Taking your PFP practice
to the next level
taking the pFp practice of most Cpa firms to the next level
should be easily accomplished for any firm with a good client
base, a good leader who is a good communicator and a business plan incorporating some of the best practices utilized by
many of the nation’s top financial advisors. But you would be
amazed at how many Cpa firms cannot take the next step.
You’ve started offering wealth management, now what?
sive planning. Many CPA PFP practitioners
act like brokers or agents and simply give lip
service or incidental advice on the clients’
entire financial picture while chasing assets
or insurance sales.
To the surprise of many financial services executives, however, the CPA community at large has been slow to adopt
wealth management. And for those who
did, my experience and travels tell me that
the average production or revenue for CPA
financial planners is far below the average for full-time advisors who are not also
running a CPA practice. That said, there
is substantial room for improvement for
both the fledgling and the successful CPA
To start the process of taking it to the next
level, first define your vision of the next level.
As most good CPAs would counsel business
clients to be as specific as possible in business plans, I find it amusing that most CPAs
don’t even have a business plan for the PFP
Many speak in generic and often unreasonable visions regarding exactly how the
PFP division shall become as or more successful than any other department or service
at the firm. A clearly articulated business plan
can be a big help. The plan should cover all of
the key components.
▶ Who are your clients?
▶ What specific services will you provide
i.e., investment advisory, financial planning,
insurance advice, estate planning, business
succession and exit planning?
▶ Who will deliver these services?
▶ What is the marketing and communication plan?
John P. Napolitano, CFP, CPA, PFS, is chairman and CEO of U.S. Wealth Management
in Braintree, Mass.
NO EASY MONEY
While I believe that adding PFP to an accounting firm is a superior model than the
traditional services-only firm, it is no field of
dreams. Many CPAs learned the tough way
that it takes a lot more than simply getting
licensed and thinking that clients would beat
a path to your door and replace their incumbents to utilize your new division.
When thinking through your ideal clients
for the PFP practice, it is necessary to have a
good handle on exactly who your accounting and tax clients are. I mean knowing them
from the demographic criteria that you determine as desirable in PFP clients. These criteria are both quantitative and qualitative.
The quantitative criteria can be issues like
income, net worth, investable assets, business value or any other criteria that you believe is important to your firm.
The qualitative factors deserve equal or
greater attention. Qualitative criteria include
issues like the client’s attitude toward your
services. Is your client one who questions every bill and takes their time to pay? Does your
client provide referrals and talk you up as a
valuable member of their team? Do you enjoy
the time that you spend with this client or is
sitting with this particular client the hardest
part of your day? What does your staff think
of this client?
PFP leadership now needs to be clear
about exactly what services they provide
for clients. Will you actually prepare comprehensive financial plans, put your advice
in writing and charge for the time that you
spend on the plan as you would any other
firm service? I am surprised at how many
firms I meet that do not offer comprehen-
BILLING AND SERVICES
My sniffer tells me that there may be several
problems with not addressing your client’s
entire financial situation for a fee. First is
that as the CPA PFP, you have not differentiated yourself from the pack of sales-based
types of advisors. The second is suspicion.
When is the last time that your CPA firm
did anything for a client for free? I find that
clients are a bit suspicious when you tell
them that this extremely valuable and time-consuming planning process will cost them
nothing, and that you’ll make your money
through other means whether it’s fees or
commissions. This is out of character, and
unlike anything they’ve previously heard or
seen from you. The third problem with not
doing comprehensive financial plans may
be liability. If your client thinks that you are
their financial planner, then they may reasonably expect that you are delivering comprehensive plans and looking into all the
matters covered while testing for the Certified Financial Planner for Personal Financial Specialist exams. Charging a separate
fee for the financial planning engagement
gives you the opportunity to document the
PFP engagement with an engagement letter; a best practice in place for many very
successful PFP firms.
Will you offer asset management services,
insurance services and get properly licensed
to offer securities through a broker-dealer?
I find that many firms have paid little to no
attention on this. It seems as if firms bring
their own bias as to how clients should pay
for financial services, whether it be fee-only,
fees and commissions or commission only.
This decision has often been made without
the needed context of the firm’s client demographics and the support available through
See PFP PRACTICE on
IRS TRIES TO KEEP UP WITH
WASHINGTON, D.C. – The Internal Revenue
Service is facing challenges keeping
ahead of financial services companies
that create sophisticated financial derivatives and offer them as a way to evade
A report by the Government Accountability Office examined financial derivatives such as variable prepaid forward
contracts and cross-border total return
equity swaps, illustrating how they were
able to achieve improper or disallowed
tax results. The report noted that taxpayers have used financial derivatives such
as these to lower their tax liability in ways
that the courts have found improper or
that Congress has disallowed.
Some experts have suggested alternative ways to tax financial derivatives aside
from the current approach. The IRS and
the Treasury Department need to provide
guidance to taxpayers when application
of the tax law is complex or uncertain, as
is often the case for financial derivatives,
the report noted. Guidance to taxpayers
is an important tool for the IRS to address
tax effects and potential abuse. However,
between 1996 and 2010, the Treasury
and the IRS did not complete 14 out of
53 guidance projects related to financial
derivatives that they designated as a priority for guidance on their annual Priority
While completing guidance is important in providing certainty to taxpayers
and the IRS, and reducing the potential
for abuse, challenges such as the risk of
adverse economic impacts from the guidance changes and the transactional complexity of financial derivatives could delay
the completion of guidance, the GAO
noted. Since challenges may prevent the
IRS from finalizing its guidance within a
12-month period, taxpayers need to be
aware of the status of the ongoing guidance projects, some of which may take a
number of years.
The IRS sometimes identifies new
financial derivative products or new
uses of them long after they have been
introduced and gained considerable
use, slowing down its ability to address