Originally published by Forbes.com.
The little tiff between Block Advisors and the AICPA over Block’s ad that dissed CPAs does not seem to have created that much brouhaha beyond the coverage here and on Going Concern. Too bad. I was looking forward to it being a thing. Nonetheless, I looked into it just a little bit further. I’m fairly certain that, AICPA’s rush to defend our brand notwithstanding, most of my brother and sister CPAs are not worried about competition from Block Advisors. The more interesting question is whether they should be. Is our trade association really earning some of the enormous amount we pay for dues by lashing out at that ad?
What Is It Like To Have A CPA?
One of the best fictional representations of the consigliere role that an accountant plays for his clients is portrayed in the movie Fargo. In this scene, Sam, the accountant has to explain the facts of business life to the feckless son-in-law of his client Wade
Later when it is time to organize the ransom money for Wade’s daughter, it is once again Sam at his side.
A less dramatic version of the type of relationship that can develop was described in the Keller decision, a great FLP case.
The extent to which the Kellers and their careers as accountants and advisors share an identity of interests with the Williamses was best stated by Lane Keller, when asked to describe the services that he provides for the family: “We provide all types of accounting services. We do all of their accounting, all of their tax work, all of their tax planning. We handle all of their investment portfolio management. We pay all of their bills, we pay all the bills of all the entities. We provide a lot of personal service to the clients. Almost anything that they might want to have done by what would typically be a family office, we would provide that service as well.”
Of course they were serving an ultra-high net worth family, but that total service mentality is pervasive in certain pockets of local and regional public accounting. National firms not so much.
It’s A Local Regional Thing
Arguably I only had one job during my 34 year full time public accounting stint November 1979 to May 2013, but the large local firm I was hired by ended up merging to found a good size regional firm that gobbled up smaller fish until it was itself gobbled up by a not quite big 4 (more nimble you know), where I lasted seventeen months, which was close to a record for a tax partner in that particular acquisition. This gives me a bit of insight into different practice philosophies in a variety of firms.
The big difference between local/regional and national seems to be that local/regional practitioners think it is a privilege to be working for at least their high end clients, but that attitude frequently carries over to all their clients. National firms think the clients should think it is a privilege for the client to have them as their accountants.
After being acquired it seemed like most of the new people coming in were from the Big 4. I remember one of them being mystified as to why the head of our private client service group would go to the home of his eighty-five year client to help him install software. When I suggested to the Tax Practice Leader that the correct business decision would be to not worry about getting an engagement letter from a client, whose word was his bond and who was annoyed by the 35 page engagement letter we required, the TPL looked at me as if I were insane.
Money Coming In Is Good. Who Knew?
The example I like to cite from early in my career was Herb Cohan’s letter to the dentists. Joseph B. Cohan and Associates had a division dedicated to dentists. (Subsequently spun out as Rosen & Associates) Included in the service were quarterly compiled financial statements with a personal letter from Herb Cohan the managing partner providing insight and analysis. I used to hear Herb talking into his dictaphone, which was even a little retro in 1980, making what I thought were pretty obvious comments like “Your revenue is up. That’s good.” It was from that eavesdropping and also from observing the way firm decisions were made that I determined that Herb had boiled all business decisions down to two fundamental principles. “Money coming in is good” and “Money going out is bad”.
In my naivete, I used to mock those letters. It took me a long time to learn something many accountants never grasp. There are many highly intelligent people, quite capable of earning considerably more than the typical accountant will ever earn, whose brains freeze when they look at a column of numbers. At least to some of the dentists, Herb’s letter was very valuable.
What Will Block Advisors Need To Compete?
Block Advisors promises that they will have people that after doing your return you will be able to call year round to deal with your issues and concerns. They will be CPAs, Enrolled Agents and superior preparers from the ranks. So when you get a notice from the IRS, they will explain it to you and help you deal with it. You call them up and tell them that you are thinking of selling the three unit apartment building you own and they will tell you about like-kind exchanges, installment sales and unrecaptured Section 1250 depreciation in terms that make sense to you. You are thinking about starting a business and they will tell you about entity choice. Maybe you will need a lawyer or an actuary to actually answer your questions. They will know one.
Block Advisors is not citing examples like that in their marketing, but it is what is implicit. You come in and get your return done and now you have a relationship with somebody you can call year round with your issues.
