CPAs have made tremendous progress in the Personal Financial Planning (PFP) practice area over the past 25 years. As the profession celebrates the 25th anniversary of the AICPA PFP Division (2011) and the CPA exclusive Personal Financial Specialist (PFS) Credential (2012), this progress becomes more visible. There are many successful firms and individuals around the country and a high percentage of them were the pioneers in this area when CPAs first ventured into it in the 1980s.
However, there is still not as large of a percentage of the CPAs in public practice doing PFP as one might expect to see after 25 years. There seems to be a lot of uncertainty about finding the “right business model” to be successful in this area. There is probably no one “right way” but many different approaches that have proven successful for a wide variety of practitioners. The delivery of PFP services tends to be very individualized. While we all work from a common body of knowledge in this area, how we deliver the services can vary widely.
To a large extent, an appropriate business model depends on factors such as your skills and expertise as well as the demographics of your clients and their needs. Since many PFP practices grew out of tax work, the current clients of a CPA provide a great starting point for adding PFP services. As your practice grows in the PFP area, it is valuable to learn from the success and mistakes of your peers.
This article will examine several common business models, the services provided in each and some of the potential challenges to each approach.
- CPA Firm Branching Out Into PFP Services
PFP services get started in most CPA firms when someone who is interested in this area realizes that a client needs help on personal financial issues that go beyond the client’s tax returns. CPAs often gradually add these services on an hourly fee basis as client needs arise. It may be a segmented approach to planning, but ultimately results in addressing a variety of topics for your clients. Our role often is one of educating our clients about broader, personal financial issues. This might include retirement planning, estate planning, cash-flow management/budgeting, insurance planning and investments. Many firms draw the line here and will not go down the path of specific investment advice, but just work with their clients’ investment advisers, money managers and stockbrokers to help the clients implement their plans.
This model can be successful and result in much happier clients who feel like the firm is addressing a broader range of their concerns. However, it can also result in the need to go beyond this stage and continue to expand services into areas like comprehensive financial planning, investments and insurance. That will ultimately be driven by the CPA’s comfort level in these other areas and how much of a role the CPA wants to take in them.
- CPA Firm Focusing on PFP for the Middle Market Client
Once a firm has added PFP services as in the example above, there is often the desire to expand and formalize these services. This often includes getting more involved in the investment planning area and will structure compensation to include retainer fees. For firms that have a middle market client base, many CPAs have found that a mixture of fee-only planning and commissions can work well in meeting clients’ needs while still providing a reasonable level of compensation. Often, a typical firm might focus on retirees or certain demographics/types of clients (physicians for instance), again driven by their marketplace.
Typically, this type of a practice will still continue to provide tax services to its clients. As with any practice in the PFP area, you need to be aware of the regulatory issues that come with this type of practice. You need to consider when you “cross the line” and need to register as an investment adviser. If you decide to add compensation from commissions into the mix, you need to understand your standard of care as a CPA, which requires acting with objectivity, remaining free from conflicts of interest and placing the client’s interests first.
- Financial Planning Practice Working Collaboratively Within Other CPA firms
While many CPAs equate PFP services with managing investments, there are firms that have created successful practices without selling products, managing money or even giving specific investment advice. Providing good PFP advice is usually a team effort, involving a number of different disciplines working together toward common goals for the client. A business model might take this approach to planning, serving as the quarterback of the advisory team for clients, making sure all of the aspects of their personal finances are being addressed. This enables the CPA financial planner to focus solely on the client, making sure the other advisors are all on the same page. Even if your business model is not like this, having a good working relationship with your clients’ other advisers is critical to success in this area. Sometimes working with other advisers (who might consider themselves the quarterback of the team) can be challenging. It is critical to keep the clients’ interests in the forefront of these relationships.
- Multi-tiered CPA/Financial Planning/Wealth Management Practice
Firms that have a focus on higher net worth clients often evolve a bit differently from the earlier examples. A typical business model might have multiple tiers of services for different clients, based on their complexity and needs. While tax work and PFP analysis might be a core service, some clients might demand more of the types of services offered in “family offices” as their net worth and complexity grows. Investment monitoring (working with a client’s multiple money managers) becomes an important part of the service mix for this type of client. This might be in addition to managing money for smaller clients. The billing structure might include a mixture of hourly, AUM (asset under management) fees and retainer fees.
As practices grow and evolve, there is sometimes the concern that long time clients no longer really fit the “ideal client” of the firm. This presents a challenge in any practice; can you still effectively serve these clients while providing high quality services to the higher net worth clients that the firm has evolved towards?
- Wealth Management Firm Spun Out From a CPA firm
It is not unusual to see a CPA financial planner who is passionate about the PFP area run into situations where he or she lacks the support of the entire CPA firm. This has driven many such individuals to leave their CPA firm partners to create firms focusing on PFP and investment services. The typical model might have other employees who are not even CPAs, but CFAs, CFPs or other investment professionals. The firm will have a singular focus on providing PFP and investment advisory services.
Not all transitions like this go smoothly. In an ideal world, a separate wealth management firm would be a natural referral resource for the CPA firm from where it originated. The new firm is not typically doing the tax work that the CPA firm continues to do. The CPA firm’s clients need wealth management services. Unfortunately, personalities and egos can get in the way of what could be a win-win for both firms and their clients.
Your clients need help in the PFP area and as a CPA financial planner you are in a natural position to provide these services. If you spend some time focusing on your client’s needs and your skills and areas of interest, you can probably find a business model that will work for both your clients and your practice. This brief summary is not meant to give you an extensive analysis of the pros and cons of each approach or even the issues that each type of practice faces.
Hopefully, this overview has given you a sense of what some other leading CPA Financial Planners are doing as they create successful practices in this area.
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Lyle K. Benson, Jr., CPA, PFS, CFP, is president and founder of Baltimore, MD-based L.K. Benson & Company, a CPA/financial planning firm, specializing in personal financial planning, tax and investment advisory services for high income individuals and families as well as corporate executives and entrepreneurial, closely held business owners and is a member of the CCH Financial and Estate Planning Advisory Board.
* This article was previously published in Estate Planning Review – The Journal and is reprinted with the permission of CCH.