Enhance your tax practice with PFP services

Editor: Theodore J. Sarenski, CPA/PFS

Auditors. Tax preparers. Trusted advisers. These are a few of the titles referring to CPAs that have historically described our profession. However, our tax clients are seeking CPAs in an expanded role to fill a void and bridge a chasm between the overall financial security they desire and the tax planning they need.

A historical perspective

My career started, as I had planned, as a tax consultant advising business clients on tax planning and strategies to mitigate their overall cost of operations and help them retain their wealth so it could eventually be transferred to their heirs. After my second year in public accounting, many clients — and the firm’s partners — began asking whether we could offer more comprehensive services in other critical life stages rather than just preparing tax returns.

In the early 1990s, my passion for personal financial planning began in earnest. After searching for guidance and education, I quickly realized that tax and financial planning services would complement each other. Most of the individuals I assisted with tax services were members of high-net-worth families, and various financial subjects inevitably arose during our meetings.

The AICPA Personal Financial Planning (PFP) Section was an invaluable resource for helping me gain experience and education in financial planning. The PFP Section, which was created in 1986 through a collaboration of financial planning professionals and the AICPA, became a repository of information for CPAs desiring to learn and grow their practices.

One of the PFP Section’s resulting technical projects was creating the Statement on Standards in Personal Financial Planning Services. These standards provide a framework of ethical and technical considerations for providing PFP services. Practitioners who meet these standards show clients they have achieved a sufficient level of integrity and quality in their professional services.

Similarly, AICPA member tax professionals are subject to the Statements on Standards for Tax Services, promulgated by the AICPA Tax Executive Committee. These enforceable standards for providing tax services can give the public confidence that a high degree of professionalism supports the services and information they receive addressing their tax concerns and circumstances. Many practitioners may be unaware of which standards apply to their services.

Personal financial planning and tax services are highly correlated to one another in a client engagement. For example, one must understand how the tax laws affect a client’s income and assets to properly report a personal financial statement used for cash flow or estate planning. Conversely, to provide high-quality tax services, a CPA must understand and apply financial planning principles and standards in providing estate, gift, and income tax planning.

Integrating PFP and tax standards to increase value

Today’s clients demand the highestquality work product and want to receive proficient communications from their adviser. To maintain an excellent professional relationship, CPAs must meet or exceed these expectations. CPAs are in a unique position as trusted advisers to their clients. This deep, mutually respectful relationship is what most CPAs are seeking. Your probabilities for long-term success are exponentially heightened when you possess a unique skill set that enables you to address clients’ primary financial concerns.

To facilitate the integration and implementation of PFP services in a tax practice, the CPA has many options to gain the necessary understanding of the relevant standards and credentials. These include the Personal Financial Specialist (PFS) credential, which may be underappreciated by some.

“Why do I need a PFS credential if I possess my CPA?” was posed to me by a member at a conference a few years ago. After I explained the standards required by the profession and expected by the public, the CPA looked at me with shock and realized the PFS credential demonstrates the importance we place on the client relationship.

Our ethical standards require competency, integrity, and objectivity as the basis for our services. As a tax adviser, you may be asked to opine on or provide services of a PFP nature. Before, during, and after the engagement, you must satisfy yourself that you are upholding the ethical standards of the profession as stated in the AICPA Code of Professional Conduct.

An effective way to grow your tax practice is to provide additional complementary services that are highly regarded and sought after by your clients. PFP services are a natural extension of tax services for your individual clients. Whether a client desires a comprehensive financial plan or a segmented plan for a specific purpose such as estate planning, it is critical that your level of competency be at least that required by the profession.

Engaging your clients by introducing PFP services is an efficient and effective means of demonstrating your financial expertise. For example, the marketplace places greater value on advice that helps avoid a significant tax liability for an estate than it does on competently filing a return with a balance due. A CPA financial planner can help a client both sidestep an avoidable tax burden and achieve broader financial goals with proper planning.

Why it is critical to proactively engage your clients

One of the greatest compliments given our firm is that we anticipate a concern before the client voices it. When you proactively serve clients, you show them that you are focused on their long-term financial status, which helps build their confidence in your team. Perform your job in a manner that assures your clients that you are serving them with a fiduciary mindset, one in which their interests come before your own.

While gathering the data to perform a tax engagement, you could take a few additional steps to provide the client a much higher level of service. For example, would a suggested strategy help build your client’s confidence in your ability to develop an estate plan that will transfer assets to their heirs without any complications? What about the family with a specialneeds child who requires additional support for his lifetime? You can gain deeper trust with the client by providing unique strategies for resolving these issues.

It may seem menial to create a list of your tax clients with individual retirement accounts who have seen their incomes decline during the pandemic. This, however, could present an opportunity. You could suggest that the client consider a Roth conversion that takes advantage of their being temporarily in a lower tax bracket. This would remove the potential for taxation on a lifetime account; the client will reciprocate with loyalty beyond measure and additional referrals.

