Practitioners looking for something to do at the end of filing season are faced with a few choices. They can take a long vacation, test drive new software for next season, or get started on formulating a fall marketing campaign. Or they can leverage their position as a trusted advisor and build up a tax and financial planning practice.
That's an option that more accountants are taking, as tax practice naturally generates the opportunities to extend the season into financial planning and other services. Lyle Benson, CPA/PFS and chairman of the American Institute of CPAs' Personal Financial Planning Executive Committee, said, "Amid the complexity and uncertainty of today's economy, more clients are turning to their CPAs for guidance on a broader array of financial issues. That's because the CPA-client relationship is built on trust rooted in the most stringent ethical, professional and regulatory requirements." The institute has proposed standards for CPA financial planners that are aimed at raising that bar even higher, covering everything from planning engagements to working with other service providers.
"Studies have shown that more so than other professions, the accountant is the person the client trusts as an advisor," said Mark Luscombe, principal analyst at CCH. "Traditionally they have engaged in areas such as estate planning and insurance. This year the hottest exposure area is health care planning, with the new requirements coming into effect next year."
There's still a lot to learn, and much that is not known yet, according to Luscombe. "They won't be set up until October 1, so there will be a rush between the time they are set up and the beginning of the year to figure out where the issues fall and how best to cope with the new framework."
Much of the planning and advice on the business side will revolve around penalties, Luscombe observed: "They will need to determine whether a small business is subject to new penalties, based on how many employees they have this year. ... Some employees are not being hired in part because they are starting to look at the health care requirements to see if they can avoid them by hiring part-time or temporary employees."
Another area in need of planning is the whole issue of foreign asset reporting, according to Luscombe: "The IRS is starting to get access to foreign government information, so there are many who need advice on how to handle foreign exposures."
THE CREDIBILITY CARD
The market for CPAs as financial planners is strong for a number of reasons, according to Mark Merenda, president of Naples, Fla.-based Smart Marketing. "It's a natural fit for CPAs to extend their practice into offering financial planning services," he said. "The thing that all financial planners envy about CPAs is that because of their tax work they have a guaranteed way to meet with potential clients. People have to come in once a year at the least to get their taxes done. If he's a small businessman, he generally meets at least monthly when he goes through his income statement in detail. How many financial advisors can say the same? It really provides the CPA with a potential stream of clients that other kinds of advisors envy."
"On top of that, most CPAs are viewed by their clients as objective," Merenda continued. "On the other hand, the advice given by many financial advisors is often thought to be colored by the potential commissions they might earn. Some have sought to address that by becoming strictly fee-based, and this has been somewhat effective. On the hierarchy of values, CPAs and attorneys are higher than financial advisors. When a professional comes into a transaction with a lot of credibility it's very helpful, and CPAs have credibility."
In marketing your services, Merenda reminds his clients that fear and greed are both powerful motivators, but of the two, fear is more powerful. "It's difficult for financial advisors to gain clients by showing them they will have a pleasurable experience," he said. "It's easier to show them that if they don't take certain steps, here's the painful result. People are more motivated by a scary scenario than they are by anticipated rewards. To put this into practice, a CPA might advertise a seminar for small businesses with the headline that says, 'Seven out of 10 small businesses overpay their taxes.'"
The time after tax season is over is the best time for tax planning, noted Miguel Farra, principal-in-charge of the Tax and Accounting Department at Top 100 Firm Morrison, Brown, Argiz & Farra.
"After tax returns are done, there is a lot of opportunity for additional planning," he noted. "Estate planning involving the transfer of wealth from one generation to another is best to do after filing the return. That's when you have the final numbers with regard to partnerships and other entities on which the taxpayer or principal person may owe taxes. It will facilitate doing the evaluations to determine the value of any gifts, and the planning that will be necessary. It also provides opportunities for restructuring, to have a more tax-effective structure for compliance."
"For example, if your clients have C corporations which are operating businesses or real estate holding companies, look into the possibility of restructuring them as flow-through entities, and restructuring limited partnerships in a way that will reduce the liability exposure of the general partner. And for this year, it's very important to plan to reduce exposure to the 3.8 percent Medicare tax," Farra added.
For John Vento, being a Certified Financial Planner has been a boon both for his clients and himself. "I found that throughout my years as a CPA, I didn't feel complete as to the services I was providing my clients," he said. "Most of what I was doing was after the fact - typically keeping records, and historical information. By working on and summarizing what had already happened, I wasn't quite providing my clients with the total service they needed. Now, not only am able to provide advice, I can implement the advice I give. As a result, I have seen my accounting practice almost triple -- more clients are coming aboard because they can get full service from me, and I'm getting more and more referrals because of the level of my services."
"Most people fall into two camps," Vento explained. "They either think they don't have enough money to need a financial planner, or they're wealthy and think they can get by on advice from a stockbroker or tax attorney. But both groups are wrong. Everyone needs a trusted advisor to guide them during good times and bad -- someone whose primary goal will be to help them achieve their long-term financial objectives."
Many practitioners engage in post-filing practice and procedure before the Internal Revenue Service, including handling notices, audits, collections, and offers in compromise. "The small and midsized firms are handling everything for their clients," said Jim Buttonow, vice president of product development for New River Innovation, makers of Beyond 415. "Our software helps with everything from notices through audits and penalties, including nuisance things like account corrections, helping with ID theft, different types of penalty abatements, and voluntary compliance programs." On many post-filing actions, you have to make your own form, Buttonow noted. "We've made a bank of forms, letters and analysis to use in post-filing scenarios. Since practice and procedure changes all year long, it's Web-based -- that's the only way we could keep it current."
For practitioners specializing in IRS collections, PitBullTax provides tools and support for offers in compromise and other IRS resolutions. "We are a fully integrated program for tax resolution," said chief executive Jaime Buchwald. "Our software works out the best resolution in collection and in the Appellate Division of the IRS to get an agreement which would forestall any enforcement collection activity. We basically take the practitioner from preliminary determination of what the best resolution would be, and run through the whole gamut of how to resolve the case, including preparation of all forms."
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