Is Now the Time to Implement PFP Services?

Editor: Theodore J. Sarenski, CPA/PFS, CFP, AEP

The CPA profession has naturally evolved toward personal financial planning (PFP). This is a bold statement but one borne out by the results of the recent AICPA PFP Division survey on the economic benefits of implementing a PFP practice in a CPA firm, among other things. Perhaps the most unanticipated result of the survey was that 55% of CPA respondents whose firms offer PFP services said they have been doing so for over 15 years.

CPA respondents also named the top five PFP services that have the greatest positive impact on their firm’s revenue:

• Income tax planning;
• Estate/wealth transfer planning;
• Retirement planning;
• Investment planning/management; and
• Cash flow planning.

Most of these services are already performed by many CPA firms, and all five are addressed by the AICPA Statement on Standards in Personal Financial Planning Services that went into effect July 1, 2014.

More than 2,400 CPAs responded to the survey. Of those respondents, 49% currently offer PFP services. The survey was sent to a cross-section of CPAs in public practice, including all members of the AICPA Tax and PFP sections in June and July 2014. The survey results are based on the responses of those CPAs who currently offer PFP services.

Other illuminating information from the survey includes:

• Firms charge a variety of types of fees for PFP services: 64% of CPA financial planners bill based on hours; 42% charge on a per-project or retainer basis; 29% are paid on the basis of assets under management; and only 15% receive commissions (some firms use a combination of these methods).
• Ninety-one percent of the firms that provide PFP services also provide other services. Of those firms that provide PFP and other services, 64% indicated that PFP clients provide more revenue to their firm than their non-PFP clients, and 65% reported that PFP services increased their firms’ value.
• Seventy-nine percent of firms were profitable in their first year of providing PFP services.

The survey reveals additional economic benefits for CPA firms that have added PFP services to their other offerings, through:

• New clients: 63% reported an increase;
• Client retention: 39% reported an increase;
• Client referrals: 25% experienced more of them;
• Revenue per client: 41% reported an increase; and
• Referrals from other professionals: 53% reported additional referrals.

The survey also dispels any notion that PFP services compete with traditional CPA services. Rather, it confirms that PFP services complement traditional services. Of firms that provide tax and PFP services:

• 83% never or rarely lost tax clients from PFP-related issues;
• 65% reported an expanded scope of engagement with PFP clients;
• 54% reported increased client appreciation;
• 66% would recommend PFP services as a way to increase profits; and
• A majority reported more job/career satisfaction.

A Growing Need for PFP

The survey was performed to garner a greater understanding of the state of the CPA profession as it relates to PFP. This is because clients are looking for PFP services and asking their CPA/trusted adviser for them. They are looking to their CPA because of the respect the CPA profession has earned. This respect has stood the test of time. Is any profession better educated, trained, or experienced in income tax planning, estate planning, cash flow planning, and retirement planning than CPAs? Does any profession offer more in the way of standards of practice in financial planning, rules of conduct, and ethics than CPAs? The American public is aware of the profession’s positive attributes, and these are spurring the natural evolution of the CPA profession toward PFP services.

The genesis of the survey was data from several industry studies, as well as a 2011 report by the U.S. Government Accountability Office (GAO) (see Regulatory Coverage Generally Exists for Financial Planners, but Consumer Protection Issues Remain, GAO Rep’t No. GAO-11-235). Research from the IBISWorld Industry Reports on financial planning and advice in the United States (November 2014) and accounting services in the United States (October 2014) projects that PFP services will grow more than twice as fast as traditional accounting services. The U.S. Bureau of Labor Statistics projected the need for personal financial advisers would grow 27% from 2012–2022. In addition, a Pew Research Center study conducted in 2010 revealed 10,000 Baby Boomers per day will turn age 65 through 2029, and they will need guidance (see report summary at www.pewsocialtrends.org).

Developments in PFP

The GAO report is relevant to CPAs because it provides critical information about what is occurring in the industry and how it directly affects their clients’ responsibilities for their resources.

The GAO report states:

[C]onsumers are increasingly turning for help to professionals who describe themselves as financial planners for assistance with a broad range of services, such as selecting the right balance of stocks and bonds for an investment portfolio, choosing among insurance products, and tax and estate planning. Although there is no statutory or single definition of financial planning, it can be broadly defined as a systematic process that individuals use to achieve their financial goals. Between 2000 and 2008, the number of financial planners more than doubled and may continue to climb as more individuals are asked to take responsibility for their retirement savings and must choose among a growing array of investment options.