By understanding the tax laws and possessing the skills to provide PFP services, you will become more than an adviser; you will become the client’s personal CFO. You can create a brighter future for your clients by achieving current tax savings and implementing broader tax-efficient strategies that provide future value beyond the tax benefit. This type of service goes far beyond preparing an annual tax return. Your continued consultations on your clients’ future, while helping them properly report past activity, gives them comfort in your abilities. You are creating an annuity of fees by giving your clients significant value and developing a more “sticky” relationship.

When we began offering PFP services, we immediately noticed that our referrals and, consequently, our revenues increased at an unexpected rate. Instead of spending time and resources marketing to the masses, we focused on our existing tax clients. Those clients turned into raving fans who unknowingly became our unpaid marketing department.

It is much more cost-effective to attract “right-fit” clients by providing highly sought-after services that focus on their future as well as their past. One of our referred clients came to us after a long-term relationship with another CPA. When we asked why they would choose to consider another CPA for their planning needs, the client’s answer was unexpected: “We need someone that focuses on our future needs and not only on our past.” Our proactive, positive approach to combining tax and personal financial planning services has proved to be a successful strategy for capturing market share, and it has resulted in greater profitability.

Launching your tax and financial planning practice

Before you print up the glossy brochures introducing your new PFP services, it is critical that you gain the competence to perform those services. Each year, I attend conferences on specific PFP topics and strategies that continue to build my skill set. I recommend that you review the Statement on Standards in Personal Financial Planning Services to determine areas of your tax practice that may need to be modified to become and remain compliant with those standards. It is important that you invest in the necessary software tools that will help you research and analyze essential strategies to meet your clients’ planning needs. Next, analyze your client base to identify the most potentially helpful financial planning services to begin offering.

Tax-compliance services are becoming more cost-competitive, with the IRS and for-profit corporations offering free software and services. Admittedly, the individuals who may take advantage of these free services are not your typical clients. However, this illustrates the highly commoditized nature of compliance services and the pricing pressures in the marketplace.

As professionals, CPAs care about their level of service and competency in providing those services. Tax consulting is an extremely rewarding career path, and integrating PFP services into your offerings would prove to be even more so.

The PFP Section has many helpful tools to assist in launching PFP services as an adjunct to your tax practice. A comprehensive Compliance Toolkit, containing standards, flowcharts, pre- and post-engagement checklists, documentation checklists, sample engagement letters, and more is available to CPAs who join the PFP Section. To learn more about integrating PFP services into your tax practice, visit the PFP Section’s homepage.

The process of gaining your competencies to provide PFP services is a benefit far beyond investment management. Many CPAs don’t wish to offer investment management services. However, personal financial planning is a broad palette of services demanded by the public. A background in taxation is needed in the areas of retirement, estate, charitable, risk management/insurance, elder/special needs, education, and business owner planning. You possess a substantial amount of knowledge that, coupled with specialized training in PFP, would serve your clients in a much more comprehensive manner that is highly valued.

It may appear there is a lot to learn to get started in PFP services. However, CPAs performing tax compliance and consulting engagements are finding themselves involved in conversations with their clients pertaining to financial planning matters. The public — and the profession — expect you to be competent in the areas of service you provide. Tax is one area where you may begin the conversation and transition to PFP services as you gain competence in the services you wish to provide. The most beneficial outcome is that you maintain and grow the relationship with your clients by continuing to be proactive in their tax planning as well as in other areas of life important to them, resulting in a deeper relationship.

Once you gain competency in PFP, you can obtain your PFS credential to hold out to the public the specialty you possess in helping your clients reach their lifetime goals with tax-efficient strategies. Start today by asking your clients their concerns about their total financial position, and seek opportunities to assist them with your expertise. This is what CPA/PFS credential holders do best!

Registered Principal Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Jimmy J. Williams is an Investment Advisor Representative of Compass Capital Management, LLC, a Registered Investment Advisor. Cambridge and Compass Capital Management, LLC, are not affiliated. 321 S. 3rd, Ste. 4, McAlester, OK 74501. Cambridge does not offer legal and tax advice. Please consult your legal and tax adviser for specific estate and income tax planning strategies.

Contributors

Jimmy J. Williams, CPA/PFS, CFP, M.Tax., is president and CEO of Compass Capital Management LLC in McAlester, Okla., and a former member of the AICPA board of directors. Theodore J. Sarenski, CPA/PFS, CFP, is a wealth manager at SageView in Syracuse, N.Y. Sarenski also is a past 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.

AICPA RESOURCES

Webpage

“Build Your Tax and Financial Planning Advisory Services”

Podcast series

“Building a Financial Planning and Tax Advisory Business”

Webcasts

“Grow Your Practice Beyond Taxes”

“Use Your Client’s Tax Return to Provide Valuable Financial Advice”

“How to Make Time to Provide Personal Financial Planning Services”

“A Story of Tax to Personal Financial Planning”