To attract new clients, financial advisors would do well to have tax expertise and preferably a CPA qualification.
That’s according to a new report which shows that 66% of affluent and emerging affluent consumers say they prioritize tax knowledge, while 47% of the survey’s respondents say they most associate the CPA designation with financial advice.
The report, “Investors, CPAs and Tax-Focused Financial Advice,” by 1st Global — a wealth management firm that works with CPAs — and PopResearch, polled 300 respondents with $150,000 or more in assets.
Even though 53% of the survey respondents currently work with a CPA or accountant, tax-aware advice is still a key concern for them, the survey showed. Tax-optimized investing (58%), estate tax planning (45%) and tax burden reduction (45%) are the top three specialties respondents seek when choosing a financial advisor.
They were asked about advisor credentials, too.
“The survey asked people to see if they could recognize professional certifications and licenses to see if they could associate them with the provision of financial advice,” says 1st Global president David Knoch.
“The one they recognized the most, 47% of the time, was CPAs.” Knoch says. “CFAs actually came in second at 40%. CFPs were third at 30%, and 27% of people said they didn’t recognize any of them. And then 7% recognized ChFC and CIMA, and only 4% recognized the PFS designation.”
Trust was considered more important to investors than skills or knowledge, with 90% of the survey respondents defining a trusted advisor as someone who had their best interest in mind. Only 10% named skills or knowledge as important.
“The idea of the DoL’s fiduciary rule for financial advisors we think has more investors asking the question, ‘How is my advisor serving me and what is their responsibility to me?’," says Knoch. "I think it’s bringing up questions that investors may not have thought to ask.”
Despite growing access to digital advice, 57% of respondents prefer in-person interactions.
“Well more than half of the survey’s respondents felt like it was either very or extremely important to meet face to face with the person giving them advice,” says Knoch.
The majority of respondents indicated they would discuss investments and long-term financial aspirations with their CPA or accountant, and 74% said they were somewhat or extremely comfortable doing that.
The survey also revealed some generational differences. Younger generations seek financial advice from professionals more than baby boomers. More than 60% of respondents in Generation X and Generation Y said they have a CPA and a financial advisor. In addition, younger respondents with a CPA were 6% more satisfied with their financial advisors.
“Gen X and millennial individuals are much more interested in becoming an educated participant in the process rather than merely delegating,” says Knoch.
CPAs could be losing out by not targeting younger clients with financial advice, according to the survey results, which found many people just doing it for themselves.
“It was also interesting in this survey, as we talk about younger clients, of the 31-to 35-age cohort, 64% of those who had a CPA also had a financial advisor,” says Knoch. “In fact, out of the entire thing, 38% used a CPA, and of those, 56% used a financial advisor.”
“For those who did not use a CPA, 72% of them did not have a financial advisor, so there was a have and have-not element here,” Knoch adds. “People who were involving expert professionals in their lives tended to have expert professionals that would help them work on both taxes and investments. They chose not to bring a CPA into their life. They appeared to be much more of a do-it-yourself-er when it came to getting financial services.”
Many investors are looking for tax-optimized investing strategies, especially in the wake of the new tax law (though the survey didn’t ask specifically about the new regulation). And there's more opportunity for CPAs to offer such services in the context of the tax overhaul.
"You have a number in this group that are not actually hiring CPAs or financial advisors to do that," says Knoch. “Frankly speaking, a CPA who is not in the wealth management profession today, this survey is saying clearly right now is the time to start. These people answering this survey, 62%, more than any other, agreed that CPAs have the ethical standards and skills needed to serve a family’s needs.”
With 58% of the survey respondents seeking tax-optimized investing strategies, Knoch believes American families are looking for these services from CPAs.
“For the firms that are already offering wealth management," he says, "we think now is the time to ask the question: ‘Are we playing at our best?’ The demand for these services from CPA firms may never have been higher since CPAs started offering financial services three or four decades ago.”