Alan Shorr and Morrie W. Reiff, founders of AFA Financial Group LLC, didn’t think twice when they launched the company in 1999. Legislative changes were opening the door for CPAs to sell securities and other financial instruments, and Shorr and Reiff, both accountants turned financial planners, figured a firm that essentially acted as a financial service department for accountants would be just what they were looking for. Their expectations have taken shape AFA’s volume has increased about thirteen-fold since 2003. But as it turned out, getting from the partner’s initial concept to the current-day company, wasn’t so easy after all. Calabasas-based AFA is a broker/dealer much like any securities house, with a twist. The company also partners with CPAs and financial planners in a revenue sharing arrangement. In its research and investment options too, AFA is somewhat different. Rather than just dealing primarily in stocks, AFA provides research on a wide variety of investments, ranging from securities trades to oil and gas, tenant-in-common real estate transactions and other alternative investments. CPAs and financial planners can work directly through AFA or they can use the company’s team business model where a planner and accountant along with an AFA business development manager work together to develop investment strategies for clients. That way, the CPA can oversee the process to be certain that the investments mesh with the client’s personal goals and tax issues. “Clients ask us, where should we put our money? What will be best tax-wise? Do we need life insurance, annuities and all of the financial products that most people are totally confused about,” said Ben Kendall, CPA and partner with The Allegent Group CPAs and Business Advisors LLP in Woodland Hills. “Before, we would recommend brokerage firms but we could have no control. We would prefer to be associated with somebody where we could get paid for that monitoring and do a better job for our clients at a lower cost.” CPA dilemma Changes in legislation in the late 1990s lifted a former prohibition on CPAs selling securities and other investment instruments. But many CPAs have been reluctant to do so because they worry that such services may undermine the relationships they have with their clients, and because they don’t have the time or resources to conduct the needed research. By the same token, referring clients interested in investment services to outside brokers means that the accountant cannot control the process, often until it is too late. “In the old way, a CPA would lose total control,” said Shorr, who is chairman of AFA. “Now they have total control and ultimately say so, and they get paid for their time and expertise.” For the planners, AFA provides a source of clients as well as research that is better targeted to their wealth management clients than that provided by the bigger broker/dealer firms, the planners say. “The wire houses very often have their own research departments, but typically what they’re researching is stocks,” said Larry Schechter, an AFA financial advisor, “not investment strategies, not conceptual strategies for how to build a portfolio.” Planners and CPAs each receive 40 percent of the fees and commissions generated through the relationship while AFA gets 20 percent. Schechter, who joined AFA about two-and one-half years ago, is one of about 40 such planners and advisors working with the firm. AFA’s roster also includes about 25 CPA firms. The firm first launched in Encino as Accountants Financial Group. At its inception, the company employed one staffer in addition to the two partners, and Shorr and Reiff brought on the CPAs they had been working with as financial planners previously, about 15. Trades were handled through an outside broker/dealer. But by 2003, the firm decided to apply for its own NASD license. The decision turned out to be a pivotal one in the company’s evolution. It was also arguably the biggest hurdle AFA has had to jump. Getting a broker/dealer license through NASD, federally-required for trading securities and other investments, is a complex process that is especially difficult to navigate, the partners say. There are no instructions or guidelines for those seeking to apply, and the Byzantine-like process unfolds by trial and error. “It’s almost like a franchise, but they don’t give you any information,” said Reiff who is president of AFA. “What franchise doesn’t give you the business plan? We hired a consultant who gave me half the money back.” Process completed Instead, Reiff pulled all-nighters, addressing each of the omissions as the agency revealed them, a process that he plowed through in about two months instead of the average four-to six-months the process typically takes, he said. With its licensing to conduct trades in hand, however, AFA was able to move the business forward at a pace it had not experienced previously. In 2004 the company moved to larger offices in Calabasas, and its network now extends to Houston, Idaho and Nevada as well as California. AFA is adding about three or four CPAs or financial planners each month and expects its network to grow to 100 by year end. Revenues are expected to double compared to 2005. “Our company is very well-known for due diligence,” said Daniel Oschin, who joined AFA last year as COO. “That’s just one of the reasons a financial planner might join independent of a CPA. We’re going to give you this marketing plan. We’re going to hook you up with a CPA and they get a whole world of business open to them.”
