Focus Article- Eileen Monesson

Digital Asset Services: A Strategic Growth Opportunity

Digital assets represent a significant opportunity for accounting and advisory firms to create service lines that address their clients’ needs, from investing to financial planning to integrating digital assets into their business operations.

The success of their efforts will depend on the market research they undertake in advance to define the market, discover its needs and design the right type of services.

In its 2021 Global Blockchain Survey, Deloitte found that leaders at financial services institutions regard digital assets and blockchain technologies as a strategic priority. Moreover, 76% of respondents said digital assets will be a strong alternative to or replacements for government-backed currencies in the next five to 10 years.

The IRS defines digital assets as “any digital representation of value recorded on a cryptographically secured distributed ledger or any similar technology.” Digital assets such as convertible virtual currency (cryptocurrency), stablecoins and non-fungible tokens (NFTs) are increasingly becoming part of the standard investing and financial planning landscape.

“Blockchains and digital currencies will significantly dominate the future,” said Gale Crosley, CPA, strategic revenue growth consultant and founder of Crosley+Company. “Just as the film photography and telecom industries had to pivot to meet consumer demands, accountants must do the same. Digital assets are the future, and firms should prepare now to offer services to their clients.”

Establishing a Digital Assets Practice

While digital assets are in the infancy stage of their product lifecycle, some forward-thinking firms have already launched practices in this area and gained a competitive advantage by being first to market.

Cohen & Company is one of those firms. Corey McLaughlin, CPA, is a partner and market leader of its Digital Assets Industry Group. He advises accounting firms to evaluate if a digital practice is right for their firms.

“We had an opportunity in 2016 to provide digital asset accounting services,” McLaughlin said. “Fortunately, we had professionals in-house with extensive knowledge in this area, especially our IT department. Cohen & Company invested time talking to our clients to determine their needs and level of interest. We wanted to ensure that our clients wanted and would benefit from the digital asset services infrastructure we built. As a result, we pooled our resources to form our Digital Assets Industry Group.”

The firm’s investment in getting it right paid off.

“We are well beyond expectations and have surpassed our goals,” McLaughlin said.

Internal Collaboration Required

Typically, when firms decide to start a new practice area, they focus on the needs of a specific client, jump on an opportunity, copy what other firms are doing or follow their gut. Crosley recommends that firms do market research instead to determine their clients’ needs and learn about opportunities.

“The first thing firms should do is take $100 and start investing in crypto for learning and training purposes,” said Crosley.

Internal collaboration between marketers, business developers and accountants is necessary to effectively assess whether offering digital asset services is right for the firm and its clients. Several other strategies are essential to setting the stage for successfully launching a digital asset practice. These include:

Research and stay informed: Stay current with the latest developments in the digital asset space. Understand the regulatory environment and any potential implications for accounting and tax purposes. “The AICPA has a digital asset working group which we became involved with,” McLaughlin said. “We also joined the Digital Chamber of Commerce and other groups to keep current on trends, have access to resources and a seat at the table developing standards for this growing asset class.”

Segment clients: Divide your client base into segments based on factors such as industry, size, complexity and their involvement or interest in digital assets. This helps prioritize clients who are more likely to require digital asset services.

Conduct client interviews: Engage in proactive discussions with clients to understand their current financial activities and any potential involvement in digital assets. Determine the scale and complexity of their digital asset activities, including trading, investing, mining or accepting digital assets as payment. Ask targeted questions to gauge their level of understanding, goals and concerns or challenges related to digital asset accounting.

Evaluate reporting and compliance needs: Review your clients' financial reporting requirements and assess whether digital assets must be integrated into their financial statements. Consider the potential impact of digital assets on tax reporting, regulatory compliance and applicable accounting standards.

Consider industry relevance: Evaluate the industries you serve and their acceptance of digital assets. For example, some sectors like finance, technology and e-commerce may have a higher propensity for digital assets and need accounting services, while others may not.

Identify risks and opportunities: Analyze the risks associated with digital assets, including security, regulatory compliance and valuation. Assess whether your clients have the necessary internal controls and processes to mitigate these and other risks. Also, identify opportunities for optimizing their digital asset activities or leveraging tax benefits.

Determine internal expertise: Evaluate your firm's existing knowledge, skills, resources and technology infrastructure in digital asset accounting. If needed, consider upskilling or hiring professionals with specialized expertise.

Communicate the benefits: Prepare a comprehensive guide outlining the benefits of digital asset services for your clients. Highlight how these services can address their pain points, streamline their accounting processes, enhance compliance and provide valuable insights to support financial decision-making.

Provide education and training: Offer educational resources, workshops or webinars to help your clients understand the basics of digital asset accounting and its potential benefits to their business. This can increase their awareness and receptiveness to digital asset services.

Advantages of Digital Asset Services

“By offering digital asset services, firms can enrich client relationships, unlock new revenue streams and solidify their reputation as forward-thinking professionals,” said Allan Koltin, CPA, CGMA, and CEO of Koltin Consulting Group. “Firms can no longer ignore major professional shifts if they want to remain relevant.”

Marketers will be pivotal in helping firm leadership understand and articulate how digital asset services will benefit their firms and their clients. Key advantages for firms include the ability to differentiate themselves as industry leaders in digital asset services, the potential to utilize their expertise to create value-added insights for their clients that fuel growth and the ability to mitigate risks and integrate digital assets into clients’ portfolios as part of an overall holistic financial planning strategy.

Digital assets are not a passing trend. Firms that embrace digital asset services will position themselves for long-term business growth and sustainability. Furthermore, they will establish a reputation for innovation, attracting forward-thinking clients and forging strategic partnerships that drive their growth trajectory.

“As the world becomes more complex, business leaders need advisors to help them navigate multifaceted decisions that reach beyond the traditional compliance services,” said Angie Grissom, owner and chief relationship officer with The Rainmaker Companies.

By helping their firms embrace this transformative shift, marketers position themselves as agents of change, empowering their firms to capitalize on the potential of the digital economy.

Eileen Monesson, CPC, MBA, CEO of PRCounts. Contact Eileen at emonesson@prcounts.com