Financial Advisor Success – Ep 421

Integrating Tax Preparation Without Hiring In-House CPAs To Bring More Tax-Focused Value
Guest: Daniel Friedman, CEO of WMGNA
Host: Michael Kitces
Date: January 21, 2025

Episode Overview

This episode features Daniel Friedman, CEO of WMGNA, a hybrid advisory firm managing approximately $270 million for 200 client households. Daniel and Michael Kitces discuss WMGNA’s innovative integration of tax preparation into their financial planning services—without hiring in-house CPAs. Instead, the firm bundles tax prep as a core offering and outsources execution to trusted external accountants. The conversation explores the business rationale, client-facing advantages, pricing models (including subscription and AUM fees), the firm's evolution, and lessons learned over more than 30 years of growth.

Key Discussion Points & Insights

1. The Evolution of Tax-Focused Financial Advice

• Shift in Advisor Services:
  • Increasing number of advisory firms incorporate tax prep—not just tax planning—into their services (03:35).
  • “Almost 1 in 6 firms now are including tax preparation in their offering... but bundled together.” – Michael Kitces (04:14)
• Daniel’s Approach:
  • WMGNA builds deep tax expertise, focusing their own team on tax planning and outsourcing prep to compatible CPAs (03:32, 04:59). • This model allows flexibility for varied client needs, especially around complex compensation (e.g., equity, corporate benefits).

2. Firm Structure, Target Clients, & Unique Philosophy

• Barbell Client Demographics:
  • Young, higher-income “HENRYs”—high earners, not rich yet—needing planning beyond AUM (05:36, 09:17) • Higher net worth, pre-retirement/"restylement" clients—focused on planning for their next life stage rather than traditional retirement (07:48).
• Restylement vs. Retirement:
  • “Many moons ago we retired the word retirement because that conjures up, you know, sitting around and waiting... It's restylement—the next stage.” – Daniel Friedman (07:48)
• Firm Overview:
  • Manages approx. 270 clients, blending subscription model for planning (with or without investment management) and AUM-based services (09:57, 14:06). • Team capacity is set at 100 subscription clients per advisor; current staff includes multiple advisors and a robust client support team (14:02, 44:38).

3. Subscription Model & AUM Fees: Blending & Billing

• Subscription Fees:
  • Typically $225–$575/month, individualized to each client based on complexity (20:08, 23:50). • Tax prep is included—no separate line item (35:00). • “The cost of a subscription... includes the taxes. Tax preparation. We do tax approximations, the sourcing, the whole nine.” – Daniel Friedman (20:31) • Money-back guarantee on subscription fees: “If you’re not wowed... we’ll give you your money back.” (23:50)
  • Only 2 clients in 30 years have invoked the refund (27:03)
• AUM Fees:
  • Up to 1% on the first million (all-in, including the firm, platform, and managers); tiered rate with breakpoints as assets increase (28:15, 29:47). • Household-level pricing, discounts for complexity/family aggregation (30:19). • Some variation in fee schedule based on underlying investment cost structure (30:41–32:50). • WMGNA uses TAMP platforms (primarily Envestnet) and outsources billing (32:03).
• Revenue Mix:
  • Roughly 15–20% of revenue from subscriptions; rest from AUM and some commission-based business through a BD (36:03). • “The vast majority of the... gross is from AUM... but we are looking at... incorporating more into the subscription.” – Daniel Friedman (36:03–37:30)

4. Team, Technology, & Workflow Design

• Team Structure:
  • 4 advisors (Daniel, Brian, Chris, Jake); support staff includes two client relations team members, a technology specialist (part-time), a director of first impressions, and a remote controller (44:38, 48:02). • “It's a four-plus-four team, with the caveat that you don't have to do things like billing, trading, because those all happen on the investment platform.” – Michael Kitces (55:58) • Bonus pool compensation based on firm-wide revenue growth, new subscriber acquisition, and tiered “points” for premium clients (49:26, 53:30).
• Technology:
  • Uses eMoney for planning, Redtail for CRM, Holistaplan for tax analysis/approximation (62:09). • Outsources all billing and trading to TAMP/custodians; transitioning from Schwab to Raymond James due to post-merger environment and custody model requirements (46:07).

5. The Outsourced Tax Preparation Model—Rationale & Execution

• Why Not In-House:
  • Client needs are broad and sometimes highly complex; hard for a single internal hire to meet all needs (57:43, 59:35). • Better quality and flexibility from established, multi-person CPA firms. • Firms avoid narrow/under-resourced tax experiences and the overhead of supervising in-house accountants. • “The level that we need, a one-woman shop might not be robust enough.” – Daniel Friedman (59:35)
• Strategic CPA Partnerships:
  • Work with 2–3 external CPA firms, one doing 85–90% of clients' returns (65:21). • WMGNA pays CPA firms directly—clients do not get billed individually (67:13, 67:20). • No expectation of referrals; relationship is based on mutual financial benefit and efficiency (66:08). • “This is not a referral... never going to happen. You need to be a value-added to their people.” – Daniel Friedman (66:08) • Seek bulk discounts periodically as the firm’s business grows (67:34).
• Client Experience Positioning:
  • Independence is a feature: “It’s not a closed shop... there’s an independent third party that you’re contracting.” (60:43) • Allows WMGNA to say tax returns are reviewed from two perspectives—tax prepping CPA and planning advisor—adding trust and quality.

