Even if the client isn't always right, helping clients understand and make the best financial decisions is always the right course of action.
CPAs understand the implications of financial decisions and strive to advise clients in ways that improve their financial well-being. However, clients frequently have multiple - sometimes conflicting - financial goals, and use other financial professionals, including financial advisors, attorneys and business consultants, to achieve them.
Clients usually attempt to find some combination of financial freedom or peace of mind, estate planning certainty or knowing that others will be taken care of after death, and tax strategies that minimize tax obligations. CPAs who consider client objectives, mediate discussions and involve other financial professionals provide a higher level of service that truly improves a client's financial well-being.
CPAs naturally tend to focus on the tax aspects of advising clients, however, it's important to recognize that clients have financial goals that go beyond minimizing and deferring tax. For example, clients frequently work with financial advisors with goals of increasing their liquid, investable net worth and producing investment income. As a result, financial advisors take a different approach to client service than CPAs and meet different client objectives. Because CPAs are usually seen as unbiased and objective, they are in a unique position to truly improve financial well-being by communicating with other financial professionals to coordinate the client's financial objectives.
In order to coordinate financial objectives, CPAs need to be aware of both client goals and advisor objectives. Looking at a seemingly simple example like the timing of a required minimum distribution (RMD) illustrates how financial professionals serve different objectives and how communication between CPAs and financial advisors can improve a client's financial well-being.
Most CPAs with clients over 70� advise clients to withdraw funds from traditional IRAs and pre-tax retirement plans as a lump sum; either a January distribution or as early in the year as possible. The recommendation for the lump sum early withdrawal reflects the CPA's goal to create an influx of cash (essentially income) that will not be taxed until the following April. In other words, the CPA seeks to improve the client's financial well-being by minimizing and deferring tax for as long as possible. However, withdrawing funds from a retirement account frequently involves liquidating investments and introduces investment risk that is best addressed by a financial advisor.
The timing of an investment sale involves a change to investment income (yield), portfolio composition, and the lost potential for future appreciation. As a result, a financial advisor is likely to recommend a RMD strategy that sells investments over the course of the year with hopes of achieving a higher average sale price and preserving investment income for as long as possible.
While both the CPA and financial advisor have valid objectives in the RMD example above, the client's unique situation should ultimately determine the timing. A client who needs immediate cash is very different than the client who takes an early distribution only to place the unused funds in a non-interest bearing account. The CPA and financial advisor would both surely agree that the highest and best use of the money is the primary goal.
While both CPAs and financial advisors are qualified to meet client objectives, these objectives are complex and specialized professionals are frequently used to meet specific objectives. CPAs are frequently seen as an objective advisor with access to a client's full financial picture. As a result, CPAs have a unique opportunity to act as a trusted advisor for client goals by communicating with other financial professionals. When CPAs and financial advisors work collaboratively with clients they are both are positioned to provide a higher level of service that improves the client's overall financial well-being.
Martin E. Levine has more than 30 years of experience working as a financial advisor and accountant. He provides advanced professional financial planning and advisory services for business owners, individuals and families. He is also the author of theWidows Survival Guide, which outlines financial planning strategies for women. His firm's website is www.4tfg.com and he can be reached at mlevine@4tfg.com.
