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This is the Transition To RIA Vendor Profile Series where we take a look at the solution providers powering the RIA model. On this episode:
Vendor name:
Dominion Enterprise Services
Vendor category:
Accounting
Episode host:
Brad Wales
Episode guest:
Catherine Tindall
Vendor contact info:
Full Transcript:
Brad Wales – Hi, I’m Brad Wales with Transition To RIA, and this is the Transition To RIA Vendor Profile Series where we take a look at the solution providers powering the RIA model. On today’s episode, we’re answering the question, “What is Dominion Enterprise Services?” To help us with that is the founder of Dominion Enterprise Services, Catherine Tindall. Catherine, thanks for joining.
Catherine Tindall – Yeah, thanks for having me on.
Brad – I’m looking forward to this conversation. For any folks that have watched a lot of my videos or listened to my podcast know I’m a big fan of all the wonderful niche-type services that have been developed over the last five, 10 years to support the RIA ecosystem.
I’m always a believer that when there are those niche providers that are a niche in our industry, those can be very valuable to you to use as a resource. Today is going to be a wonderful example of that. I look forward to kind of digging into the details of it. But to kind of start us off, Catherine, if you don’t mind, if you could just give us a high level overview of what exactly you do there with Dominion.
Catherine – Yeah, so Dominion is a CPA firm. So we do tax and accounting work for a variety of people in the wealth management industry. So we do work with RIAs, we work with people that are at broker-dealers, we work with people that are just 1099. Maybe they’re more like a contractor with a bigger RIA, something like that. So we work with people kind of across the spectrum within the industry, but our main focus is on tax and accounting issues for them.
So, what that normally looks like for advisors is a combination first of their tax preparation work for themselves, for their firms and then from there, we look at tax planning opportunities. A lot of our focus is a little different than your traditional CPA model because we start with a planning orientation.
I’ve found just over the years, working with business owners and working with advisors, your business has changed so much year after year and it’s not very fun to play the game when it comes to reporting your tax liabilities at the end of the year where it’s “We could have done things. We could have made this better.”
Then just on top of that, really structuring what we do around the fact that when you’re an advisor and you’re starting to generate a lot of taxable income and profits from the business, income tax expense becomes a really big cash outflow that is happening on a yearly basis.
It’s about having a process around how that’s calculated, how it’s managed, and taking advantage of the programs that you can for planning purposes. But then it’s also just having a budget for it, having a process around it, so it’s not this boogeyman that’s hiding under the bed.
A lot of people when they first come to us, that’s their experience with this process is that they just don’t really know what’s going on with it. They file at the end of the year, but they don’t know if they’re doing a good job or a bad job or if there’s compliance issues.
The bigger issue is like, what am I going to owe, right? Is it going to be 50? Is it going to be a hundred? Like how much did things change? You know, there’s just not a good infrastructure there. What we help them solve for is getting a good infrastructure around the planning and then the tax filing process for their firms and then for them as owners.
Brad – I think that sums up a lot of the value here. When you talk about end of the year or doing the filing, I think a lot of times, myself included when I first started using a CPA firm roughly 10 years ago, yes, that is part of it, right? You need to file taxes and you need to prepare things to be able to do that. But by that point, as you kind of alluded to, it’s maybe a little too late to have been doing things that you could have done throughout the year.
And so I kind of put that in it’s kind of reactive at that point, or hey, can we be proactive ahead of time. If I’m correct, what you really specialize in is hey, long before we get to the point a form should be filled out to send to the IRS, we’re already trying to strategize as much as possible. Do you have and so maybe you could give some examples of how you help with that? What are you proactively bringing to folks’ attention? What basically happens throughout the year, not just that kind of end-of-the-year stuff?
Catherine – Yeah, so I can talk through kind of the general process we have. So we work with mostly closely-held firms. So multi-partner, solo practitioners, you know. It’s because the planning is kind of the core focus of what we do. We work mostly with those closely-held groups.
So when they approach us, we start off with an assessment engagement because I need to make sure that the basic infrastructure of how their accounting works is going to allow us to do the work that we need to do. So we look at things like how do they do their record keeping? Is that function working well for the level of the organization?
So we start with that and look at what do they have in place? Who’s involved? Is the advisor doing it themselves? Do they have a QuickBooks? What’s the process that they have there that that function is happening on a timely basis and it’s materially correct.