Some financial planning organizations have raised concerns that no single law governs providers of financial planning services, broadly describing this situation as a regulatory gap. Concerns also exist that financial planners may have an inherent conflict of interest in recommending products they may stand to benefit from selling. In addition, some consumer advocates believe consumers may be confused by the numerous titles and designations that financial planners can use. [Emphases added.]

The report was issued in response to a mandate in Section 919C of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, directing the GAO to conduct a study on the oversight and regulation of financial planners.

As PFP services are offered by more and more CPA firms, the public will be better served in the way that it deserves.

Stewardship of Clients’ Resources

To appreciate the concerns raised in the GAO report, think what happens when someone who is not a professional and is not bound by the AICPA’s rules of conduct, ethics, and standards of practice assists with financial planning. The relationship may easily focus on income generation for the adviser versus stewardship and multiplication of the clients’ resources. It is therefore vital that the public be served by the CPA profession.

To understand why, one has to examine the concept of responsibility/stewardship. A steward is a person who manages another’s assets or financial affairs. Underlying all CPA services, including tax, audit, and compilation, is the financial expertise clients need to be effective stewards and more responsible with their own resources.

For example, CPAs are engaged to help clients reduce their income taxes in whatever way possible, as long as it is within the law. CPAs perform these services for individuals, families, and businesses, as well as providing financial statements, cash flow analysis, and an accounting for clients’ assets and liabilities. Some CPAs specialize in financial planning, valuation, forensic accounting, and/or information technology. These additional services are meant to provide greater stewardship of clients’ resources and, hopefully, to multiply them. With a CPA planner, clients no longer have to settle for a relationship that uses financial planning as a sales tool.

AICPA PFP Division Resources

The AICPA provides considerable and valuable resources to assist practitioners who want to gain the economic benefits of offering PFP services. The PFP Division offers AICPA members access to specialized tools, resources, learning opportunities, connections, mentoring, peer-to-peer opportunities, and much more. The two most important resources available through the PFP Division are the PFP Section with its community of support, collaboration, and tools to implement PFP services, and the Personal Financial Specialist (PFS) credential.

Collaboration, mentoring, and assistance are available for CPAs looking to implement PFP services in their firm. The AICPA PFP website offers information and support. In addition, the AICPA Advanced Personal Financial Planning Conference each January provides a plethora of information, mentoring, and networking. CPAs can attend various sessions at what has become the highest-rated PFP conference in the country and can earn CPE credit. But what is invaluable is networking with other CPAs with experience in providing PFP services.

A preconference seminar, “Implementing Personal Financial Planning Services: Plans for Success,” is offered for two days before the conference each year. This workshop features nine CPAs, all with different types of financial planning practices. Some manage assets. Some set up their own practice or are affiliated with other advisers. The workshop provides a diversity of speakers who answer attendees’ questions on how to implement PFP services in their firm. Each panelist discusses the model his or her firm has chosen for offering PFP and shares hands-on experience and expert advice. This is a great venue for learning about the many ways to structure a practice.

The PFP Division offers the PFS credential, which is comprehensive and available only to CPAs. Possessing the credential demonstrates that the CPA understands the interaction of all areas of financial planning to help clients meet their goals. It also demonstrates to clients the CPA’s commitment to obtaining the most up-to-date education and training. The PFP Division also offers courses in all areas of financial planning, including retirement planning, estate and gift planning, income tax planning, investment planning, and risk management/insurance planning. The education is available through self-study courses or the PFP Boot Camp, an intensive, three-day course that can be attended live or online. The Boot Camp prepares the CPA for the PFS exam and/or provides a tuneup in all areas of financial planning.

A Natural Evolution

The PFP Division’s survey shows that PFP is a natural evolution of the CPA profession. Although little has been written about this evolution, many CPAs have anticipated or have heard their clients express frustration with the inherent conflict in other advisers’ “sales tool” approach to financial planning and have decided to offer financial planning within a stewardship framework that bridges from their profession as CPAs.

The survey also shows that offering PFP services in a CPA firm will increase revenues, and that the firm does not have to manage assets or sell products to generate a profit. This is important because partners and principals are stewards of their firms as well, and multiplying resources for both the firm and the client creates a positive result for all.

In conjunction with the GAO report, the survey illuminates an opportunity for CPA firms to implement PFP services and to continue the tradition of helping clients responsibly steward their resources. Lastly, the survey provides encouragement to small and large firms alike to seize the opportunity to increase firm revenue by taking advantage of this natural evolution of the CPA profession.