Financial planning and wealth management services to an accounting practice can help clients reach their long-term monetary goals. But there are logistical hurdles to overcome.
Financial Analysis
Financial analysis systematically examines a company’s financial data to make informed decisions and recommendations. It addresses the economic environment, business operations, and financing activities. Investors, owners, and creditors rely on it to assess a company’s profitability, risk, and growth potential.
As more CPA firms develop personal financial planning divisions, they must consider the best ways to bill clients for these new services. One common approach is to use a fee-for-service model. This involves giving clients a two-hour, complimentary meeting where advisers assess the work required and then determine an engagement fee.
Advisory firms must also work closely with accounting firms to address tax aspects of their clients’ investable portfolios. For example, advisors must know a client’s effective tax rate for required minimum distributions from their tax-deferred accounts each year. They should also be aware if any of the management fees paid by their clients are classified as taxable.
Tax Planning
When individuals or businesses want to minimize taxes, a CPA firm in Minneapolis can provide strategic advice and help them take advantage of IRS laws. Whether the issue is buying or selling a business, changing corporate structures, tax-deferred savings plans like 401(k)s or IRAs, or figuring out how to minimize estate taxes, numerous legal strategies are available to lower income tax liability.
In addition to tax planning, a CPA firm can advise clients about retirement, insurance, asset management, and risk mitigation. CPAs have the knowledge and experience to assist with these complex issues and often work closely with other professionals, such as attorneys and financial planners, to provide comprehensive client service.
One of the best ways to find a good CPA firm is to ask for referrals from trusted colleagues or friends and family members who have used the services of that particular firm. When reviewing the qualifications of a potential firm, look for experienced staff with a range of expertise and a solid track record of success in helping others achieve their goals. In addition, a well-established firm is likely to be stable and have the resources to support ongoing services over time. This is critical, as firms may merge or leave business over time.
Client Service
CPAs’ experience with tax preparation, their deep understanding of various investments and long-term financial vehicles, and their regulatory environment make them a natural fit for offering planning services. However, launching a successful advisory division requires significant strategic consideration, time, and resources to make the effort pay off.
Adding financial planning services to an accounting firm may require internal planning around people, processes, and technology. It is important to define how the team will collaborate with clients and their existing financial service professionals, such as their wealth managers or money managers, and how they will be compensated. Many CPAs are uncomfortable with commission-based compensation because they see it as self-serving and unsavory.
As a result, they prefer the asset-under-management model, whereby their fee is based on a percentage of the total assets managed by their investment advisory division. One of the most significant obstacles in offering financial planning is overcoming the skepticism of current clients, who may assume their trusted CPA firm isn’t competent enough to manage their money.
To overcome this, CPA firms must be proactive in sharing their expertise with their clients and keeping them informed about relevant new developments, such as a change in the owner or beneficiary designation on an old life insurance policy or a recent revision to the income tax law that may affect the client’s RMD distributions from their tax-deferred accounts. Another key aspect of this collaboration is establishing how the planning and investment management fees will be billed and collected, which can often be done with a single annual fixed fee.
Investment Advice
Offering financial services is a natural extension for CPA firms, given their analytical abilities and training, conservative bent, and client-centered service. However, a fair amount of strategic consideration and time must be committed before a profitable advisory division becomes a reality.
A key challenge is determining which clients are appropriate for personal planning and investment advice. Traditionally, firms manage assets for business clients’ retirement plans (401(k) and profit sharing) and provide personal asset management services to owners and executives as a sideline. However, this practice may need to be revised in light of recent developments regarding separating the attest function and other services.
Another challenge is deciding how to structure the billing process for these new services. Some firms use a fee-for-service model, while others charge a flat fee for each meeting or service. Firms offering these services must also decide how to communicate the fee structure to clients and determine a service level.
Finally, a firm must determine whether it is “in the business” of providing investment advice and satisfy registration requirements under the Securities Exchange Act. The determination involves several factors and requires careful review with legal counsel. For example, a CPA in Minneapolis is likely in the business of providing investment advice if they regularly provide investment advice to clients, promote such services in public advertising or by mail, advertise in a telephone book or directory, or use the title “investment adviser” on their business card, letterhead or office stationery.
