Getting Started with Financial Planning

Separate or Value-added Service

The CPA firm business model comprises many types of services, commonly referred to as “niches.” Some niches are service oriented, such as tax compliance and planning, accounting and review, audit services, and consulting and advisory services. Other niches extend to industries such as real estate; construction contractors; legal, medical, and other professional services; and manufacturing.

Furthermore, the pricing model is primarily based on time spent or a fixed fee, with some hybrid uses. Regardless of the pricing method, the authors believe the accounting mindset is geared to performing the contracted services as efficiently and effectively as possible to meet deadlines. As a result, many accountants do not look at their clients holistically, especially when it comes to the unstated needs of business owners and managers. CPAs can provide a valuable service in this area; in many cases, financial planning services offer untapped opportunities to create a stronger bond with the client.

The billing model and silo specialties need to change. For smaller clients, fixed fees agreed to in advance are a more viable model. In addition, accountants’ roles need to expand to include offering informed ways of accomplishing clients’ goals. Many clients would not pay separately for financial planning services, even if the value is recognized and agreed to; thus, the pricing model needs to include a bundled package of all the services the client needs.

Clients need to be considered as long-term cash flow and asset growth generators. At the same time, however, the question of profit needs to be set aside and replaced with a relationship-strengthening attitude that has client satisfaction as its primary goal.

Opportunities

CPAs who provide great value to clients become more than accountants—they become trusted advisors. The following examples from the authors’ personal experience illustrate the opportunities for expanding into financial planning services that exist within ordinary interactions with tax clients. Looking for and seizing these opportunities is often the difference that builds the client-CPA bond and grows a practice.

• A 30-year-old tax client mentioned having had a baby during the year as part of the preparation process. A short discussion followed on why a will was needed, why low-cost, fixed-premium, 30-year term life insurance policies should be purchased, and the consequences if this was not done. The conversation lasted less than five minutes and was not a billable moment, but it was obviously a valuable service to the client. This kind of estate planning—not estate tax planning which most clients do not need—is necessary for most, if not all, individuals. The authors also recommend a follow-up call after tax season to remind the client of this need.
• Another client asked if high credit card interest is deductible. This is an opportunity to discuss methods of paying down debt while reducing nonessential spending. This is another short conversation that can help many clients. In these cases, the follow-up call should include an invitation for them to come into the office for a cash flow and budgeting consultation, with mention of the fixed fee that will be charged for that meeting.
• A third client expressed a desire to retire at a certain date and concern about being able to afford to do so. The authors usually respond with a quick listing of the client’s investible assets, some projections of growth and probable cash flow at the desired time, and with the amount the client expects to spend each year. This short conversation can provide a clear indication of how possible achieving the goal is; a follow-up call after tax season can invite the client in for a more thorough consultation.

Regardless of the brevity of the discussions and the apparent resolution of the issues, the authors had many instances where separate or special engagements resulted in more involved or ambitious needs, and they were well compensated for the great value they created.

Body of Knowledge

There is a wide array of personal financial planning services, and getting started can be rather daunting. The knowledge required, however, can be separated into four manageable categories:

• Knowledge acquired during tax return preparation
• Knowledge gained by talking to clients and determining what they really want and need
• Knowledge obtained through experience working with clients—experience is a catalyst for growth since many client concerns are replicated and these exchanges create a knowledge base of reactions and responses that can allay fears or lead to solutions
• Knowledge learned through professional study, conferences, and talking with colleagues.

Most accountants interested in growing their range of services employ all four kinds simultaneously. Below are suggestions for obtaining this knowledge and putting it to good use:

• At every discussion or meeting, ask clients what business or financial concerns they have.
• Take notes during the response, and afterward, try to help define the main issue or concern.
• Try to put together a financial model for the client. It needn’t be exact; broad brushstrokes are fine, and even preferred. For this first discussion, trying to be too precise will obscure the big picture.
• Try to identify documents that will need to be reviewed, and ask the client for copies. Examples include trust agreements, stock option agreements, exit payment agreements, and buy-sell agreements.
• Once a document is received, it must be read and understood. Most agreements, regardless of the boilerplates and legalese, are easy to understand if the effort is made. In the authors’ opinion, when an agreement is not fully understood, there is something wrong with it. Furthermore, obtaining a document and placing it unread in a file is doing a disservice to the client and might expose the accountant to liability.
• Many financial planning documents are involved in the tax preparation process; use these as opportunities to learn about the transactions therein. Some examples include trust agreements and wills that created trusts, divorce agreements, compensation, stock option and restricted stock agreements, severance agreements, lawsuit awards, and even real estate contracts and closing statements.
• For accountants who do not specialize in tax services, there are still many opportunities to obtain financial planning documents. These include business buy-sell agreements; employee benefit plans; sale, merger, or acquisition letters of intent and contracts; succession planning agreements; and corporate or LLC minutes.
• As a learning exercise, ask clients for permission to review their investment policy statements, brokerage and 401(k) plan statements, or asset allocation calculations to see if they are in accord with their goals. This can be offered for no charge; if a problem is found, then the client can decide whether a separate consultation is necessary.
• Free advice is the best way to learn, since it is direct work with the client and can provide insight into goals, thoughts, and issues deemed important.
• Another possible way to get started is to offer investment management services and affiliate with one of the many larger organizations that do this for accounting firms. Their training programs can provide valuable information, as well as the opportunity to become licensed. This also applies to offering insurance or mortgage products.
• Keep learning and stay up-to-date. This includes taking CPE courses; becoming involved with professional societies and committees; reading newsletters, magazines and journals (either in print or online), blogs, and books; attending lectures; reading a good daily paper’s business section; and maintaining an overall awareness of the economy, stock market, interest rates, inflation, tax changes, political trends, and anything else that might affect a client’s wealth and financial security.
• Be aware of the robotics, artificial intelligence, and cloud-based support services available and how they can be effectively used to provide necessary updates to clients.

