A Case for Adding Personal Financial Planning Services to a CPA Practice

Editor: Michael David Schulman, CPA/PFS

The facts are compelling: Demand for CPA personal financial planners (PFPs) is increasing, and CPA personal financial planning practices grew at an average rate of 34.9% in the past two years, according to the 2007 AICPA/Moss Adams CPA Financial Planning Practice Study. Survey respondents also predicted a 20.6% increase in their assets under management in 2008. Furthermore, average revenue for CPA financial planners was more than $420,000 in fiscal year 2006, according to the study. Yet many CPAs who attempt to move into the personal financial planning practice area fail, according to John Napolitano, chairman and CEO of U.S. Wealth Management, LLC, in Braintree, Massachusetts.

This column explores why CPAs make excellent PFPs, why CPAs move into financial planning, how successful CPA/PFPs have made the move, and some of the challenges they face. Most important, it identifies reasons why CPAs do not always succeed in adding personal financial planning to their practices and offers ideas from some of the field’s best practitioners on how CPAs can build a satisfying and profitable personal financial planning practice.

A CPA Is an Ideal PFP

Unlike non-CPA financial planners, CPAs have the knowledge and experience to understand their clients’ entire financial picture and therefore to plan comprehensively. Susan Bruno, founder of Beacon Wealth Consulting, LLC, in Rowayton, Connecticut, works with smart, affluent clients. Yet she finds that people rarely connect the dots among their various financial plans—retirement, estate, tax, insurance, and so forth. As a CPA, she is ideally suited to do this and also knows how to find others who can provide needed services.

The touchstone for CPA financial planners is client confidence. CPAs and their clients have relationships based on trust, says Nate Wenner, who works in the Minneapolis, Minnesota, office of Wipfli Hewins Investment Advisors. As opposed to other service providers whose only goal is to sell a product, Wenner believes that “CPAs care about their clients and take their role seriously as professionals.” Clients love their CPAs, Napolitano says, and want them to provide additional financial planning services. Michael Eisenberg, who practices individual tax and personal financial planning in Los Angeles, says he enjoys talking to his clients about fiduciary responsibility: “It sets CPAs apart, and clients really do grasp the concept.”

Mark Miller runs his practice, Miller Equity Capital Advisors, in Dallas. He employs his understanding of balance sheets, cashflow, and how they work together to analyze his clients’ assets, debt, and how much risk they can afford. He gained his experience working with large conglomerates and in oil and gas, where he learned the importance of examining all assets in order to understand the whole picture.

Marc Minker is managing director of private client and family office services at Mahoney Cohen & Co. in New York. He explains that most of his clients own closely held businesses and, in conjunction with financial planning services, need the tax expertise that only a CPA can provide. His firm serves as these families’ CFO. And Ted Sarenski of DB&B Financial Services, LLC, in Syracuse, New York, finds that CPAs can offer active management of individual equities because they have the background to review company financials.

Personal Financial Planning Attracts CPAs for Diverse Reasons

Successful CPA financial planners have in common a passion for their work, but the reasons they got into the field vary.

Clients ask: Wenner says many clients continually ask their CPAs to provide help with personal financial planning services. Most clients like a one-stop shop, Sarenski says, and year-end work is easier because all the knowledge is in house.

Clients change: A valuable client with a thriving business may ultimately sell that business, and the new owner may take his or her tax business elsewhere, Eisenberg notes. “You lose a boatload of revenue if you do not add financial services to your business,” he says.

Clients need financial planning services: Karen Goodfriend, a principal of KK Wealth Advisors, LLC, in Los Altos, California, practiced in tax and financial planning in Silicon Valley in the mid-1990s. She transitioned to full-time financial planning as her clients started liquidating their stock option wealth and their need for investment management services expanded.

Sarenski got started in financial planning because he enjoyed it. When he realized that his clients and their advisers were not properly implementing his financial plans, he decided to broaden his services.

Better work-life balance: After several years of tax and financial planning work at large firms, Bruno decided she wanted to spend more time with her family. She started her own shop, which gave her more flexibility and control. Although more than half of Bruno’s revenue at her solo practice came from tax preparation, she decided the tax work made too many demands on her time. She gave another practitioner her tax business and successfully transitioned to an exclusively personal financial planning practice, which gives her more time to spend with her family.

Personality: People who knew Jeff Mueller did not think accounting was the right profession for him. It turns out that they were right. As a “way extroverted person,” Mueller quickly gravitated toward tax and retirement planning and ultimately became interested in financial planning. He now has a financial planning practice, Mueller Financial Solutions Co., in Cañon City, Colorado.

CPA Financial Planners Do Not Have to Know It All

CPA planners leverage the skills of a wide range of professionals to provide clients with the services they need. The key to success is that the CPA remains at the center of the client relationship. Clients trust their CPAs to refer them to knowledgeable, dependable professionals. Lyle Benson, the sole shareholder of his Baltimore- based financial planning firm, L. K. Benson & Company, helps his high net worth clients develop an overall investment strategy and then works with outside money managers and brokers to implement it. He monitors the investments quarterly.

