Savant Capital Management didn't just buy an accounting firm -- the $4 billion RIA also bought a hedge against future revenue risk, says CEO Brent Brodeski.
The deal to buy Green, Plagge & Shaw, a St. Charles, Ill.-based, accounting, tax and payroll firm, was directly influenced by the increasing commoditization of investment management, Brodeski says.
"It's going to be very difficult to get away with charging 1% of assets under management within five years if people are used to paying 25 to 30 basis points for investment advice from robo advisors or Vanguard Direct," Brodeski says. "Advisory firms will be facing significant fee pressure to attract and retain clients. We've offered tax services for the past two years and clients love it. Now we'll have much deeper tax planning and estate planning and be able to offer a more robust value proposition which will also differentiate us from the competition."
The CPA firm, known as GPS, was bought for cash, notes and shareholder equity in a deal valued at a multiple of revenue, which is usually 1% or less, Brodeski says; the deal closed at the end of 2014 and was announced this week. The firm will be a fully owned subsidiary of Savant and eventually folded into the parent firm.
Financial planning clients will pay a separate fee for tax preparation. Meanwhile, the accounting group's 140 accounting clients, many of them physicians and dentists, will be encouraged to bring their wealth management business to Savant as well.
'PHENOMENAL ACQUISITION STRATEGY'
"It's a phenomenal acquisition strategy," says Ryan Shanks, chief executive of Finetooth Consulting, a Longmeadow, Mass.-based firm specializing in providing transition, practice and succession planning advice to RIAs and IBDs. "The valuation multiple for a CPA firm is less than an RIA's. And an acquiring RIA can tap into the accounting firms' clients for investment related work and significantly boost their revenue and get a very nice return on their investment."
The economic outlook for the advice industry also makes accounting firms attractive acquisition targets, says Dennis Dolego, research director for Optima Group, a consulting firm in Fairfield, Conn.
"If people are gravitating to robo firms and Vanguard is the benchmark for investment management costs, then I can see where [RIAs] are concerned," Dolego says. "They probably already work with accountants in some capacity, and for firms with clients who have between $500,000 and $3 million in assets, this strategy looks like the way to go."
Brodeski, a member of the elite aRIA study group and considered one of the industry's savviest executives, says he doesn't expect to compete against mom-and-pop CPAs or H&R Block. Rather, he thinks that Savant and GPS' eight accountants can compete for higher-end clients and charge less than large accounting firms.
"What they don't want you to know is they're not doing tax planning," he says. "They do tax compliance. We can be far more proactive, add value and charge between a few hundred and a few thousand dollars, depending on the complexity of the work."
What's more, adding more accountants to the firm will relieve Savant's financial advisors from doing tax preparation work during tax season, Brodeski adds.
GPS principals Chris Plagge and Rene Shaw will become members of Savant. After working with Savant and doing an extensive review and due diligence, the two executives decided that "that this was the right fit at the right time," they said in a prepared statement.
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