To get a sense of what you need to accomplish that mission, I called a friend of mine (Let’s call him Joe) who is a master at running a small firm. His style with his clients is of the “tough love” variety. Joe is a bit of a character and will drop “F” bombs frequently, but, being quite devout, will never take the Lord’s name in vain. He, as we say in the business, know how to bill. And clients who don’t want to pay for value can go “you know” themselves. (There is actually a mini-consulting industry devoted to teaching CPAs that people who don’t pay are not really clients and similar truths that are second nature to Joe)
At any rate when I told Joe about the Block Advisors/AICPA tiff, he launched into a rant that it was fine for Block Advisors to say whatever they wanted and went on a bit, until I finally interrupted him to ask him the question I was interested in. Assuming Block Advisors was trying to offer a similar service package as he would provide tax clients, how much would he have to pay somebody with ten or more years experience, who would have no responsibility for bringing in clients, but would pretty totally handle them with minimal supervision from Joe? He initially threw out $100,000 per year, but then raised it to $150,000.
That and poking around the website was my preparation for my interview with Meg Sutton, Director of Block Advisors.
Talking With Block Advisers
Ms.Sutton indicated that she believes that the Block Advisers will be filling a void in the market for people who are looking for year round tax and financial advice. Apparently clients will pay a flat fee based on the complexity of their returns and then will be entitled to year round consulting from their Block Advisor.
If a tough question comes up, they can consult with their fellow advisors in over 280 locations. That could be real handy for customers who have returns in multiple states. Particularly on the East Coast, some of the states have peculiarities and don’t drop easily from the federal return. If you have a complicated return and you have not dealt with New Jersey or Pennsylvania before, it will be nice to be able to talk with someone who has done a few.
For really tough questions there is the Tax Institute at H&R Block, where the big research guns are. According to its website, the “worlds leading tax experts” are at the Tax Institute.
The structure simulates that of a national firm or a regional firm that is part of an affiliation like the BDO Alliance. What I really loved about working for a national firm, besides the better food during tax season, were the pockets of technical excellence on arcane matters that might not crop up more than once in your career. I remember helping a resident alien married to an American who inherited substantial interests in operating businesses in a couple of foreign countries. There were a host of compliance problems and it was great being able to find people for whom they were not new.
If Block Advisors has a good research platform and good preparation software, equivalent to what you might get from Thompson Reuters or Wolters Kluwer and their brand could draw in the business, they could probably hire away a lot of frustrated people who have gotten as far as they are ever going to get in accounting firms, because they didn’t realize when they went to Bentley and majored in accounting that selling skills would be really important if they wanted to get to the top. Block is a public company so maybe there could be stock options and the like or maybe just reasonable hours. If in an appropriate manner, they focused their recruiting on the 60% of CPAs who are women, who probably do 80% of the actual work, they might build a great team fast.
The Big Question
So my big question for Ms. Sutton was how much they were paying the Block Advisors. She would not give me an answer for competitive reasons. I spent some time poking around glassdoor.com to see what I could find. Block pay for preparers is very low down in fast food territory. An H&R Block Tax Specialist with ten years shows up at $54,541, which is below entry level pay in public accounting. Somewhat shockingly, Tax Researchers at the Tax Institute with 4-6 years experience are showing up at $18 per hour. I guess for the moment the national offices of the Big 4 don’t have to sweat them raiding their best and brightest. They probably won’t get too many people coming out of the Chief Counsel’s office either.
There is an old saying that I think is wrong. It is “You get what you pay for”. I would modify that to “You rarely get more than you pay for. It is not unusual to get less”. So it is tough to see how Block Advisors will seriously compete in terms of quality with large local and regional CPA firms. As their ad indicates they may compete on less hassle and, of course, there is always price.
What About Marketing?
I thought that Block Advisors might be able to still do pretty well since there is the whole marketing thing that so demoralizes accountants who would just as soon be doing work. From my discussion though, it appears that Block Advisors will be expected to go out and sell. One of the things mentioned was going to Chamber of Commerce meetings. Someone else on the call indicated that they will be given great tools to do that though.
And at least in the circles I travel in, the brand is not going to help in going up market.
Based on what I have been able to discern so far, Block Advisors does not seem to be shaping up to be a serious threat to CPA tax practitioners . Rather than spending time worrying about us being dissed on TV commercials, the thing to do is probably up our service game.
My prediction is that Block Advisors will garner some positive reviews in the first year or two, but that if their model does not fundamentally change, it will not work that well in the long run. Of course it is possible that they are really aiming to just go a bit up market from their current client mix and grab clients that would be considered marginal by a regional CPA firm. In that case, it might work pretty well.
Don’t Knock Block
I’m not inclined to knock Block for not paying very well. Many of the regional and national firms outsource much of the preparation work that provided part of the training for entry level accountants to India. I remember when the managing partner of my regional firm got all enthusiastic about India. I suggested that we consider hiring and training American high school graduates and have them work on second shift or having the firm buy a couple of Jackson Hewitt franchises that were available.
The criticism which I would say hits both Block and the AICPA is the emphasis on brand that implies you are providing premium service, but then operationally behaving as if you are providing a commodity. This may well be an inherent problem in contemporary capitalism. The expression “Sell the sizzle. Not the steak.” dates back to the 1930s.