In contemplating the nuances of why financial planning makes sense for CPAs, I thought of the old story about the ship with the stubborn captain. While plying the waters off of Long Island, he noted what he thought was a ship on his radar. Upon being informed of this problem, the captain ordered his radio operator to send the following message: “You are in our path. We advise you to adjust your course 10′ west.” The reply came back, “You are in our path, we advise you to adjust your course 10′ east.” The captain, a bit annoyed, then declared: “I am a U.S. naval captain; I demand you adjust your course 10′ west.” The reply: “I am a first class seaman, I demand you adjust your course 10′ east.” The captain was so livid that he grabbed his phone and screamed, “This is a United States battleship, I strongly suggest you adjust your course 10′ west,” and the reply came in “This is a lighthouse—I strongly suggest you adjust 10′ east.”
I like to advise all professionals to keep alert and watch out for those lighthouses of the closed mind—and to think outside the box for financial planning opportunities. The purpose of this article is to provide a history and background of CPAs’ involvement in financial planning and insight on special PFP techniques.
6 Integral On Demand Sessions for Accountants and Financial Planners:
Self Study/On Demand
Using the Client Tax Return to Identify and Capitalize on Financial Planning Opportunities
Self Study/On Demand
What Every CPA – Financial Planner Needs to Know About Social Security
Self Study/On Demand
Smarter Social Security – The CPA as Financial Planner Conference
Self Study/On Demand
Sophisticated Planning Ideas for High-Net-Worth Taxpayers – The CPA as Financial Planner Conference
Self Study/On Demand
A Financial Planner’s Guide to Life Insurance Strategies – Professional Financial Planning
Self Study/On Demand
Student Loans – The CPA as Financial Planner Conference
My Start in PFP
In its short lifespan of three decades, personal financial planning (PFP) has made a big impact on the accounting profession. The AICPA in its Vision Project named financial planning as one of the five core services targeted for future CPAs.
My personal involvement in PFP began in the late 1970s, when a tax client who was employed by a Fortune 100 company asked me if my firm provided PFP services. I replied that our relatively small CPA firm did provide PFP. I explained that this is the hallmark of the well-rounded CPA who works predominantly in tax practice. One week later, the tax client asked me to prepare a proposal to provide PFP services to the top executives at his company. There would be competition from other accounting firms and other providers, and two would be chosen as the recommended providers.
During the following two weeks, my partner and I worked feverishly to establish what we believed was the type of program these executives would require and their corporate employer would pay for. After we survived the extensive elimination process, I was to make a presentation to a group of executives and their spouses alongside my competitor, a bank. The bank representatives brought along a number of brochures about estate planning and tax savings, along with a videotape (then a new method of presentation). My one-page handout bore a title that, even for the times, was unabashedly sexist: “What you should know about family finances, a checklist for wives.” I thought I had blown it.
My story had a happy ending, however: 22 of the potential clients in the room that day chose our firm, while only two chose the bank. I was later told that we won them over because “your competition came across as a bunch of strait-laced bankers, and you came over as a concerned CPA who cared about his clients, as most CPAs do.”
Thus, our firm entered the PFP arena, and I quickly learned that several other large- and medium-sized firms were also there. A few of us communicated with each other and we convinced the AICPA to form, as part of its tax division, a Personal Financial Planning Committee. Chaired by Stanley Breitbard, a Price Waterhouse partner, its first meeting was held in the mid-1980s. The committee members were tax people, small-firm practitioners who prepared individual financial statements, an academic who taught taxes, and members from the private banking industry.
We promoted and held our first PFP conference in 1987, a year in which successful conferences were held on both U.S. coasts, showing that CPAs were beginning to clamor for more information about PFP standards, marketing methods, and practical CPE.
In the following years, several active PFP committee members petitioned the AICPA to permit the Personal Financial Planning committee to break away from the tax division. After a lengthy debate, the AICPA Council established the Personal Financial Planning section, the first practice section outside of the tax division. State societies soon began establishing PFP committees and conferences, and the annual AICPA PFP conference, which accommodates upwards of 1,000 participants, became a big hit. It is no exaggeration that there is a great market for CPAs in the financial planning arena.