A lot of times I’ll encounter issues, like I had a case yesterday where somebody had a professional bookkeeper. I was looking at his books; they’re all messed up. I can just tell because I’m under the hood with so many practices. And so we have to start there and make sure the record keeping’s good.
And then in that assessment, we also look at their prior tax filings because, just being niche-specific, there’s a lot of issues that can come up that a generalist CPA wouldn’t be aware of. There’s specific tax court cases that apply to advisors. There’s also specific planning opportunities and related compliance components that can come up in those prior tax returns.
A example is if you have somebody with an RIA but maybe they still have some broker-dealer income as well, like they’re kind of hybrid, or if they’ve got insurance commissions, those can get treated at different levels than your normal, just pure RIA, AUM, advisory income. So a lot of times general CPAs don’t realize that those different revenue sources need to go into different buckets. And also that there’s tax advantage ways of doing it. So we look at that.
And then there’s just your normal compliance issues, which can come up. Things like if you’re in an S corporation, are you paying yourself properly? Those kinds of issues that can come up that can either be in violation of what the IRS rules are or more commonly what I’ll see is that advisors are doing it inefficiently and so overpaying in taxes because they’re doing too much. And so there’s a process around that.
And then from there, in our assessment process, we look at future planning opportunities. So what do they have going on in the business? Where is it going? How are they planning on exiting? Is there a second generation who’s going to be buying them out over time? What are the other components of what the practice is trying to achieve? What are the bigger goals that are going on for the advisors and the owners?
If it’s a lifestyle practice and we want to keep things really steady and clean, it’s going to be a different set of planning techniques I would go after than if the practice is more, we’re an RIA, we’re doing a bunch of acquisitions. That’s going to be a different set of planning techniques that we’re going to be looking at. So I start with that assessment process to kind of just get under the hood, figure out where we’re starting from.
If there’s any skeletons in the closet, we at least want them out in the open so that the owners can make a decision about them, whether they need to make changes or just being aware that the IRS could come back to them on these. Do you want to change this? So making them aware so there’s no skeletons in the closet.
Then we look for the future planning opportunities. From there, we start usually with an official planning engagement, which will be, OK, these are the techniques that we think you should be using. This is how to deploy them. This is what you can do. This is what we’ll do for you, because we just need to do allocations or whatever the accounting magic that happens behind the curtain in the Excel sheet. From there, we forecast what they’re going to owe in taxes so that they can know ahead of time.
So for a lot of new clients, we’ll start with that process right away because we need to have a budget in place. So right now we’re recording this in February. Two months of the year have already gone by. Your profits for those first two months of the year should have the appropriate taxes not necessarily sent to the IRS, that’s a whole other discussion, but you need to know roughly, okay, if I’m making this much per month, how much do I need to be setting aside for taxes so that you’re not falling behind the obligation.
And then at the same time, you also don’t want to be over-saving. I see this happen with a lot of advisors where they’ll just have like $500,000 in cash sitting in an emergency fund, but they’re super burnt out and really should be deploying that in the business to get themselves less burnt out. So we want to have a good estimate of what the actual tax liability is so that we’re not over-saving or under-saving.
And then from there, it’s just the routine relationship of tinkering with the planning opportunities that they could do as things change in the business or opportunities come up, like they’re going to buy a building or they’re going to hire a kid or whatever those things are. They’re going to sell a partial book, like whatever it is, we’re already kind of up to speed with them being tax efficient and we have a plan. And so it’s just modifications to the plan.
Then at the end of the year, because we’ve already forecasted the liability and we’ve changed it, we’ve deployed what we’ve done, the tax returns are really just the, okay, this is the cementing of what we’ve already been expecting. And so that, I always call it, it’s like landing the plane. We’ve been flying the plane and making the decisions about what we want to do. And then from there, the filing of the returns is the landing the plane, making sure that you’re capturing everything that you did and deducting everything that we discussed and those sorts of maneuvers. So that’s the general life cycle of a relationship that we have with advisors.
Brad – It’s very helpful and I think some of the verbiage you used validates what I was saying about the importance of having to work with some of the niche focus. Talking as an advisor, if you were to just go to a generalist CPA that is not in our industry, they may not know how this industry works.