6. Tax Planning & Delivery

• Advisors Serve as Tax “Quarterbacks”:
  • Heavily involved in analysis, planning, and coordination—but defer technical execution (return filing) to CPAs (62:09). • Quarterly tax approximations, proactive strategy (e.g., Roth conversions, tax-loss harvesting, flexible withdrawal strategies).
• Holistaplan Integration:
  • Used for both ongoing monitoring and client communication; helps avoid “triple whammy”—penalties, surprise tax bills, ill-timed asset sales—by forward-testing tax outcomes (62:09–64:30).

7. Firm Philosophy, Growth Journey & Lessons Learned

• Restylement:
  • A rebranding of retirement to reflect clients’ desire for new purpose, engagement, and vitality at life transitions (07:48).
• Compounding Relationships:
  • Long-term relationship focus, both client and team; success came more slowly than expected but compounded over decades (69:01, 71:26). • “Once we had the first person [client] sign up, it was proof of concept. It works. More came along—but it took ten years before we really felt established.” – Daniel Friedman (69:01)
• Resilience and Persistence:
  • Early years challenged by slow growth, business and personal hardships (72:51–74:49). • “Just continue to be... really good and continue to do it.” – Daniel Friedman (69:01)
• Advice for Other Advisors:
  • Focus, patience, specialization, and team transparency (77:35). • Don’t be afraid to be different; stand by your philosophy and target markets.
• View on Success:
  • “The privilege of a lifetime is being who you are.” (76:31) • Personal and professional success are intertwined: being present for family, serving clients well, and maintaining internal motivation (81:24).

Notable Quotes & Timestamps

• On Tax Prepping Model:
  “The level that we need, a one-woman shop might not be robust enough... So your concern [is that] the breadth of different client tax return needs is more than what you could get in hiring one person.” – Daniel Friedman (59:35–60:43)
• On Client Experience:
  “Restylement is the next stage... planning for the next stage of your life.” – Daniel Friedman (07:48)
• On Subscription Model:
  “The cost of a subscription... includes the taxes. Tax preparation, tax approximations, the sourcing, the whole nine.” – Daniel Friedman (20:31)
• On Independence of Tax Partners:
  “It’s not a closed shop... there’s an independent third party that you’re contracting.” – Daniel Friedman (60:43)
• On Success & Patience:
  “It took so damn long to get to a place... figured within 10 years, within 5 years, I’d already have been on Nerd’s Eye, speaking at conferences... and it just didn’t happen that way.” – Daniel Friedman (69:01)
• Life Philosophy:
  “The privilege of a lifetime is being who you are.” – Daniel Friedman (76:31)

Key Timestamps

• 03:32 – Start of advisor/tax convergence discussion
• 05:36 – Overview of client demographics ("barbell" strategy)
• 07:48 – Explanation of "restylement"
• 20:08 – How subscription fees are set, what's included
• 23:50 – Pricing methodology, money-back guarantee details
• 29:47 – AUM fee structure and breakpoints
• 35:00 – How tax prep is included/billed
• 36:03 – Revenue split between subscription and AUM
• 44:38 – Team structure, roles, and operations
• 59:35 – Why not hire CPAs in-house; outsourcing rationale
• 62:09 – How WMGNA is involved in tax planning with CPA partners
• 67:34 – Negotiating volume discounts with CPA partners
• 69:01 – Early challenges in building the firm (slow compounding)
• 76:31 – Advice for advisors and on the privilege of authenticity
• 81:24 – Daniel’s current definition of success

Memorable Moments

• Restylement Over Retirement:
  Reframing “retirement” as “restylement,” focused on helping clients adapt to new life chapters (07:48).
• Money-Back Guarantee:
  In 30 years, only 2 clients have invoked the money-back on subscription planning—demonstrating value and confidence in the model (27:03).
• Transparent, Open Revenue Sharing:
  Revenue and progress metrics are shared openly with the team; trimester bonuses and “points” recognize new client relationships and growth (49:26, 53:33).
• Independent Tax Model as a Benefit:
  WMGNA stresses that the independence of CPAs used for tax prep creates additional checks and trust, rather than being a weak point (60:43).
• Persistence Pays Off:
  Exponential growth took place after a decade of hard work—a message of perseverance for early-stage advisors (69:01, 71:16).

Conclusion

Daniel Friedman’s story is one of long-term commitment to client-centricity, innovation in service bundling, and creative structuring of team and external partnerships. WMGNA’s blend of subscription-based planning—including tax prep via external CPA relationships—demonstrates a scalable way to provide holistic value, preserve flexibility, and maintain independence and trust. For advisors, the conversation is a roadmap for embracing more robust, tax-focused offerings—without necessarily shouldering all the operational and staffing risk in-house.