Broker Check

Structuring a Financial Services Practice

Steps to be Taken

  1. Identify firm member(s) to be licensed to provide financial services.
  2. Establish a separate legal entity through which to conduct the financial services business. This entity will be owned by the licensed firm member(s). A limited liability corporation is typically the structure chosen for this purpose.
  3. Establish expense reimbursement agreements between the licensed firm member(s) and the financial services company, and between the financial services company and the accounting firm.

Explanation of Agreements

Agreement #1 This agreement generally provides that Professional Firm will provide comprehensive business support services to Financial Services Firm including marketing support, office space, supplies, miscellaneous overhead expenses and staffing as needed. In exchange for these services, Financial Services Firm agrees to reimburse Professional Firm for the expenses incurred. In order to simplify record keeping, the amount of the reimbursement is often set as a percentage of gross revenue. An appropriate amount may be the percentage of gross revenue which the Professional Firm typically incurs in total expenses including partner/firm member compensation. We further recommend that the Financial Services Firm reinvest it's net income in the development of the financial services practice, at least during the initial years of operation, in order to foster its long term growth.

Agreement #2 Similar to Agreement #1, this agreement generally provides that Financial Services Firm has arranged to provide comprehensive business support services to the licensed firm member(s). In return for these services the licensed firm member(s) agree to reimburse Financial Services firm for the expenses incurred. An equitable approach may be to assume that the profitability of the financial services practice is equivalent to that of the accounting practice. Under such an assumption, the reimbursement amount would be equal to (1-% of firm revenue allocated to partner/firm member compensation). Many firms also adjust the compensation of the licensed firm members to reflect that they no longer devote 100% of their time to accounting related duties.