[IMGCAP(1)]One time I had three clients who were on the board of directors of the same NYSE-listed company. Two of them questioned every bill and every hour spent, and their fees were fairly low for people of that caliber.
The third person did not seem to care what he paid, and his fees were quite high. Let me call him Jack.
Jack also wanted to have lunch with me about twice a year. There was no special agenda. He just wanted to talk about how he could get richer and whether I could come up with anything that might help his company. We ate in the company's private dining room—just him and me and three people waiting on us. The only thing I remember about the food was that at the beginning of the lunch we were served a wheel of brie cheese measuring 10 or 12 inches in diameter, and he proceeded to eat almost all of it.
One day I mentioned that his individual wealth apart from his company stock was virtually nonexistent, and that while he was rich, he had a high mortgage and no stock or bond portfolio. He pooh-poohed this but called me a couple weeks later and wanted to meet. He asked me to come up with a plan, cautioning me that since he was an insider, his lawyer would have to approve it; he did not want any SEC problems.
The plan was pretty simple: He would sell a certain amount of stock every three months, coinciding with a short window when he was allowed to sell. This would be done virtually automatically, irrespective of the stock price, until he was able to pay cover his taxes on the transaction, pay off his mortgage and accumulate a stated value of stocks, at which time we would take another look at the situation. Based on the present stock price, this was to continue for about five years.
I had to write a memo that the attorney reviewed, and all three of us signed off on it. We met with an investment manager and discussed the type of stocks he was not able to buy. The plan went into effect, with half the cash being used to reduce the mortgage and the other half in the stock market.
About three years into this, there was an SEC investigation about insiders selling stock just before some bad news was announced, which included my three clients. All three sold stock before that announcement. Jack was completely exonerated because of the plan we had and that he was able to show the investigators. The other two also were exonerated, but after a lengthy investigation and legal fees that were probably 10 times what Jack's fees were, including my "high" fees over the years. Also, the other two clients’ wealth dissipated, along with the tanked company stock. Jack had an accumulation apart from his company, and his mortgage was reduced by half from what it would have been.
The takeaway here is quite simple. Accountants’ fees are usually insignificant compared to the value we bring to the client and to the benefits in making our clients financially secure. I always tell my wealthy clients, and also my business clients, that they should hope that my fees for financial planning or business consulting are high. That means I am working overtime for their benefit. And that could only be good for them.
Edward Mendlowitz, CPA, is a partner in WithumSmith+Brown, PC, CPAs. He has authored 20 books and has written hundreds of articles for business and professional journals and newsletters plus a Tax Loophole article for every issue of TaxHotline for 27 years. Ed also writes a blog twice a week that addresses issues his clients have at www.partners-network.com. He is the winner of the Lawler Award for the best article published during 2001 in the Journal of Accountancy. He has also taught in the MBA graduate program at Fairleigh Dickinson University, and is admitted to practice before the U.S. Tax Court. Ed welcomes practice management questions and he can be reached at WithumSmith+Brown, One Spring Street, New Brunswick, NJ 08901, (732) 964-9329, firstname.lastname@example.org.