Monthly Learning Schedule

Below is a 12-month schedule that assigns one new task to accomplish or new thing to learn about for each month. This is intended as a way to get started, and not a way to become an expert in 12 months. For the learning topics, have someone prepare a short presentation, such as a “Lunch-and-Learn,” for the topic. This schedule begins with January; however, readers can begin during any month. Do not pause the process for tax season; this time can be even more of an opportunity because of the compression of work and client interactions.

• January: Prepare a schedule of upcoming meetings with tax clients and cover any sort of financial planning concerns expressed during last year’s tax season. Make it an objective this year to address the issues of at least five clients.
• February: Interact with a client on at least one financial planning issue brought up during a tax-related interaction.
• March: Repeat the interaction and add new interactions with two more clients (i.e., three total).
• April: Again, interact with two more clients; this makes 10 interactions with tax clients regarding their financial planning concerns. This can be 5% to 10% of a CPA’s tax clients; in other words, a manageable undertaking that provides valuable opportunities to learn on the job.
• May: Learning topic—Asset allocation.
• June: Learning topic—Index funds and actively managed mutual funds.
• July: Learning topic—Family budgeting.
• August: Learning topic—Preparing an investment policy statement.
• September: Practice projecting a model portfolio 10 years forward.
• October: Meet with two investment managers and find out how to become affiliated with them.
• November: Learning topic—Problems families will have when someone dies without a will.
• December: Learning topic—Benefits or detriments of taking Social Security as early as possible or as late as possible, and every year in between.

Year Two Learning Topics

The following list of topics is not presented in any special order and not exhaustive. It is intended to illustrate the range of possible financial planning services that can be added to an accounting practice:

• IRA, 401(k), and pension distribution planning
• Benefits of traditional IRAs, Roth IRAs, or 401(k)s
• How funds in a retirement account should be invested
• Fixed income investing
• Business buy-sell agreements
• Employer stock options
• Homeowner and personal insurance
• Life and disability income insurance
• Long-term care insurance
• Children’s educational funding
• Family liquidity when the primary breadwinner dies prematurely
• Charity gift planning
• Elder care planning
• Evaluating investment performance
• Business succession exit planning strategies.

Resources and Credentials

There are various credentials and licenses that can be obtained, depending upon whether commissions will be received from product sales or from assets under management, or whether investments will be directly managed. Two primary credentials are the Personal Financial Specialist (PFS) and Certified Financial Planner (CFP), although there are many others. The September 2016 installment of this column describes several such designations (“Advisors Involved in Financial Planning,” http://bit.ly/2VZKK8d).

Each of the designating organizations has excellent and very thorough educational resources and practice aids. For instance, the AICPA has a Personal Financial Planning Section that can be a first step in entering personal financial planning as a specialty; information can be obtained at http://www.aicpa.org. It is strongly recommended that accreditation be sought early on, as studying for the exams is an excellent way to learn the basic skills needed. Furthermore, most of the credential-issuing bodies and state societies have annual personal financial planning conferences that are a “must attend’ for those active, or desiring to become active, in personal financial planning. The authors regularly attend their annual state society conferences and the AICPA Engage Conference, which are highly recommended to fellow professionals. Furthermore, both have the PFS designation. There are also many books and subscription services that cover the totality of personal financial planning services, as well as each specialty.

The Costs Are Worth the Effort

Learning a new specialty and acquiring the necessary credential will take some time and expense. Considering the benefits of the knowledge and wide range of services that can be provided to clients, the overall cost is quite modest. The biggest commitment will be the time spent studying, as well as the free services performed on behalf of clients that will become part of the learning routine. The added services to those clients likely will result in a stronger relationship, offering the opportunity to recoup the costs many times over during the length of the association.

Financial planning encompasses the entire range of wealth management and financial security specialties and can be expanded to cover all such concerns clients have. It takes effort, concentration, and deliberation to get started, but the results conferred to clients make it very worthwhile.