If you start talking about this hybrid relationship you have, there’s some commissions that come in and then fees come in, and, by the way, many advisors are effectively only paid say four times a year, that quarterly fee bill, that’s a different animal. There are different planning parts that need to go into that and those generalist CPAs may not know how to handle those things.
I think you validated everything I was saying as well about using the lingo that’s relevant to our industry. I think a lot of what you just described certainly is helpful for advisors that are already independent, that maybe haven’t had any of this kind of help or whatever they’re doing. There’s room for improvement.
But how do you help the folks, because they’re a lot of my audience, that are perhaps transitioning to some sort of independent path for the first time in maybe their entire career? All they’ve ever known is that W2 world and for better or worse, it comes out of the paycheck and you’re not really writing anything off. You’re not depreciating things. How do you help those folks? I guess you’d want to talk to them as early as possible in the process before they make a jump, but how do you help those folks kind of not be intimidated by this new world they’ll have to figure out from a business ownership taxation standpoint?
Catherine – Yeah, so as a first point, if you’re on the path of considering going this direction and you’re interested in seeing some of what of the administrative things that are going to change for you when it comes to the tax and accounting side are, especially if you’re going from a W2 situation to business ownership for the first time, that’s a huge change.
And then also just the level of complexity that you’re walking into with accounting, taxes, those sorts of things. I always tell people, if you’re at 100,000 versus a million dollars, adding zeros doesn’t increase the level of complexity of what you’ve got going on. It just adds more volume. But just realizing making that initial shift from W2 into self-employment is a big complexity wall that you’ve just walked through. This is not a big deal. You just have to know what you’re signing up for before you go through that.
So just something that we have, and I’m sure my contact information is somewhere nearby wherever you’re interacting with us, feel welcome to reach out to me on LinkedIn and I can send you our most recent copy of an RIA startup checklist we have. We just use it with people that we help go through the process on the finance and accounting side.
These are the different areas that you need to be thinking of and have lined up and have a plan for things. These things include are you going to run payroll and where do you need to register for that? And just all of those kinds of issues listed out in a single document. So that can be a helpful place to start.
But I would say usually when I’m working with somebody who’s going to be going independent, especially from W2 to business ownership for the first time, it depends on if part of what’s going on here is they’re doing an acquisition of somebody else at the same time. That can add a lot of complexity. So if they’re buying out an older advisor who has an RIA, that adds a lot of complexity.
If they’re going independent and they’re going to bring their clients with them and they’re not purchasing a practice as part of that, it’s simpler. But some of the things that we need to be thinking about early on, a lot of it’s in that checklist. So I just definitely recommend people reach out to get a copy of that.
We want to look at things like, how much certainty do you have with what you’re going to be bringing in for revenue? What’s the timing that you’re going to get paid? If you’re depending on which custodian you use, how long is it going to take for you to get your first revenues in? What are some of the things you need to set up immediately, like having your own bank accounts, all your registrations, all of those components.
On the tax and accounting side, I always tell people the first maneuver is you’ve got to open the bank accounts. You have to have segregated expenses. So if you’re paying for business things, it needs to go through business accounts and just having those initial plans in place.
Then I would say the other component that can really trip people up is if you’re going independent, but you’re going to be doing it as a partnership initially, you’re not going solo. That adds a lot of initial complexity before you even consider going out independent. I’ve been involved in a number of cases where it was if it’s a solo advisor going independent, it’s a much easier jump.
If you’re a partner group, so say you’re both a couple W2s and then you go independent together and bring clients with you and want to operate this thing together, there’s a lot more steps that you want to do before that process. There’s a lot of decisions that you have to make from an entity structure perspective. Then you have to decide how people get compensated, how you’re going to govern this joint activity, whether it’s an S corporation or a partnership or those kinds of things.
A lot of your operational decisions have to be made ahead of time because I’ve been involved in successions where people tried to go independent, multi-partner, and they couldn’t come to agreements on a lot of these core alignment philosophical issues. It ended up blowing up on the backend.
So a lot of times I recommend if you’re going to be multi-partner, the number one thing I would say is have a good attorney who specializes in the space and then get an operating agreement done. Before you do anything else, go through that fire drill of trying to work out an operating agreement of well, how are we each going to get paid? Are we going to be getting percentages based on equity? Are we going to get percentages based on our relative book of business revenue production? How are we going to calculate that? And just a lot of the other fire drill issues.
