The ongoing economic downturn offers accountants the opportunity to extend their reach and help their clients at a time when they are most needed.
"Any accountant has insight into their clients' financial situation," said Jonathan Wittlin, CPA, CFP, vice president and portfolio manager for financial planning at Lenox Advisors. "The CPA who prepares returns is in front of clients at least once a year to review what's going on, gather documents, etc. If they're doing their job, they'll also be asking questions about any life changes that may be happening, and what the client expects from an income standpoint."
Wittlin sees financial planning as a natural outgrowth of tax preparation. "Knowing the client's tax situation is a huge help from a planning standpoint," he said. "It's a natural fit for the CPA to move into a [financial] planning role."
"You never know whether it will be good times or bad times," he observed. "The next problem or the next big boom could be just around the corner, so it's important to become familiar with the client's situation. If you know what their goals and problems are, you can advise them when the economy does things none of us expect."
Lenox takes a team approach to financial planning. "We don't have in-house CPAs," said Wittlin. "If a client comes in and says he's been working with Joe CPA for 15 years, that's who we'll use. We make him a part of the team. In the ideal situation, it seems as though we're all working for the same company. We stay in touch with each other and share information."
CPAs enjoy an advantageous relationship with their clients in comparison to other financial advisors, said Mark Merenda, the president of Naples, Fla.-based Smart Marketing. "Everyone who pays taxes has to come in once a year," he said. "Other financial advisors would love to have that advantage. Accountants are traditionally focused on cost savings, and in times like these, that's seen as a very positive quality in the eyes of most investors."
TOUGH YEAR FOR PLANNERS
"Financial advisors who aren't CPAs have taken a brutal beating in the last year-and-a-half," said Merenda. "Whether they charge on a fee or an asset basis, it's been a tough year. For example, if you get paid a 1 percent fee on a $2 million portfolio, that's $20,000. But if the assets lost 40 percent of their value over the past year-and-a-half, your income is down by that amount."
Moreover, a fair amount of clients want to blame their financial advisors for the recent tough times, he explained. "That creates an opportunity. People who are unhappy with their investments will be more willing to consider making a change in their advisors. Accountants are respected as being cautious and prudent with their clients' money, which is exactly what most investors want today."
Jim Sharvin, a Los Angeles-based CPA, works in tandem with his clients' other advisors. "I don't sell any products, although I've thought about it," he said. "I decided that I can offer a more independent perspective by working in a team environment."
"Financial planning is a natural outgrowth for CPAs who prepare their clients' returns," said Sharvin. "We know the whole financial situation and financial health of a client. We can see in a nutshell where the assets are headed. The return provides a great reference tool in sitting down with the client."
"My clients typically have a lot of income up front, and sometimes only for a short time," explained Sharvin, who specializes in professional athletes. "For most of them, it's all about cash flow. They think they're in great financial shape as long as they have cash to pay all the bills. That's better than not having enough, but just because they have enough short-term cash doesn't mean they'll have the assets to support their existing lifestyle projected out over 10 or 15 years."
"We try to shelter that money and provide a payout at the back end. For example, they might place their signing bonus in something they can't touch for 10 years, and after that, they might get $100,000 on an annual basis," he said. "It's not designed to be anything other than supplemental income. In 10 years they might be in broadcasting or injured, so it provides a nice revenue stream for athletes who now are in their mid-20s."
WORKING WITH OTHER PROS
As part of the team approach, Sharvin works with insurance brokers and other financial advisors. "A lot of times, they're inundated with so many friends who are also advisors that they don't know if they would have picked the advisor without that friendship. It helps them to have an independent CPA's viewpoint and still retain their long-term relationship with the friend-advisor."
The need for financial planning by advisors who are familiar with their clients' tax situation is more important than ever, said Holliston, Mass.-based tax preparer Larry Novick. "It's a result of the economy and government's response to the economy, which is to spend and spend," he said. "Tax planning follows tax preparation, and it's fair to say that over the next few years the tax rates will be phenomenal."
In contrast to the team approach, Novick has Series 7 and Series 63 licenses, and can sell the products that he recommends. "I have a one-stop shop," he explained. "I already know the tax implications of the products I sell based on my clients' financial situation, and that's very important. Many advisors just sell a product and let someone else worry about the tax impact."
Regardless of the approach, CPAs make great candidates to be financial advisors, said Lenox Advisors' Wittlin. "However, they should make sure they have the basic knowledge. I would want to get one of the designations [such as the CFP or PFS], since there is such a broad amount of information they should know."
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