Why CPAs Should Partner with a Retainer Fee-Based Financial Planning & Wealth Management Firm—Now

Regulatory Compliance & Fiduciary Responsibility

CPAs are regulated by state boards of accountancy, which hold the authority to impose sanctions for certain violations. National trade association the American Institute of Certified Public Accountants (AICPA), for example, also dictates specific standards of professional conduct member CPAs must abide to, outlined in a Code of Professional Conduct. These are in addition to state and federal securities regulatory requirements (in the context of providing wealth management services).

The AICPA Code mandates members must be free from conflicts of interest, shall not knowingly misrepresent facts, and must maintain integrity and objectivity. CPAs must also maintain independence.

Conflicts can arise from a number of situations, some from simply performing typical auditing and attestation services in addition to providing investment advisory services.

Such triggers, as outlined by the AICPA, include:

• If the accountant renders investment decisions on behalf of audit clients
• If the accountant “executes a transaction” to sell or purchase an audit client’s investment
• If the accountant has the audit client’s assets in custody

In addition to the AICPA’s aforementioned Code, CPAs interested in adding personal financial services to the list of services provided to clients should also consider other compliance obligations, including:

• Employee Retirement Income Security Act of 1974 (ERISA)

• AICPA Statement on Standards in Personal Financial Planning Services

• Investment Advisors Act of 1940

• Dodd-Frank Wall Street Reform & Consumer Protection Act

• SEC Custody Rule of the Investment Advisers Act of 1940

• Federal Trade Commission Safeguards Rule

• Sarbanes-Oxley Act

• Securities and Exchange Commission (SEC) Interpretive Release IA-1092

• Gramm-Leach-Bliley Act

• Financial Industry Regulatory Authority-required emergency preparedness plans

• More recently in the news, the U.S. Department of Labor (DOL)’s much-talked about new Fiduciary Rule states that any professional expending personal financial planning advice must act in the best interest of their clients. While the implementation of this rule is now under question, the SEC is also reportedly drafting its own set of rules to potentially replace it.

Simply ensuring compliance with all of the aforementioned is no easy task, as the AICPA notes.

“Such compliance issues can have a significant time element attached to them, as well as cost, and must be considered when adding financial planning services to your practice.” —AICPA Personal Financial Planning Section: “The CPA’s Guide to Developing and Managing a PFP Practice”

Partnering with an experienced financial planning and wealth management firm alleviates many of these regulatory compliance concerns, since such firms may assume the bulk of the fiduciary burden and associated responsibilities.

Reduces Conflicts of Interest

Perhaps the greatest benefit of partnering with a “retainer fee-based” advisory firm is that doing so drastically reduces some of the conflicts of interest innately present within other pricing structures and planning models, such as those “commission-based.” These are more accurately, in practice, salespeople, since their compensation is generally tied to the number and amount of financial products they sell.

As we’ve outlined in previous posts, purely commission-based “financial planners” or “investment advisors” earn more the more such financial products they sell to clients. Thus, it’s a valid concern that their personal financial planning advice may not always be rooted in what’s best for the client—or what’s best to ultimately achieve clients’ financial goals—but rather, what’s best for them!

The retainer fee-based model, in contrast, limits such conflicts, and provides more objective advice, since the relationship is at least partially or even completely free from incentives tied to sales and paid transactions (depending on whether a pure or hybrid compensation arrangement is used).

Better Alignment of Incentives with Clients’ Financial Goals

True financial planners and wealth managers take the critical time necessary to meet with clients and understand, outline, and conceptually and quantitatively visualize clients’ lifelong financial goals, and develop a strategic fiscal roadmap for how to achieve such objectives. Comprehensive financial planning encompasses much more than simply doling out investment advice. It includes the coordination of estate planning, business succession planning, and fringe benefit planning, among other components.

Devising, reviewing and executing these strategic blueprints do not involve the sale of financial instruments—the lifeblood of commission-based pricing models—and thus, commission-based advisors lack the compensatory incentives to craft such detailed fiscal roadmaps, or even address these topics at all.

