Practitioners who began adding tax planning services to their basic preparation several years back have found that it's a small step to branch out completely into year-round financial planning.
"There's a natural link between tax prep and financial planning," explained Fiducial media manager Stephen Parezo. "In doing a client's taxes you get to see their whole financial picture. You can see if they're making contributions to retirement plans and get to see what kind of stocks and other investments they have. After you've done a client's returns for a couple of years, you get to know them intimately."
Virtually all tax preparers engage in some form of planning with their clients when they go over the return. The ability to translate this into becoming a year-round financial advisor is a natural progression.
"It can become a very profitable side of the business," said Fiducial tax support manager Andrew Martin. "We view tax prep as a necessary evil - a byproduct of the write-up and business counseling and financial recommendations. And it's not a very profitable part."
"Any time you make recommendations, the question becomes, 'What are the tax consequences?'" he said. "Financial planning is putting everything together and saying this is where you want to be five or 10 years down the road."
As a result of this changing market, Richmond, Va.-based Peoples Income Tax chief executive Chuck McCabe intends to concentrate less on refund anticipation loans and other bank products, and focus more on the middle- and upper-end markets, with an increased emphasis on financial planning. "We want to reduce our dependency on the lower end, because we don't see that arena as a long-term growth area," he said.
Although McCabe has registered reps working for him, he noted a potential problem in the sharing of commissions.
"You cannot put commissions into a corporation - they can only be shared between two registered representatives," he said. One solution is for the corporation itself to be a registered investment advisor, he said. "An RIA can be an individual or a corporation. It's not legal for the owner to share commissions, but he can charge the person providing services with a fee for providing space, or for marketing."
Same time next year
The CPA who wishes to grow into a year-round financial planner has a built-in advantage, according to Mark Merenda, president of Naples, Fla.-based Smart Marketing.
"The ability to have people come in to see them once a year for tax reasons gives them a tremendous marketing advantage," said Merenda, who specializes in teaching financial professionals to market themselves. "My clients who are insurance agents or attorneys wish they had a reason for clients to come and see them."
"CPAs also have the advantage of an intimate look at the client's financial affairs, and therefore they're able to make recommendations, point out dangers and risks that other financial professionals have to fight for," he continued. "Financial planning is the obvious answer for CPAs who want to go beyond tax season."
One of Merenda's tips for preparers is based on his observation of human motivation. "The greatest single human motivator is fear of loss, and the second - a distant second - is greed. Some years ago, a utilities company sent half their customers notices that said they could save 20 percent a month by insulating their home. They sent notices to the other half that said they were losing 20 percent a month by not insulating. The 'losing' notice got four times the response that the 'saving' notice had."
"I advise my CPA clients to look at the return and point out areas of potential loss and offer solutions that will protect them from loss. That's a more powerful marketing tool than telling them, 'If you do this, you can make more money,'" he said.
"Financial planning has been a nice blend of what I'm already doing for my clients - preparing their tax returns and answering their questions," agreed Matawan, N.J.-based CPA Salim Omar.
Omar is both a registered rep and an RIA, and is an independent agent for a number of insurance companies. Although he engages in extensive marketing of his tax preparation practice, he finds most of his financial planning clients as a natural outgrowth of tax preparation.
"About 30 to 40 percent of my tax prep clients become financial planning clients," he said. "It's really a cross-selling procedure - let them know that you do financial planning, and they'll become your client."
