The last few years have likely bought much angst to your clients when it comes to their personal finances. And as a trusted adviser, your clients may want to turn to you for help to deal with the aftermath of the economic fluctuations and settle their jitters. Yet too often those big personal financial planning questions go unasked.
For the answer to that question-and tips on closing the gap to get appropriate financial planning advice to clients-Rob Healy, CPA / PFS, CFP, chair of the CalCPA Personal Financial Planning Committee, and I spoke with multiple CPAs and CPA / PFS financial planners and narrowed the important points into four key areas.
1. Understanding Financial Planning
Financial planning means different things to different people, and every planning situation is different. Clients often mistake financial planning for investment planning-and CPAs often do not have a clear picture of the financial planning process either. To best address clients' concerns, CPA Sue Tollis advises that CPAs should have sufficient knowledge of financial planning to sort out a client's needs and recommend an appropriate referral.
According to the AICPA's Statements on Responsibilities in a Personal Financial Planning Practice, "Personal financial planning is the process of identifying individual goals, family goals or a combination of the two; evaluating existing resources; and designing financial strategies that, when implemented, move the individual towards achieving these goals. In addition, personal financial planning may include implementing, monitoring and updating a financial plan.
• Budgeting and cash flow planning.
• Income tax planning.
• Risk management and insurance planning.
• Retirement planning.
• Investment planning.
• Wealth transfer planning.
"In addition, personal financial planning often addresses more specialized issues, such as financial recordkeeping, planning for education costs, philanthropy, divorce, planning for elder issues and other issues related to clients' finances."
Investment planning focuses primarily on bonds, securities and other types of investments traded on the markets and plans for a certain rate of return or rate of withdrawal.
Investment planning is also commonly mistaken for investment trading, which is the buying and selling of stocks and bonds by a stock broker. A stock broker is licensed to complete transactions, and may or may not be licensed to give planning advice.
What is clear is that the duty of CPAs and CPA / financial planners is to exercise a fiduciary responsibility by always placing the client's needs first to provide high quality, objective services that best match the client's needs.
Most CPAs perform some elements of financial planning in the form of tax planning, estate planning, debt management and planning, cash flow planning and more. CPA Scott Haislet says he often gets asked whether he does financial planning, and his response, "What do you mean?" helps to open a broader conversation.
For example, that question may prompt a client to talk about struggles with his house being under water and difficulty making the payments, which could lead to a discussion about debt reduction strategies to lessen the client's cash flow burden. Haislet emphasizes the importance of debt planning and has recently been providing mortgage counseling for upside-down borrowers over the last couple of years.
Matching client's needs to the right type of financial planning is critical. Comprehensive financial planning provides a framework for organizing the various elements of a client's financial picture and creating strategies based on the goals and objectives of the family.
However, not all clients require comprehensive financial plans. Clients with smaller retirement savings may need more help with cash flow management and creating savings plans, for which a company that offers money coaching would be a better match to teach people how to acquire the skills necessary to stay on task and achieve short-term money goals. Either way, integrating financial planning with your tax or estate planning allows for better strategies for the client.
2. Go Ahead, Make a Referral
When opening a discussion about a client's personal financial concerns, CPAs must face the challenge of addressing fears that arise when contemplating making a referral. Common fears include pushing a product to the client, possible damage to the client and retribution back to the CPA, liability for referring or not referring to an expert, loss of the client's tax or assurance services, not knowing enough to feel confident in broaching the subject, or not wanting to cut off referrals for tax or assurance services. These are all valid concerns, and yet the recommendations to overcome these concerns were universal.
To overcome the fears of whether your client will be "sold to" and how the client will be treated, it is important that CPAs make referrals to experts that have high ethics and standards, similar to what CPAs are held to, and who are service , rather than sales, oriented. A good place for CPAs to start building that referral network in their local CalCPA chapter's personal financial planning committee meetings. "You will meet like-mind CPAs, understand more about financial planning and learn the differences between a stockbroker and a CPA / PFS," says Lynn Gardner, CPA.
To remove the fear of losing your tax or assurance work, it was mutually determined by CPAs and CPA / PFSs to have clear boundaries and agreements ahead of time regarding providing or offering similar services to the client to avoid poaching. Neither party wants to be in a situation of "stepping on the toes" of the other.
As with any referral, CPAs must understand the importance of performing their due diligence. To overcome the fears of damage or retribution back to the CPA and other potential liability, it's important to understand the background of the person you are referring to. As we are protecting ourselves as CPAs, it's important to advise clients to protect themselves.
Irv Rothenberg, CPA / PFS, says it well when it comes to being safe: "Do your due diligence. Check the public resources for any actions against an adviser, and read their ADV Part II, the required disclosure brochure" (see "Due Diligence "sidebar).
A high level of confidence in who you refer your clients to and having multiple referral sources are critical pieces of your due diligence.
3. Having Confidence in Your Referral Source
There are two critical elements in having confidence in referring a client to a CPA / financial planner: understanding what the client may need and gaining trust in the referral.
To provide the best fit for a client to a CPA / financial planning referral, it's important to assess the client's level of investment knowledge, sophistication and personality. This will help determine whether a comprehensive-or hand-holding-approach is needed, and the planning specialization that is necessary for the engagement. Knowing how much a client has in investment assets is important, as some advisors have minimums and some clients may need money coaching instead of investment management services. This is also an opportunity for CPAs to help their client understand the importance of good planning and working with a trusted advisory team. The better the match of the CPA / PFS to the client, the better the client will be served and satisfied.
We also cleaned some good advice on how to gain trust in new referral sources. First, CPAs like working with other CPA's.
Leonard Wright, CPA / PFS, CFP adds that the industry exams are designed to cover the standards and knowledge base that CPAs already bring to the table. "Non-CPA / financial planners must learn what CPAs already do instinctively," he says.
There's a commonality in CPAs, being raised in the same family of ethics that brings the same perspective and level of care to the client. CPAs understand the role of CPAs, their contribution to the client's financial strength and the inner workings of a tax or audit practice.
Interviewing a potential referral to understand how the person or firm approaches financial planning, deliver service and as described by Gina Chironis, CPA / PFS-their investment philosophy before passing the name along to a client is key.
"Reprinted with permission from the California Society of CPAs. Unless otherwise stated, views expressed are those of the authors and individuals quoted, not CalCPA."