This may seem obvious—it’s called personal financial planning for a reason—but CPAs who are more accustomed to working with corporate boards or CFOs may be surprised at how emotional their clients become when the conversation shifts to broader financial planning. CPAs are known for their intellectual rigor, attention to detail, wealth of knowledge, and commitment to finding the best solution to any problem. With that background, it’s easy to become exasperated when sound research and a clearly articulated, data-driven strategy don’t inspire action from clients. Personal financial planning requires the use of a uniquely personal narrative that clients can connect to. According to Richard Thaler, winner of a Nobel Prize in Economics for his work in behavioral finance, “A choice architect has the responsibility for organizing the context in which people make decisions.”
Clients expect a wider range of emotional responses.
Whether it is walking individuals through their tax returns, CEOs through audit findings, or entrepreneurs through the tax implications of their corporate structures, clients expect CPAs to demonstrate emotional control. It takes years to master the art of remaining calm when delivering bad news or explaining complex topics, and being able to regulate emotion is a skill set that translates directly to personal financial planning. What many CPAs miss is that personal financial planning clients expect to see a different set of emotional responses depending on the circumstances. In March 2020, as the COVID-19 pandemic was making its way around the world and markets were cratering, just being calm wasn’t enough. Clients needed to see that while their advisors were just as concerned about what was happening as they were, they still made rational decisions. Personal financial planning clients want to know that you are taking part in their emotional experiences. CPAs are often good at adjusting their emotional responses, but they need to expand which emotions they reveal beyond pure calm and reason to be maximally effective.
Everyone is an expert.
Oscar Wilde’s definition of an expert—“an ordinary man away from home giving advice”—is particularly relevant in today’s financial culture. CPAs who venture into personal financial planning will need to be prepared to explain why the conversation your client overheard at the country club is not sound financial advice. Whether it be the rise of low-cost providers like Vanguard, increased attention in the financial media, or the Dunning-Kruger Effect, there is a much lower barrier to entry on perceived expertise in personal financial planning than in other finance disciplines. CPAs have spent years accumulating highly specific knowledge in areas ranging from tax to audit to corporate structures, and are used to receiving a commensurate amount of respect for that effort and expertise. It can be frustrating when that same level of respect isn’t extended to this new arena. Patience is essential when dealing with a constant onslaught of client questions that are rarely rooted in fact. More importantly, CPAs will want to invest in educating their clients. Failing to do so in hopes that they will trust your expertise will eventually lead them to look elsewhere for advice.
The “best” suggestion may not always be the right one.
This is the biggest challenge for CPAs looking to enter the personal financial planning space. CPAs train to find the option that maximizes their clients’ financial position. Solutions tend to be mathematically derived, and clients are apt to select those solutions impartially; when it comes to personal financial planning, however, CPAs must adjust their thinking away from just amassing as much money as possible. Treating money as a tool, rather than the end goal itself, requires reconsidering traditional methodologies that look only to maximize returns. It may be surprising to learn that a 2016 study by Ruberton, Gladstone, and Lyubomirsky (https://bit.ly/3OzcoVO) shows that liquid wealth (i.e., cash on hand) is one of the strongest indicators of life satisfaction. Although conventional advice states that cash is a drag on portfolio returns, it is important to consider the emotional security clients receive from having cash on hand. While excess cash may not be the “best” route from a returns perspective, it may still be the right plan for your client. Emotions are particularly delicate for individuals still finding their footing following the impact of COVID-19, especially for those who experienced financial turmoil related to the pandemic.
Although there is often a substantial overlap in the technical skills required, success in personal financial planning will require a different approach from the day-to-day work in which CPAs are typically engaged. Before deciding to venture into this new area, CPAs will want to be aware of these differences and plan their business and hiring strategies accordingly.