CPA financial planners also hire experts to help them run their practices, particularly in the area of compliance. Goodfriend outsources her regulatory requirements to her firm’s attorney, who prepares the filings. Hans Grotelueschen of Champaign, Illinois, owns a 13-person tax and business consulting practice, YG Financial Group, PC. He has just begun managing money. Although an expert in business startups, he hired a consultant to walk him through setting up as a registered investment adviser.

A CPA Financial Planner’s Client Base Starts at Home

CPAs who add personal financial planning to their practice—or who move entirely to a personal financial planning practice—often draw planning clients from their tax practice, as was the case with Eisenberg. Before he made the move into financial planning, he surveyed his clients during tax season, asking whether they had wills or trusts, how their retirement saving was progressing, and whether they would be comfortable talking about financial planning with him. He found that his clients wanted his services. Eisenberg plans for clients’ needs and then refers them to experts in insurance or estate documents.

Goodfriend has gained clients from existing clients’ referrals and from professionals such as other CPAs, attorneys, and real estate specialists. She also writes and speaks to the media. Grotelueschen plans to hand pick existing clients and draft financial plans for them—for free—and then sit down with the clients to demonstrate his abilities in financial planning.

Successful CPA Financial Planners Can Make More Money

Tax practices are booming as the demand for CPAs outpaces supply, reports Napolitano. But many tax practitioners pay dearly for their busy practices by working extremely long hours during the crush of tax season, he says. In contrast, the CPA firms Napolitano has helped transition into personal financial planning work “make three times as much for one-third of the work” after a three- to five-year transition, he claims.

Because the income of traditional CPAs is based on hourly fees or the number of returns prepared, Mueller says, the only way they can make more money is to do more work. Mueller moved into a personal financial planning practice so that he could base his fees on the “value price” of his work instead of hourly rates. And Minker started a financial planning practice as a separate LLC owned by a larger CPA firm. Business has quadrupled in five years.

CPA Financial Planners Face a Number of Hurdles

Some of the chief challenges that CPA financial planners report are difficulty extracting themselves from their current practices, insufficient resources to teach them how to start a personal financial planning practice, resistance from their partners, and complex federal and state regulatory requirements.

Eisenberg is the sole proprietor of both a tax practice and a financial planning practice. When he moved into financial planning, he did it alone, he says. He did not know how to do reports, bill, or keep track of what he was doing, though now he is thrilled with the results. Nevertheless, he would have “appreciated sitting in a small place with someone telling me exactly what to do.” Eisenberg addressed his lack of knowledge by attending the annual AICPA PFP conference and joining PFP Section and CalCPA PFP committees— networking with and learning from his more experienced colleagues.

Wenner’s experience inside a CPA firm with over 100 partners is that some conservative partners can be hesitant to expand their practices beyond traditional tax, accounting, and audit work, while other CPAs—often younger or forwardthinking individuals trying to establish or solidify long-term client relationships— prefer to offer a broader range of services. Sarenski merged his smaller firm into a larger firm, intending to run a financial planning area. The large firm failed to buy in immediately, and it took Sarenski four years of doing both traditional tax work and financial planning to bring his practice to the point where he can focus primarily on personal financial planning.

The Leap Takes Courage and Commitment

Napolitano frames the transition problem this way: First, CPAs are too busy with their core tax practices; second, they are not willing to risk losing clients in order to transition their practices; and third, they do not change their mindset to that of a financial planner.

Napolitano offers the following tips for CPAs interested in adding personal financial planning to their practices:

• Develop a compelling vision and articulate it in a five-year plan.
• Embrace transition. Vow to be a different firm next year.
• Be willing to say no to tax clients. The time required to do financial planning work requires giving up some tax work. Consider taking new clients only if they will bring both tax and planning work or tell existing clients that the firm has room only for tax/ financial planning clients.
• Resist the urge to play it safe by limiting your financial planning work to small clients. They take almost as much work as larger clients but do not pay as well.
• Be willing to delegate to staff and outside professionals. The CPA financial planner should spend his or her time acting in his or her highest and best role.

CPAs who are serious about developing a financial planning practice may want to consider attaining the AICPA’s CPA/PFS credential, which was created especially for CPAs who specialize in financial planning and who demonstrate experience and expertise in that area. CPAs must meet certain prerequisites to become a CPA/PFS and must meet recredentialing requirements every three years to maintain their certification.

Adding financial services to your practice can be exciting, fulfilling, and profitable. Despite this practice area’s challenges, CPAs who pursue it with dedication may well find themselves amply rewarded.

EditorNotes

Michael David Schulman is the owner of Schulman CPA, an Accountancy Professional Corporation, in New York, NY. Amy Krasnyanskaya is a specialized publications editor for the AICPA in Durham, NC. For further information about this column, contact Ms. Krasnyanskaya at akrasnyanskaya@aicpa.org.