I’ve seen people go really far into the process and then realize they don’t have alignment with compensation and it blows the whole thing up. It makes it a big mess. And so I would say starting from that perspective when you’re a multi-owner it’s really helpful.
Brad – Now, I’ll add on an operating agreement with multiple partners involved is not a handshake, right? There are times that people think, we’re all friends. We’re all in agreement. We talked about it. Yeah, we’ll shake hands.
Catherine – We’ll figure it out as we go. It’s like no, you got to talk about it.
Brad– Yeah, that’s not how it works. Occasionally that might work out, but you do not want to find out on the back end that there’s disagreements and whatnot. So I 100% agree with that as well.
Let’s kind of lay out the full life cycle here. So obviously you’re helping with all this planning work, a lot of heavy lifting for like a new engagement, but then there’s always going to be things you’re working on throughout the year and whatnot. Are you doing the actual tax filings as well or do you help them prepare everything to give it to perhaps a CPA that they’ve been using or whatnot to do the actual filings? Are you doing it all?
Catherine – We do it all, yeah, because in my experience, what I’ve found is that it’s landing the plane, right? When you’re on a flight, the two hardest parts for the pilot are the takeoff is relatively easy, but the landing of the plane is, it’s delicate, right? So we do it all.
So once we do the planning, we do the returns on the backend. Usually the partners, well, if it’s a multi-owner, the partners have us do their personal returns as well because if they’re not a C corporation, everything’s passing through to them as owners.
But we have some where we’re only working on the majority partners and then the minority partners just get a K1 and maybe there’s not a lot of planning that they’re doing. So we have those kinds of setups as well. But usually people will engage us for all of it just because that’s what makes it work the best.
Brad – And then how does something like this get priced out? So this is ongoing throughout the year, not just a tax season event. Is this kind of like a monthly fee or a one-time fee per year? What does it look like?
Catherine – Yeah, so our normal structure is the assessment is the place that we start with everyone because we need to get a baseline of what’s going on, what’s needed, what the opportunities are. So we always start with an assessment. And then those assessments are flat fees.
It’s just determined by how complex you are. So if you’re a solo advisor, schedule C, you don’t even have an entity, it’s going to be a different setup than, we’re a multi-partner, multi-million, multi-entity ensemble. That’ll be a little different.
But we do basically flat pricing on those because it’s just an opportunity to get to know each other, make sure that there’s a good fit, provide some initial value quickly in the relationship. So we start with those. And then from the assessment engagement, if we are a good fit for each other for ongoing work, then we usually will do like an initial planning fee for whatever the catch up work is that’s related.
If we’ve got to just do projections, that’s going to be a lot simpler. If we have to do a whole entity restructuring and succession planning, that’s going to be a very different situation. But in general, we do flat fees for those special projects and implementations.
And then from there, once we’re kind of in the air at cruising altitude, we just usually will do a subscription model for the tax returns and for the routine planning, which that just gets settled as part of the assessment of figuring out how frequently do we need to be meeting, where’s the most value going to be for you as a client and where we’re going to be able to provide the most value in keeping the relationship, whether it’s we only meet once a year and file the returns, whether we meet two times, three times, depending on how much change is going on or special projects going on.
It’s just getting into that ongoing relationship so that we’re catching opportunities ahead of time and not being in that reactive position where it’s, you know, we should have done this. So you spent an extra 30 grand than you needed to on taxes, because we didn’t do that. We’re trying to get in a position where it’s an open line of communication so that we’re catching things in advance as the year goes.
Brad – I think that reactive came up again that for folks that have either never used kind of a traditional CPA form or are using one but the extent of what they’re helping you with is just those year-end tax returns, that’s essentially a transactional thing that’s kind of a one-time fee per year.
And what you’re paying at that fee is for them to do the transaction, for them to do the tax fine. It’s not necessary for them to help you in, you know, June when something arises or proactively be calling you in June to tell you, by the way, we need to be doing this throughout the year.
That’s where the planning comes through. Like I said, I’ve come to realize the value in that myself over the years that there’s a big difference in just that transactional tax filing and the actual planning throughout the year. But as you noted, everyone’s situation is, you know, arguably unique.
So for folks that this is kind of resonating, they say, wow, I probably could use some more help here. I really need some help here. If they reach out, we’ll end here in a moment with contact information, what will that first conversation kind of look like? What can they expect?
