Is your firm prepared to offer investment services?

Position:CPA firms

CPA firms wishing to offer investment services should proceed carefully. In most cases, a firm providing such services will have to meet rigorous government standards. A firm may register to give such advice, or it may affiliate with an entity already registered with the SEC or a state securities department. The type of registration depends on the scope of services offered, fees charged, the state where the practice is located and the amount of assets under management.

The first step is to define your business. After deciding what services you want to offer and how to charge for them, begin the registration process. Then listen to clients and competitors and put together a solid business plan to handle anticipated concerns. Here are some issues to consider if you're thinking about offering investment services.

* Will you be more comfortable handling discretionary or nondiscretionary accounts? A discretionary relationship allows the CPA to make investment decisions for the client. In a nondiscretionary relationship, the client must approve each transaction prior to a trade.

* What fee structure will work best for your firm? Fee formats may vary considerably. In a tiered approach clients are charged a percentage of the total assets. A graduated fee increases or decreases based on the amount of assets under management (client portfolios under $100,000 are commonly charged 1.5%; those over $1 million are negotiated and can be as low as .75%). Hourly fees commonly range from $150 to $250; expect rates higher than $300 per hour to be questioned by your state securities department, says Melissa Dehn of TDA Compliance in Antioch, California.

* An examination prep course can help if your state requires a minimum competency exam. The most common competency exam is the NASD Series 65. Companies such as Securities Training Corp. offer courses to help you prepare. If you have the PFS, CFP and/or other designations, you might not need to take a Series 65 exam. (See the AICPA Web site for information on whether an exam is needed and what course discounts are available.)

* You'll need guidance if you register your firm as an investment adviser. Jim Koon, of Securities Exam Preparation Inc. in Washington, says, "Firms managing more than $25 million in assets must register with the SEC; those managing under $25 million need to register with their state securities commission."...

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