The financial planning process: A distinct opportunity

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

Adding personal financial planning (PFP) services to CPAs’ offerings opens the door to multiple opportunities for CPAs, their employees, their recruiting efforts, and their clients. PFP services come in all sizes and models and are customizable to fit firms’ needs as well as their clients’ goals.

At this point, the CPA reading this may say, “Oh, my goodness, another article about adding PFP services to a CPA’s firm?” But do not fail to consider the most important part of this proposition: the client. Ask instead, “Is there a reason CPAs are not providing their clients with the services their clients are asking for and even expecting them to provide?” If there is no apparent reason, then this column can provide momentum to CPAs in their quest to add these services.

The need for PFP services is great; the need for PFP services offered by CPAs is even greater. The multiplication that occurs in client revenues, client retention, employee satisfaction, employee recruitment, and the overall benefit to the client compels CPAs to take a closer look at why PFP services are not already being offered by their firms.

A little history

For more than 50 years, PFP has been perceived as a sales tool. It was first conceived in 1969 by investment and insurance industry representatives as a way to gather assets and sell products. It was an attempt to help people with their finances while providing greater revenue for these industries. Approximately 15 years later, the AICPA created its Personal Financial Specialist (PFS) credential and PFP Section to assist CPAs offering PFP services. Because financial planning was a new concept, CPAs were afforded the opportunity to sell insurance and manage assets as part of the planning process.

Unfortunately, this created a disagreement among CPAs, which effectively discouraged other CPAs from offering financial planning services. After the dust settled, the PFP Section began attracting CPAs who offered these services without selling products. Instead, these CPAs offered a financial plan and investment management services or financial planning under a fee-for-service model (i.e., they offered planning without investment management or product sales). As a result, CPAs now offer PFP services in many different, but proven, business models. The business models are customizable to meet each firm’s needs, and through the AICPA Statement on Standards in Personal Financial Planning Services (SSPFPS) No. 1, practice standards and guidelines are provided.

Fast-forward to 2023, and CPAs are on the verge of making PFP a profession instead of a sales tool. CPAs are the ideal professionals to elevate this service offering to the status of a profession. The AICPA, state boards of accountancy, National Association of State Boards of Accountancy, and universities recognize this and have taken steps to align the CPA Exam with the services that CPA firms offer and for which clients are expressing a need. PFP is now included on the CPA Exam, which means university curriculums are being modified to include PFP for accounting students. Clients have asked CPAs for years if they would do their planning, for one simple reason — the CPA is their trusted adviser and tax expert. Estimates regarding how much tax is involved in the PFP Body of Knowledge range from 60% to 90%.

The AICPA and PFP Section had the foresight to establish practice standards, knowing this would be necessary to elevate PFP to professional status. SSPFPS No. 1, established in 2014, provides a framework for CPAs that clearly lays out the services that comprise PFP, the financial planning process, client deliverables, and alternative financial planning engagements (see the sidebar, “What Is PFP?”).

The process

SSPFPS No. 1 simplifies the PFP process by describing it in four steps: identify goals, gather data, analyze, and recommend.

Nothing in the PFP process says that CPAs must sell products or manage assets; however, they have that option. The process provides CPAs with boundaries so they know what is expected of them and their clients, thereby leaving nothing to chance. Having a process in place is the impetus CPAs need to formalize their PFP service offerings. It provides the opportunity and framework to charge for the hours spent answering a client’s PFP questions instead of writing the time off. The process saves time and money for everyone at the firm. Tax staff can stay focused on tax matters, and PFP questions can be shifted to the financial planning staff. CPAs with tax experience are easily trained in the PFP Body of Knowledge and can obtain their PFS credential from the AICPA.

The engagement

SSPFPS No. 1 describes three types of engagements: a PFP engagement, an implementation engagement, and a monitoring and updating engagement. As can be seen by the different types, offering PFP services does not mean a CPA has to implement the plan or monitor and update it. The engagement may end when the recommendations are made. The choice is up to the CPA, the firm, or both. Therefore, engagement letters are essential and must clearly state what is being offered to the client. All CPAs and CPA firms are different, and customizable engagements facilitate a firm’s uniqueness.

Benefits

One of the greatest benefits from adding PFP services is greater success in recruiting. The current generation is looking for meaningful ways to make the world a better place. Those who have an aptitude for CPA work can combine their desire to be a CPA with their most important goal: helping people be better stewards in the world. Offering the opportunity for this generation to work in a field that they are made for, as well as being able to do what they love by helping people, will generate rewarding recruiting results and happy employees. Additionally, clients will have a CPA financial planner who is an independent, objective, and ethical trusted adviser; this can sometimes be hard to find. Lastly, revenues always increase, as does client retention, when clients and employees are happy, fulfilled, and referring others to the firm.

Matching the plan to the firm

How do CPAs begin to implement PFP services at their firms? Develop a plan for the firm by choosing the business model that fits the firm’s culture best. Does fee-for-service planning fit best, or planning with investment management, or with investment management and product sales? Would a variation of any of these work? What kind of client does the firm currently serve or want to serve? Who is already credentialed at the firm or has expressed interest in this area?

Dream a little, create, and strategize. Then, ask clients for their thoughts about your firm offering these services. Aren’t they what this is really all about?

What is PFP?

PFP, as defined by SSPFPS No. 1, “is the process of identifying personal financial goals and resources, designing financial strategies, and making personalized recommendations (whether written or oral) that, when implemented, assist the client in achieving these goals.”

As noted in SSPFPS No. 1, PFP services encompass one or more of the following activities: cash flow planning; risk management and insurance planning; retirement planning; investment planning; estate, gift, and wealth transfer planning; elder planning; charitable planning; education planning; and tax planning. Tax planning, for these purposes, does not include advising a client regarding the client’s income or gift and estate tax matters when PFP services are not provided. PFP services also do not include valuation services, business succession planning, or educational discussions or presentations covering PFP that do not include personal recommendations. Neither do PFP services include mechanical computations of current income tax deductions for contributions to charitable remainder trusts, the current yield on a client’s investment portfolio, or the computation of gift tax on a transfer of an asset.

Contributors

Susan M. Tillery, CPA/PFS, is president and CEO of Paraklete Financial Inc. in Kennesaw, Ga. She is past chair of the AICPA Personal Financial Planning Executive Committee and past chair of the AICPA Personal Financial Specialist Credential Committee. Theodore J. Sarenski, CPA/PFS, CFP, is a wealth manager at SageView in Syracuse, N.Y. Sarenski is also chair of the AICPA Advanced Personal Financial Planning Conference, a past chair of the AICPA Personal Financial Planning Executive Committee, and a former member of the Tax Literacy Commission. For more information about this article, contact thetaxadviser@aicpa.org.