For financial planners and accountants alike, this tax season yielded many more client questions about their financial future than in years past. That’s largely due to the new tax law and its implications for 2018 returns. Clients want to make sure they are adjusting their financial plans accordingly.
At my firm, we spent countless hours analyzing the new law to understand how it would impact our clients. We worked to implement last-minute tax planning strategies so our clients could get ahead of the changes coming in the 2018 filing season. And as we were preparing 2017 tax returns, we ran tax projections, calculated estimates and came up with various strategies that will allow our clients to achieve their financial goals while also minimizing their tax bill in the future.
Now that the rush of tax season is over, accountants can turn your attention to some planning of their own. During these times of huge changes in the tax code, we can provide a lot of value for our clients.
In fact, it’s hard to see an area of financial planning that taxes don’t touch, be it retirement, college funding, health care, investing or estate planning. Yet some financial advisors aren’t looking at planning through this lens.
The tax overhaul promised to simplify taxes by doubling the standard deduction. It may have achieved that goal for some, but it’s doubtful your clients’ tax filing burden has eased. If anything, it’s created even greater complexity — and more opportunities for planners to help their clients through rigorous tax planning.
Against this backdrop, a financial planner with tax expertise — like a CPA — can become the go-to advisor. After all, how can an advisor make sound financial and investing recommendations without understanding the tax implications?
Clients already trust us: In surveys, CPAs consistently rank among the most trusted of financial professionals. One of the main reasons is that CPAs follow a strict code of conduct that requires us to act with integrity, objectivity and competence at all times. That’s important, because CPAs play a lot of different roles in our economy. From providing audit and attest services, to working in businesses as management accountants, to providing advisory services like forensic accounting and valuation.
For CPAs who offer financial planning services, the AICPA's Statement on Standards in Personal Financial Planning Services provides authoritative guidance on engagements and establishes enforceable standards for any member who offers these services.
In addition to those standards, state boards of accountancy include financial planning in the definition of public accountancy — which means CPAs are regulated financial planners.
When you combine that trust with tax expertise, it’s no surprise that many CPAs who have entered the financial planning profession report that they were compelled to do so by their clients.
My own experience bears this out. When I went to work at a midsized tax firm in the mid-1980s, clients were routinely asking my advice beyond what we were doing for them in the tax return. For example, the corporate executives I was working with had accumulated stock options through their employers that they wanted to exercise as tax-efficiently as possible.
After we had taken care to minimize their tax liability, they then wanted advice on managing their wealth. That’s when I realized the value that a trusted CPA brings to the equation. The accounting firm I worked for went on to build out a personal financial planning division, which I oversaw.
Get more education: Even though I had a solid grasp on financial concepts, I knew I needed additional training to give my clients the best service. The competence requirement of the AICPA Code of Professional Conduct precludes CPAs from an engagement in which they lack competency, and I, like all the CPAs I know, take it seriously.
Demonstrating tax and financial expertise is required to earn a CPA license. As a result, most CPAs know more about financial planning than they realize.
Building upon their foundational knowledge, there are many opportunities available to hone their competence. AICPA offerings like the PFP Section, Advanced PFP Conference, PFP Certificate Program and the CPA-exclusive Personal Financial Specialist credential are good ways to formally develop the skills that will help you provide holistic financial planning services to your clients.
A business model that aligns with your values: One of the biggest misconceptions about financial planning is that it’s about selling investment products. That couldn’t be further from the truth. Financial planners help their clients with tax planning, retirement planning, estate planning, college funding and cash flow management by providing them advice, not offering them products.
CPA financial planners are generally paid directly by their clients for the advice they provide in the form of retainers, fixed fees, hourly fees, assets under management fees or a combination thereof. Clients are eager to work with them because they provide objective advice and are transparent in the compensation they receive.
Eye on the future: As you think about where you want to take your practice, understand the role of automation. It’s driving down fees in both taxes and financial planning, and creating commoditization in some of our core services. Focus instead on where you can add value beyond what an app or software can do.
Nine years ago, my son Chris joined our firm and he’s now a partner. Chris’ forward thinking has led the firm to embrace technologies that allow us to serve our clients more efficiently. This means we’re spending less time on mundane but important tasks like tax-loss harvesting or rebalancing portfolios, and more time helping our clients improve their financial lives.
The greater efficiency also allows us to broaden our reach to younger clients. They may not yet have the financial complexity to warrant full-service financial planning at the moment, but many of them will in the future. By engaging them now, we are building a next-gen practice that is built to last.
I’m not the only one who believes CPAs have the opportunity to add value to their clients by formalizing these services. There’s been substantial growth in the number of CPAs offering these services. In the past ten years, the number of AICPA members who spend more than half of their time providing personal financial planning has more than doubled.
Part of the reason for this is demographic change. Since 2014, roughly 10,000 baby boomers have been retiring every single day. Retirement brings with it a host of financial planning challenges, from decisions about Social Security and health care, to drawing down assets. CPAs can and should play a role helping their clients make these decisions.
I’m proud of the work I and my fellow CPA financial planners have done throughout the years. And I encourage other CPAs to look to my career roadmap as a potential path for them to follow.