3 steps for CPAs to make qualified plans a profitable part of their business

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As more consumers seek out a single source for both tax and financial planning, a growing number of CPA firms are bringing financial advice in-house.

The financial advisory industry presents a huge opportunity for CPAs firms. I heard at a recent retirement symposium that for every $1 in qualified plan business there is approximately $7 in ancillary business through IRA rollovers, insurance, succession planning and other complementary financial services. Being able to offer financial services support in addition to tax advice leads to better client retention, deeper relationships and additional sources of revenue.

But even those CPA firms that have taken the leap into financial planning are often challenged with how to attract new clients, as well as transition existing tax clients into the financial advisory side of their business.

Qualified plans can be a great entry point and conversation starter for CPA firms as they build their financial services model while tapping into the trust they have built with current clients. We have seen a lot of interest in qualified plans coming to CPA firms, which is helping them to not only grow revenues in the financial services part of their business, but also establish the firm as financial services experts. Moreover, as the U.S. Department of Labor recommends that all plan sponsors benchmark fees and services every three to five years, advisors who reach out to offer their services to help evaluate these plans are not only helping prospective clients find better plans, they are also helping to satisfy their fiduciary responsibilities.

Here’s how they are making qualified plans a profitable part of the business.

Step 1: Segment Prospective Clients

Start by identifying targets, including existing business tax clientele and small business partners. Next, segment the list into those who do and do not have qualified plans. To do this, the best option is to invest in software and tools that provide visibility into publicly available data.

Many advisors use Judy Diamond Associates, which provides visibility into whether or not a prospect currently has a plan, and if so, how that plan scores relative to its peers. If they do have a plan, using the plan’s most recent Form 5500 tax filing, the software identifies red flags and deficiencies the plan may be experiencing such as corrective distributions, a high percentage of retirees and excessive fees, all of which could be indicative of a poorly managed plan.

For example, if a plan sponsor is making a matching or profit-sharing contribution, and experiencing corrective distributions (refunds), an advisor might re-characterize the employer contribution from a discretionary contribution to a Safe Harbor contribution. This could eliminate the possibility of refunds going forward.

Or, if the plan has a high percentage of retirees, it could create additional fiduciary oversight and liability for the plan sponsor and potentially increase the fees for the remaining participants. Financial advisors could take this opportunity to educate participants on distribution options or educate the plan sponsor on implementing an automatic cash-out provision.

Step 2: The Plan Review

Once an advisor has completed the first step and has a solid view of the strengths and opportunities of a prospect’s qualified plan using data, the next step is to set up a meeting and offer a Plan Review. In this step, the human element is critical in helping put data into action.

During this meeting, an advisor should spend time getting to know the likes and dislikes of a prospect’s current plan or advisor and discuss each category of their plan, including plan administration, design, investment offerings, education, compliance, fiduciary review and fees. An advisor should seek to understand a plan sponsor’s pain points, which could span from poor vendor or provider technology to an unhelpful advisor to a lack of fiduciary support.

Lastly, advisors need to gather the most recent annual plan review and fee disclosure notice, which offers all the information needed to start collecting relevant proposals — particularly for providers that excel in areas where the current plan falls short. Once outside proposals are collected, build a side-by-side vendor comparison and analysis, which will serve as the benchmark.

Step 3: Present Solutions

Present the comprehensive review and benchmark for the client, offering a side-by-side vendor comparison with the current plan. The presentation should help the prospect evaluate potential cost savings, the impact to participants, and additional resources available (such as educational services, financial wellness, administrative outsourcing and fiduciary support) compared across the spectrum of plan providers.

In the end, for a plan sponsor to decide to make a change, they must be assured they are being shown a competitive, efficient solution that is in the best interest of the participants.

Once they have chosen a new plan, it’s worth noting that the transition to the new plan takes about 60 days.

CPA firms are uniquely suited to expand into financial services through qualified plans because they can use their existing base of business and already bring the knowledge of business issues and tax implications that build trust. While some CPA firms outsource qualified plans to others, there is no reason why those with financial advisor licenses cannot use this opportunity to leverage those licenses, strengthen relationships with clients and ultimately grow their business.

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Tax planning Financial planning Client strategies 1st Global