Thinking about expanding your services to encompass financial planning? Ask yourself this: Are you entering into the business for the right reasons?"I think the first thing a CPA should consider is the why. Why do they want to be in the business?" asked Bob Palmer, president of Plante Moran Financial Advisors in Southfield, Mich. "I think the proper answer is because [CPAs] are being asked by their clients for help in this area. They think they have a unique perspective because of the intimate relationship they've developed, the knowledge of the history of the individuals and their businesses."

So what's the wrong reason?

"The wrong answer is because we think we can make more money and we want a piece of the action," he said.

Starting a financial-planning practice has become more popular among CPAs over recent years, because of their trusted relationship with clients and their extensive knowledge of clients' financial situations. Many experts see this growth area as a natural extension of the services they already provide, with estimates ranging from 40,000 to 60,000 CPAs who perform financial-planning services for their clients beyond the basics.

Last year, the American Institute of CPAs reported that financial planning was the fastest-growing niche for CPAs, with a 20 percent increase in CPAs turning to financial-planning services, and the institute said that it now has some 3,300 members who hold the Personal Financial Specialist credential.

"An accounting firm should consider providing financial services when their practice has at least three partners and a substantial support staff," said Philip Moses, CPA/PFS, of Raymond James Financial Services in Lake City, Fla., an affiliate of First Federal Savings Bank. "Also [if] they have a significant individual income tax practice, because that's who they're going to be soliciting for providing financial services. Are they well-respected and do they have a practice that's mature, where they can encourage referrals because of their credibility?"

Not everyone agrees that a firm needs to have a minimum amount of partners before venturing into the financial services arena, but many CPAs said that a full-time commitment to the job is necessary.

"I don't think you can pick an exact number, but I think it does definitely need to be somebody who's dedicated to doing it," Palmer said. "I think they have to be knowledgeable about the financial services industry, which is usually a tough transition, because if you're going to build it inside, there's typically not somebody there with a lot of experience in that area."


There are a variety of ways that CPAs can break into financial planning. They can start a fee-based advisory business out of their own firms, create a subsidiary of their firm to host the financial services business, or affiliate with a broker/dealer and receive commissions. Many broker/dealers also allow financial planners to offer fee- and commission-based services.

Though many CPAs tend to offer fee-based services and some, like Raymond James' Moses, believe being compensated on a commission basis will "impair your objectivity in terms of having the client's best interest," some find both acceptable.

"There's fee-based planning [and] there's commission-based planning; the two sides are always arguing which is better, which is more ethical, which is more moral. It's an embarrassing discussion," said Michael Schulman, CPA/PFS and founder of Schulman CPA, in New York. "I'm not embarrassed at all to take commissions on products. I think commission planners tend to be viewed somewhat like used-car salesmen. If a planner is ethical, it shouldn't matter how he gets compensated. If a planner is unethical, you're going to get shafted anyway."

According to Nancy Johnson Jones, CFP and chief compliance officer at BKD Wealth Advisors LLC in Denver, there are three compensation models, which helps to differentiate a CPA's involvement in the financial-planning practice.

For those interested in fee-only compensation, Johnson Jones, who is also a member of the board at the Certified Financial Planner Board of Standards, said that CPAs can become independent registered investment advisors and work in their own firm, or choose to be an RIA associated with a broker/dealer that allows fee-only.

For fee- and commission-based compensation, a CPA must register with a broker/dealer and can be an affiliate, or if the broker/dealer allows, the CPA may establish an independent RIA. In commission-only relationships, registration with a broker/dealer as a registered representative is required.

Each model requires different licensing exams, according to Johnson Jones. Designations such as the Certified Financial Planner, PFS, Chartered Investment Counselor, Chartered Financial Analyst and Chartered Financial Consultant are accepted by most states in lieu of the Series 65 or Series 66 securities license. Either the Series 6, which allows you to sell mutual funds, variable annuities and insurance, or Series 7, which allows you to sell securities, are required for registration with a broker/dealer. The Series 65 and 66 are required for licensing as an investment advisor representative or RIA.