To me, the biggest surprise is that smaller firms have experienced the major advances in financial planning by CPAs.
In 2001, the International Standards Organization (ISO) established a technical committee (ISO/TC 222 Personal Financial Planning), which I chaired. That committee’s charter was to devise a global standard for personal financial planners, and it was to be the first global standard for a profession attempted by the 80-year-old ISO. The diverse committee members, coming from 15 countries, included university professors, an attorney, economists, and an insurance professional, as well as regulators. We discovered that PFP is not unique to the United States, and that financial problems are similar all over the world.
It took five years of comprehensive negotiations in meetings held throughout the globe to agree on a global benchmark for financial planners, resulting in the ISO approving a pioneering, goal-oriented international standard for PFP practitioners.
Where We Are Today
To me, the biggest surprise is that smaller firms have experienced the major advances in financial planning by CPAs. When I was chair of the AICPA, I was surprised at the number of small-firm practitioners who told me how their practices in PFP changed their overall firms.
First and foremost, PFP protects a CPA’s client base by building and enhancing strong ties with clients. Where appropriate, the CPA becomes the “family consigliore” involving up to three generations: the client, their parents, and their adult children.
In providing PFP, some focus on areas where their firm can provide such add-on services as distributions from retirement plans, estate planning, asset allocation, education funding, and money and cash flow, as well as the possibility of valuations. In many firms, PFP engagements also result in a valuation engagement.
The involvement in PFP also affords the opportunity for referrals to attorneys, investment advisors, and insurance professionals; in some cases, referrals can be made to banks and trust companies to serve as executives and trustees. I do, however, always try to utilize the client’s own advisors. If the client indicates that he does not work with a good estate attorney or insurance advisor, then I will give them the option of working with people whom I recommend.
Many CPAs are obsessed with getting “standard billing rates.” I have found that in almost all personal financial planning engagements, we get our standard billing rate—and in some cases, a bit more.
Last but not least, CPAs should be providing financial planning services to their clients because insurance companies, stockbrokers, and banks are offering these services, but lack CPAs’ familiarity with the client, the knowledge to provide the service, and independence.
Clients should be made aware of PFP opportunities. CPAs who are part of a larger, multidepartment firm should explain to group leaders what PFP advisors do and how they can assist clients.
I can’t emphasize enough how recommendations generate PFP clients for those who are already receiving other services from other partners.
PFP practitioners often meet resistance because they will be charging a fee to another partner’s client. One way to take charge of the pitch is to attend a partner’s meeting with a targeted group, tell them what the PFP opportunities are, and explain how PFP is going to benefit their clients. Offer to perform a PFP engagement for skeptical partners and their spouses. Take them through a session and show them how they can benefit from PFP.
Time and time again, I have taken the most skeptical of colleagues and demonstrated what I can do for their families by reviewing their own wills, division of assets, beneficiary designations, education plans, and demonstrating how older associates should take out their retirement assets. Combine that with charitable planning for those inclined, and the result should be a satisfied colleague who becomes a PFP salesman. I can’t emphasize enough how recommendations generate PFP clients for those who are already receiving other services from other partners.
For potential high-net-worth clients, I seek to specialize in corporate executives of large (non-audit client) companies. Establishing a relationship with an influential executive, or human resources personnel, at one of these large companies will help bring in referrals.
Additional sources of PFP clients include law firms and individual attorneys at a particular firm. Investment professionals also need PFP because, in many instances, they focus on generating strong portfolios for their clients, while often neglecting their own estate documents.
The following are a few of the various techniques used by many PFP practices, including my own. Keep in mind that what is successful for some may not work for others—as with the lighthouse, keep an open mind.
Meeting the client.
Many CPAs procrastinate about planning ahead for PFP client meetings—remember that the first impression is a lasting one.
The setting for the PFP meeting and its follow-up are as important to a client as the substantive issues covered. Clients should be made to feel relaxed and comfortable, and not as if they are being lectured. Provide clients with a questionnaire a week or two before the scheduled conference, and prepare a written agenda based on their information. It is vitally important to listen to what the client is trying to convey.
