PERSONAL FINANCIAL PLANNING

May 2000

BUILDING A FINANCIAL PLANNING PRACTICE WITHOUT COMMISSIONS

By Joseph W. Tucciarone

The sale of financial products--stocks, mutual funds, and insurance policies--comes with the potential for significant compensation from commissions. Many jurisdictions now permit CPAs to accept commissions from clients for whom they do not provide attest services. However, the controversy over whether CPAs should accept commissions continues to be hotly debated on philosophical grounds. Can a CPA remain objective if the size of the commission is dependent upon which product the client purchases? Controversy aside, every CPA must ask, "Is it really worthwhile to offer financial planning services, and do I need to become a licensed stockbroker and insurance agent?"

The answer to these questions is both yes and no. Yes, it is worthwhile to offer financial planning services, and no, it is not necessary to be licensed. Being part of the blossoming field of personal financial planning can be very lucrative for CPA firms and the professionals they team with. The team approach to financial planning for clients is a model that, when followed, can lead to firm growth and increased profitability.

How can a firm become more profitable without obtaining securities or insurance licensing? Before addressing this question, we must consider the extensive time commitment required to become a licensed stockbroker or insurance agent and maintain those licenses annually. This consideration alone may be reason enough not to become licensed. However, time commitment notwithstanding, there are six ways financial planning services can be profitable without commissions.

* Fee for Services. Accountants tend to charge for their time and expertise on an hourly basis. In the past, many CPAs offered financial planning advice as part of their tax preparation or consultation services. It is customary in the financial planning community to charge a fee for the development of a financial plan, based upon its complexity and the time expended. I estimate the CPAs working in our network spend between 12 and 20 hours developing fairly sophisticated and complex personal financial plans, which can be priced between $3,500 and $7,500, yielding an attractive hourly rate. Once recommendations are made, the CPA can work with others to help implement the plan--and bill for this time. Periodic updates of plans, done to effectively meet clients' objectives, are another source of fee revenue.

* Set Fee for Financial Plan. There are a number of organizations that offer flat rates for personal financial plan preparation. This method of billing is typically based on average hourly fees but determined in advance of the work being done. It includes the cost of an allied organization that prepares the plan from the raw data supplied by the CPA. While the CPA is involved in the entire process, the analysis is done by the allied organization, and the finished product is given to the CPA for review and approval. The CPA then presents the plan to the client for a previously agreed-upon fee.

* Referrals to Licensed Stockbrokers and Agents. Obviously, stockbrokers and insurance agents make commissions on the sale of financial products to clients referred to them by CPAs. In return, the CPA should expect referrals to prospective clients or, if permitted in the jurisdiction, a specific access fee. CPAs should develop relationships with financial services professionals--insurance agents and stockbrokers--that are mutually beneficial and produce referrals from both directions.

Stockbrokers and insurance agents benefit from a competent CPA leading the financial services team. They frequently have clients that are in need of a personal financial plan but may not be comfortable with one developed by the individual selling the financial products. Clients may prefer a plan developed by an independent CPA not relying on a commission.

* Additional Work for Existing Clients. The best prospects for new business usually rest with clients for whom the CPA has done good work in the past that are comfortable with the firm and its services. Some firms find that simply offering more sophisticated financial planning services to existing clients can justify the move into the field. If a firm develops only a few plans annually or increases billable hours by a mere 10%, the investment of time and effort will be justified. In addition, although current standards prohibit CPAs from accepting commissions on behalf of attest clients, there is no prohibition to offering those clients fee-based financial planning services.

* Developing New Tax Clients Through Financial Planning. New services can lead to new business in established areas, especially if marketed properly. Many CPA firms that have ventured into personal financial planning have seen growth in other areas of their practice. CPAs that do not accept commissions for financial planning are free to offer traditional accounting and auditing services to new financial planning clients.

* I>Educational Seminars for Clients and Prospects. Seminars are perfect opportunities for introducing clients to the financial services professionals with whom the firm has developed working relationships. A CPA and an insurance agent, for example, can develop seminars that assist each to grow their respective businesses.

The Controversy Will Continue

The need and desire to become licensed to sell financial products continues to be a controversial subject in the accounting profession. Business growth and prosperity through providing financial planning services, however, is not based on receiving commissions alone. Firms can see significant growth from several different avenues when they commit themselves to growing their core business through personal financial planning services. *