Retainer fee-based advisors, on the other hand, are better structured and aligned toward pursuing and achieving clients’ financial goals. They’re also incentivized to perform as true “fiduciaries”—working solely in the best interests of clients—as opposed to supplying advice based upon the sale of products that monetarily benefit their own personal or corporate finances.

Ideas

There’s a saying: “No one has a patent on good ideas.”

Such ingenuity is mission critical to not just weathering the ever-changing financial sector landscape, but successfully evolving along with it, and excelling. Formulating smart, viable ideas—and possessing the imagination, vision and wherewithal to actually implement them—requires a comprehension of the fundamental mechanics of financial markets and strategic financial planning principles derived from years, and even decades, of experience actually putting them into practice. It demands an openness to thinking outside the box, as well as the time and resources mandatory to really consider and contemplate exactly where all these pieces fit together to best serve you, your practice, and your clients.

In actuality, it’s a full-time job.

Teaming up with an outside financial planning and wealth management firm that takes this responsibility seriously and possesses the skills and experience necessary to devise and execute the ideas and strategies best aligned to achieve your clients’ financial objectives gives you and your team a definitive advantage over other CPA practices.

There’s a very real tendency for people to remain set in their ways and resist change. Yet with the financial sector and personal financial planning space, specifically, undergoing a veritable sea change in recent years—and with even more uncertainties expected in the future—remaining static can prove fatal.

CPAs, especially, must embrace these shifts, and prepare for future changes—both anticipated and unforeseen—simply for survival.

Ensuring access to fresh, innovative ideas and proactive, cutting-edge solutions via partnering with an experienced financial planning and wealth management firm can help safeguard against these alterations and ensure your practice is equipped with the tools necessary to thrive—and is therefore an absolute must in this ever-evolving realm.

Additional Value For Clients

In the cutthroat field of finance, attaining a leg up over the competition is a must.

Enlisting the expertise of trusted financial planning and wealth management experts and providing clients this extra dimension of financial services makes your practice a more attractive and more all-encompassing firm—signaling to pre-existing clients and prospective clientele a comprehension of finance other CPA practices simply lack.

It’s hard to overstate the inherent value in being able to offer such services. It’s undeniable, really—and passed along to your clients.

The ability to provide clients true, meaningful personal financial planning and wealth management advice opens the door to a whole host of clientele otherwise unattainable. Such services inherently require a deep, even forensic comprehension of financial markets and customized investment strategies—again demonstrating to both current and potential clients you and your practice’s added depth of knowledge and strategic implementation they simply won’t find at other competing CPA practices.

The addition of these services will help transform your practice into a veritable all-in-one stop shop capable of assisting clients seeking multiple, varying levels of strategic financial services—thus, further differentiating your practice and setting it apart from the rest of the pack.

This diversification also requires an extra level of transparency and responsiveness not typically synonymous with traditional CPA firms—again, characteristics that will undoubtedly resonate with clientele and help differentiate your practice from others, and perhaps most importantly, provide additional value for your clients.

This will also resonate with those not necessarily requiring tax preparation services, thus expanding the pool of potential customers and clientele to those already receiving such traditional services from competitors, and thus, potentially luring them away from their respective tax preparation and filing providers.

Other CPA Practices Are Already Adopting Such Services—Meaning: You Will Lose Out If You Don’t, Too.

Additional Revenue Stream & Ancillary Income

Expanding your services to include financial planning and wealth management can open a completely new revenue stream to supplement and complement your practice’s signature tax preparation business.

This ancillary income can be utilized in any number of ways you choose, from helping to finance long overdue upgrades to your computer systems and software to paying for license renewals or further certifications. 

The addition of these services also creates a mutually beneficial cycle that feeds both aspects of your practice, for out of planning, comes more tax work, and vice-versa.

Cutting-Edge Solutions

In summary, partnering with an experienced financial planning and wealth management firm expands the range of services offered to clients to much more than simply tax preparation, which the profession has become traditionally known for.

This diversification adds not only value inherent to the mainstay of the profession, but to the clients.

Most CPA firms simply do not possess the time nor the resources necessary to skillfully implement such services. Teaming with such an experienced and reputable firm already mastering such valuable strategies, therefore, increases the attractiveness of your practice—and thus, opens it to a wide range of clients that it wouldn’t be capable of servicing otherwise.