Catherine – I always start off with an intro call before we sign for anything because I want to make sure that we can help them and that we’re a good fit and just in terms of the way that our model is structured is aligned with what their needs are. We’ve engineered it based on our experiences with advisors that it should be. But sometimes I have advisors where they only want a tax return done and they don’t want planning.
Oftentimes when people are doing a transition, we’ll do their last simple tax return when they’re a W2 just to kind of get them in our system. And, you know, if there’s any issues, we’ve got the relationship going. So we’ll do those where it’s a simple return. But for the most part, you know, we do the planning plus the returns because for me as a tax planner in my career, it was always killing me when I would do a return and it’s like they wasted like 20 grand that we could have just done this thing with their payroll before in August, and then it would have fixed this and would have saved the money.
I had enough of those moments where I just came to the realization that as a tax professional, it’s kind of like being a doctor. It’s like when we meet people, I know that you’re going to need these things. I know how the rules work. I know how these programs work. So it makes more sense for who’s in the seat of controlling the function to really be the CPA.
What I’ve experienced in my industry is a lot of times the tax professionals will be very passive and expect like, well, if the client needs something, they’ll reach out to me. Or, you know, if they want me to do more things for them, they’ll ask me to do it. And it’s like, well, they don’t know what they don’t know. They don’t know what the opportunities are. And then, too, frankly, for a lot of individual-type tax returns where they’re not business owners, they’re not very complex. So there’s not really a lot of opportunity to do planning beyond retirement planning or things that a financial advisor would do for them in terms of their portfolio activity. And so I think it’s just this kind of weird disconnect in my industry that goes on with it. So that’s what ends up happening.
Brad – Yeah, well, I think for folks that have never been that business owner before that there are benefits of being a business owner, the economic advantages, things I talk about a lot of my episodes, but you’ve got to be able to know how to manage that and you might as well maximize your tax situation and all that. But, as we’ve been talking about, it’s an entirely different animal than just being that W2 advisor, usually much to your advantage that it’s a different animal. It is what it is. If you’ve never lived that life before, it’s going to be all new to you.
So for those folks that this is resonating, they say, well, I probably should have that intro call. I probably should start considering this type of service. What’s the best way that folks can get a hold of you?
Catherine – Yeah, the best way is feel welcome to connect with me on LinkedIn if you’re a LinkedIn user because we can just have an initial conversation right there without even having to schedule things. You know, though I would do an intro call, it can be helpful to just have a little chat beforehand. Or they’re welcome to reach out via email and then we can send them some information about what’s involved in the assessment process and what are some of the results that we get out of that.
I always tell people too that it’s a big mindset shift for a lot of advisors. I’ve experienced how maybe they’re paying a couple thousand a year for a tax preparer to do their work. And I always say like, well, what you actually pay them is how much tax waste that that person is not catching plus whatever their fee is. For instance, I had somebody this year where basically they’d been spending 30,000 more annually just for very simple adjustments that we needed to make. So it’s like, you’re actually paying your tax pro basically $35,000 a year because they should have caught this stuff.
So it’s one of those things where I think a lot of people will put it on the back burner, but it’s a real cost. It’s writing those checks and paying the payroll taxes and it’s a real cost. And so having the function be inefficient can be one of the more expensive things that you’ve got going on in the practice. Taxes don’t produce a return for you. Unlike your payroll where you’ll get a return on it or your software where you get a return on it, taxes don’t really produce a return for you other than immaterial benefits of being a citizen, which is its own argument. But as a business owner, it doesn’t really produce a return. And so you’re incentivized to try to minimize it as much as possible.
I’d say it’s one of those things where having the initial conversation and looking under the hood is usually worth it for most people, especially if you’re going be going independent. Just having the function work well when you’re small makes it work so much better when you’re larger. So having that conversation early really makes a difference.
Brad – Good deal. The website, if I’m correct, is dominiones.com, correct?
Catherine – So it’s Dominion.CPA because we’re a CPA firm.
Brad – Okay. My apologies. We’ll make sure we get the correct one in the show notes. So dominion.cpa. I’ll also put your email address you noted in the show notes as well. I appreciate, Catherine, you coming on and helping the audience understand why this type of service is very valuable and specifically how you and your firm can help folks with it.
Catherine – Yeah, thank you so much. I appreciate you having me on.
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