirely up to them how they want to operate. Good luck to them.”
Yet he is clearly not an advocate of the limited license model.
“Realistically, limited licensing is a bit of a furphy,” he says. “You can’t be half pregnant; your either giving advice or you’re not.”
Rowe says advisers and accountants can co-exist, each fulfilling their own specialist role in a firm. The old notion of the two not getting along, or having a deep cultural divide, is “a historic view that doesn’t have credibility in today’s world.”
Accountants aren’t “conservative, wearing a pin stripe suit and drive a boring car,” he says. Neither are planners “fast-paced salesman” with “flash cars”.
“Forget about their idiosyncrasies and what they look like, just think about the qualifications and the barriers to entry for either be a financial adviser or accountant,” he says. “They look the same… and they’re going to start looking more and more like each other.
“I believe in the notion of ‘co-opetition’. They’re not competitors, they’re actually co-operating and competing at the same time.”