Many accounting firms choose to affiliate with a broker/dealer because of the education, training and guidance through the licensing process, as well as help with the business set-up. As a result, more broker/dealers have catered their offerings to CPAs by adding fee-based planning services to their platform.

Dallas-based broker/dealer 1st Global offers a business-building system called the Matrix, which is a 600-page guidebook for CPAs, in an effort to help CPAs initiate and grow a wealth management business, according to vice president of marketing Bill Stevens. The Matrix is part of the company's Wealth Management Academy, which includes five intensive summits a year focusing on wealth-management issues. Other offerings include monthly peer networking opportunities through 23 regional teams, and specialized training for wealth management assistants.

"Because CPAs and tax professionals are technically competent but unfamiliar with 'selling' their value to clients, we offer a suite of education programs that far exceeds any other firm, and every program is built with CPAs and tax professionals specifically in mind," Stevens said.

A new offering that Irving, Texas-based HD Vest Financial Services is introducing this year is inviting prospective advisors to local chapter meetings in an effort to offer CPAs a networking opportunity before they make a decision on partnering with a broker/dealer.

"We personally believe that there's no better place to be than in a room full of other CPAs who have made the same decision," said LuAnn Colosimo, CFP, CFS and director of recruiting at HD Vest. "They are free to visit and ask other CPAs how do you handle the structure of the business, how do you compensate your partners, how did your clients feel about this service, what percent of your revenue comes from financial planning? These are the kinds of things they want to get from another CPA."


Once a firm has decided to take on financial planning, it's smart to design a business and marketing plan to build a strategy for what services they want to offer.

"CPAs should be good at this. But you're always better at doing it for other people than yourself," said Nancy Lininger, founder of The Consortium, a compliance consulting firm in Camarillo, Calif. "Figure out if this is a viable enterprise and what services will we offer. Will we offer just financial planning or just portfolio management, or a combination of both? Are we going to offer services where we need to be affiliated with a broker/dealer, will we be fee-only or include commission? That's all part of the business plan and that's the first step."

During this time, Lininger advised prospective financial advisors to be shopping around for a compliance consultant to assist in the necessary paperwork, such as the Form ADV to register as an investment advisor with the Securities and Exchange Commission; a full disclosure document for clients; letters of engagement; and written supervisory procedures - even in a one-person operation - to have accessible to regulators in case of a "trade" error.

Lininger suggests, too, designating someone within the firm as chief compliance officer.

Not every partner in your firm needs to be licensed, but there does need to be an understanding that a particular individual is the go-to person for information pertaining to financial services. This may be challenging, especially for senior partners who have been providing casual financial advice to clients over the years.

"Now, all of a sudden, old timers are like, 'Why do we have to change?'" Johnson Jones said. "They were giving advice in a much more generic sense and they weren't advertising it. When they start what regulators call 'holding themselves out' and make that a known part of the services they offer to clients, I think that's when they cross the line where it's no longer incidental."

As a result, more firms are registering as investment advisors. If they don't, however, it's important that partners understand that there is a leader in place to coordinate the firm's financial services.

"The most critical thing is to have someone who's designated as the leader of the practice and someone who's going to dedicate themselves full-time," Plante Moran's Palmer said. "I think a number of CPA firms take a tax partner or someone and say, 'Gee, outside of tax season, why don't you see if we can try to build a practice in this area?' I don't think that works. I think it needs to be someone who's dedicated to it full time."

Robert A. Mathers, JD, CPA/PFS and chief executive of Madison, Wis.-based Clifton Gunderson Financial Services, agreed. From 2000 to 2005, Clifton Gunderson grew from no assets under management and advisement to approximately $600 million, about $1.5 million in insurance commissions, $250,000 in brokerage commissions and about $500,000 from financial-planning services from subsidiaries, Mathers said.

In January 2006, Mathers went from being national tax practitioner for the firm, to taking on full-time management responsibility of the company's subsidiaries. The firm has since created its own independent broker/dealer.

"Most tax practitioners treat financial planning like an offshoot of tax services, and it's so much more than that," he said. "If I were starting a financial-planning practice, I would either get a partner or a senior manager going full-time, or I would affiliate with a solicitor. You need somebody who knows what they are doing, that wakes up in the morning thinking about it."

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access