Practitioners who have been adding tax planning services to their basic preparation are taking an additional step to extend their practice into year-round financial planning."There's a natural progression from tax preparation into financial planning," said Stephen Parezo, media manager at Fiducial.
For many clients, the tax preparer is the only advisor they have in the financial world, and he already has most of the data, according to Parezo."The tax preparer gets to see the total picture of the client's finances," he said. "The preparer can see if the client is making retirement plan contributions, and the types of investments he has."
Nearly all tax preparers engage in a form of planning with their clients when they go over the return. Translating this into year-round financial advice is a natural progression for most preparers.
"No one in the world has a more trusted relationship with their clients than CPAs," said CPA and marketing specialist Allan S. Boress. "They are the logical ones to turn to for financial advice."
Matawan, N.J.-based CPA Salim Omar agreed. "It's actually a blend of what I'm already doing for my clients," he said. "I prepare their returns and answer questions. Financial planning just takes it a step further."
Omar is a registered representative and a registered investment advisor, and is an independent agent for a number of insurance companies. About 40 percent of his tax prep clients have become planning clients. "It's cross-selling," he said. "If you let them know that you do financial planning, they'll become your client."
Richmond, Va.-based Peoples Income Tax chief executive Chuck McCabe intends to concentrate less on bank products and refund anticipation loans, and increase his focus on the middle to upper-end markets, with greater emphasis on financial planning. "We intend to reduce our dependency on the lower end, because we don't see that arena as a long-term growth area," he said. "We decided to move forward with offering financial services."
"The future is in financial services, rather than bank products," he said. "Bank products and RALs have become a commodity. There's not much loyalty, and the retention rate is low."
McCabe, who recommended that other independent firms consider extending their practice to include financial planning, noted certain restrictions on the sharing of commissions. "Commissions can't be put into a corporation," he said. "They can only be shared between two registered representatives. However, the corporation itself can be a registered investment advisor, or RIA."
McCabe has registered reps working for him, but noted a problem in the sharing of commissions. "An RIA can be either an individual or a corporation, but it's not legal for the owner to share commissions. But he can charge the RIA, the person providing services, for space and for marketing."
Missing an opportunity
Even though it should be obvious, many accountants ignore financial planning, according to New York CPA and attorney Alan J. Strauss. "Too many accountants might overlook the opportunity because they're submerged during busy season, and with the rush going on, they tend not to think about other aspects of someone's return," he said. "Aside from getting their taxes done, any time a client has major changes in family circumstances, such as buying a house, a new baby, or a death in the family, it causes people to pay attention to financial planning issues. These can occur any time during the year."
Strauss uses his own charts to calculate the time value of money and customize presentations for each client.
E. Martin Davidoff, a CPA and tax attorney based in New Jersey, also uses spreadsheets. "A spreadsheet that you generate for a particular client can be far more useful than a one-size-fits-all package," he said. "It makes for a more customized presentation to the client. For example, one of the major tax planning software [packages] might spit out 14 pages. I can take a client with eight partnerships, 10 sources of capital gain, and get it on two pages."
The other advantage to designing your own spreadsheets, according to Davidoff, is the self-education that it fosters. "In designing the spreadsheet and tying it into the tax return, I learn all the interaction and impact of changes to the return. You get to know the mechanics of the tax computation much better. The downside is that if you're not good at putting it together, you might not get the right computation."
"That's why, for new clients with very complicated returns, I use the planning software, but for long-term clients I use the same spreadsheet unless there has been a major change in the law. The client understands it better because it's been designed for him," he added.
Davidoff see financial planning as "a natural outgrowth of having a practice."
"Many preparers are doing it to some extent when they sit down and go over the return, without following formal programs," he said. "I've been doing it since my fourth or fifth year of practice. You're basically looking for opportunities and identifying needs."
