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Career Opportunities For New CPAs As Personal Financial
Planners
by Kevin J. Sigler, PhD, CFP
New CPAs entering into public accounting firms have an outstanding
opportunity to perform personal financial planning for clients, in addition
to traditional accounting services. The market for financial planning
services in the area of tax planning and estate planning, as well as the
coordination of investment and retirement planning, is growing; it is
a natural niche for CPAs. The market in these areas will be expanding.
Baby boomers are moving into middle age, planning for retirement, and
standing in line to inherit money from their parents in the coming years.
The public perception of CPAs, as having expertise and integrity, gives
them an edge over the competition in providing financial planning services;
if they properly market themselves, CPAs will be in position to dominate
this line of business.
Market
The amount of wealth that will be transferred from parents
to children (baby boomers) over the next 5 to 20 years in the United States
is staggering. Nearly $1 trillion will change hands by the turn of the
century, and almost $5 trillion will be transferred by the year 2016.
Retirement planning and estate planning is also becoming
more important to the general public, since most employees who have a
retirement plan are today involved in some type of plan that places the
burden on them to choose the vehicle for investment. This is unlike the
traditional pension plan that many U.S. employers have offered in the
past. The traditional pension plan offered by an employer calculates the
payout of retirement income to the participant based on a set criteria,
such as time of service and the amount of salary drawn during employment.
Today, employees are involved in such retirement plans where
once vesting requirements are met, the money invested for the participants
will actually become theirs and part of their estate. Given the nature
of these type plans, the amount of retirement income yielded by them will
be based on how well the investments of the plan fair before and after
retiring. Therefore, retirement plan participants many times have the
task of managing their own retirement funds and must choose investment
vehicles for the money.
The 401(k) plan is one such plan where the participants
choose their own investment vehicles among a variety of choices. The retirement
plan accumulates equity for retirement based on the contribution of the
employee (and employer) and the performance of the plan's investments.
In addition, these kinds of retirement plans allow the participants, after
leaving their employer, to roll the vested value of the plans into Roll-Over
IRAs and direct the money themselves.
In many cases, it is up to the individual to choose his/her
investment strategy in order to build for retirement. They are faced with
complex decisions that lead them to seek advice from personal financial
planners. This situation has and will continue to present an opportunity
for CPAs to perform financial planning for individuals, in addition to
handling the accounting needs of their clients.
Perception Of CPAs As PFPs
The public appears to prefer that a CPA performs their individual
financial planning over others. According to survey results by Chesser,
Moore, and Sakarda (Consumer Attitudes About Accountants as PFP Providers,
Journal of Accountancy, June 1996), individuals choose PFP services from
CPAs because CPAs know their clients and understand their goals; they
stay informed about tax matters; and they serve as an objective party
in handling financial decisions. The survey also cites the high level
of knowledge and ethical standards that CPAs possess as reasons why they
choose CPAs over other financial planners.
Another survey by Chesser and Moore (The CPA-Financial Planner:
Some Insights, The CPA Journal, April 1996) indicates that individuals
want independent and objective advice when selecting a personal financial
planner, and CPAs are viewed as having these qualities. Other reasons
for selecting CPAs as financial planners include: to reduce taxes for
the individual; to provide estate planning expertise; to plan for retirement;
as well as to coordinate investment, insurance, and tax advice.
This public perception---that CPAs possess expertise in
the personal planning area and have integrity and superior ethical standards---will
assist new CPAs at public firms in offering personal financial planning
services as an avenue to develop business and a client base.
Obstacles
Even though the public has a positive perception of CPAs
as personal financial planners for their clients, there are still some
reservations about using them in this capacity. A study by Fleming (Perceptions
and Expectations of CPA Financial Planners, Journal of Accountancy, June
1996) finds that some people feel CPAs are too conservative and have been
slow in promoting themselves to their clients as financial planners.
One way for CPAs to demonstrate their commitment to providing
financial planning services, as well as their expertise in the area, is
through professional designations. Many accountants sit for the Certified
Financial Planner (CFP) exam. Unless the CFP candidate already holds a
financial planning-related designation or has taken upper level courses
in the areas at an accredited college, he or she must complete a program
that has been registered by the CFP. Every candidate must also pass a
two-day exam, including topics in the areas of individual income tax,
estate planning, retirement planning, insurance, and investment planning.
There are also other designations such as Personal Financial
Specialist, which is available to only American Institute of CPA members.
Another designation offered by the American College is the Chartered Financial
Consultant. It requires nine classes, plus one elective. The National
Association of Personal Financial Planners specializes in financial advisors,
which are fee only. Obtaining any or all of these designations related
to individual financial planning will signal both commitment and expertise
in the financial planning field; they may overcome reservations of potential
clients about using CPAs for this service.
CPAs are in an excellent position to market individual financial
planning services since they will already be performing accounting services
for clients. The easiest and most efficient way of marketing this service
is to the existing customer base, by answering the questions posed to
them by clients in a manner that fosters their clients to think about
their entire financial position. It may lead to providing planning services
for them (see Freeman and Friend, Client Questions Clinic, Outlook, winter
1996).
Conclusion
New CPAs are in a position to increase the revenue stream,
as well as the number of services and clients, of their public accounting
firms by offering individual financial planning services. Because of the
expertise and integrity perceived by the public, clients are more likely
to be receptive to the notion of CPAs performing individual financial
planning services for them.
Kevin J. Sigler is a professor in the Cameron School of
Business at the University of North Carolina, Wilmington.
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