CPAs as Financial Planners
Today's competitive marketplace demands that CPAs offer clients more than traditional tax and audit services. One way in which CPAs have responded is by becoming broad-based financial advisers. When evaluating what new services to provide clients, many CPAs realize their knowledge of tax matters and their expertise in handling financial affairs uniquely equip them to perform personal financial planning services. Historically, CPAs and PFP have enjoyed a special relationship. For decades, CPAs informally served their clients as financial advisers. This relationship has changed, however, in recent years. Some CPAs now offer fee-based, specialized PFP services and still others are deciding whether to enter this market. CPAs can make a more informed decision if they know * The demographic profile of CPA-financial planners * The types of PFP services CPAs provide. * Ways to develop PFP competency. * Sources of clients. * Factors important to clients seeking PFP services. To develop this information, we conducted a survey of members of the American Institute of CPAs personal financial planning division. The questionnaire was developed by the AICPA planning and research department, the PFP division and a team of Baylor University professors. It was mailed to 1,000 randomly selected members; there were 281 usable responses. TYPES OF PFP SERVICES CPAs RENDER As shown in exhibit 1, page 101, CPAs identified three financial services they provided most frequently: income tax, investment and estate planning. Income tax's first-place finish was predictable. CPA-financial planners attending the 1993 PFP division conference reported that their clients' greatest concern was that taxes were taking a growing portion of their incomes. For CPAs seeking to expand their financial planning practices, the strong demand for income tax planning often provides a link to other PFP services. Serving the financial needs of a diverse clientele requires knowledge of several disciplines. To meet their professional responsibilities, CPA-financial planners must consult other advisers. For example, survey respondents said the adviser they consulted most frequently was an attorney (72%), insurance professional (11%), broker-dealer (9%), other CPA firm (3%), banker (1%) and all others (4%). Perhaps the need for legal documents when establishing trusts, transferring property and preparing wills influences CPAs' extensive use of attorneys. Reliance on insurance professionals and broker-dealers is to be expected. Few CPAs, for example, provide insurance products, and most do not offer their clients investment products and services. Minimal consultation with other CPA firms raises the question: Do CPAs fear losing clients to colleagues with more specialized knowledge? CPAS must decide on the level of PFP service they will provide. Services fall into three general categories: * Consulting--the least complex level--typically involves advising clients on issues such as retirement or tax planning. CPA--financial planners usually recommend a specific course of action to solve a particular problem. * Segmented planning is an intermediate level of service that consists of studying needs and making recommendations for broader areas, such as cash flow and estate planning. * Comprehensive planning--the most complex level--includes identifying and ranking financial goals and recommending strategies to achieve them. This requires CPAs to analyze all of a client's needs. Because of its complexity, comprehensive planning is sometimes offered only by experienced CPAs who limit their practices to PFP services. CPAs devoted 51% of their PFP efforts to providing consulting services. Meeting clients' segmented planning needs accounted for 30%. The remaining 19% involved preparation of comprehensive financial plans. As expected, not every CPA provided all three levels--90% did segmented planning and 72% prepared comprehensive plans. …