At the conclusion of the meeting, send a short, substantive summary report of what was covered and agreed upon during the meeting. The list should include who is responsible for following up on outstanding issues; and of course, CPAs should follow up on their responsibilities.
Goals and objectives.
Take as much time as necessary to get the details and background of the client’s goals and objectives. In many situations, the planner as advisor will be used as the “lightning rod” for the couple to convey things they would not otherwise directly say to the other.
Letter of instructions.
The letter of instructions is the most important document I leave with clients. This is a suggested letter for the client to prepare and provide to those who will be responsible for following up in the event of disability or death. The letter can either be an outline, or very detailed instructions, depending upon the circumstances.
This form letter from the client to the family covers many of the areas that family members or fiduciaries may not know well, such as—
- location of will and powers of attorney,
- family assets,
- emergency contacts,
- funeral arrangements,
- insurance coverage,
- company and government benefits, and
The letter, which has no legal force or effect, can also deal with distributing personal property. Planners should request a copy when it is completed.
Safe deposit box.
Many older clients keep safe deposit boxes at banks. Review with them the contents, review who has access to the safe deposit box, and make sure it does not contain their original will.
This is not a pleasant topic to discuss, but it can be of enormous value to clients, as it is possibly the first time they have given any thought to burial arrangements. It is better to make decisions without the pressure of an actual impending death. Clients often tell me that this was a topic they would always avoid, and are pleased to have engaged in it.
Avoiding identity fraud.
In order to avoid credit card or identity fraud, I urge clients to contact one or more of the credit card fraud agencies from which each person is entitled to an annual credit report (i.e., Experian, Transunion, and Equifax). Ask the client to send you the copies of these reports for your analysis.
Excess liability insurance.
An umbrella insurance policy is extremely important, and can provide relatively inexpensive coverage, especially to clients with children under 25 who drive automobiles.
Beneficiary designation forms.
As a financial planner, you should see copies of these forms for all IRAs, deferred compensation plans provided by employers, and life insurance policies to determine they are up to date and have been properly executed. In many cases, the custodians of the forms cannot locate them, and new ones have to be executed. Additionally, sometimes the wrong beneficiaries are listed on these forms, and instead a divorced spouse is still the primary beneficiary; recent births are not taken into account; or the forms themselves have been improperly executed.
Required minimum distributions (RMD).
The decision of when to receive funds from retirement plans can be one of the most important, sometimes irrevocable issues for clients. In-depth discussions should include when to begin taking funds, where the funds should be deposited, and how much tax to be withheld, as well as whether to receive a lump sum at the beginning of the year or take periodic payments during the year.
It is also important to point out to individuals who are still working past the age of 70½ that, in certain instances, they do not have to make a withdrawal from an employer-sponsored plan. (This refers to the exception for those who are working full time for an employer and do not own more than 5% of the company’s stock holdings.)
After completing a financial plan, I encourage the client to have me host a family luncheon at our office, in which we (with the client’s permission) review the financial and estate plan, how the next generation will be affected, and what their responsibilities might be.
After completing a financial plan, I encourage the client to have me host a family luncheon at our office, in which we (with the client’s permission) review the financial and estate plan, how the next generation will be affected, and what their responsibilities might be. The point of this meeting is to have the family “buy into” the direction that the parents have taken, and to clear the air now—when changes can be made—if the client deems those changes advisable.
These are just a few unique techniques that a financial planner can utilize in a comprehensive plan, but they do not cover asset allocation, education planning, cash flow, or estate planning, which are beyond the scope of this overview.
Attributes of a Successful Personal Financial Planner
Successful financial planners should possess strong interpersonal and communication skills, which are built from the following tenets:
- Believe in yourself; exude confidence.
- Be willing to try new things, and be willing to fail.
- Think about what you want, see the goal, and work towards it.
- Find a good mentor or coach.
- Listen and learn (a good listener is hard to find).
- Don’t be afraid to think outside the box.
- Stick with it, because there will always be good times and tough times.
A brilliant 103-year-old client passed an appropriate credo on to me. It is a quote from Alexander Pope: “Act well your part—there all the honor lies.” This is a good tenet for PFP professionals to hold themselves.