Sounding the retirement alarm for baby boomers: CPAs, financial services providers heed the call.

by AICPA Custom Media Solutions

As record numbers of Americans start sprinting toward their retirement years, CPAs are being sought increasingly to help clients develop prudent financial catch-up strategies: many workers finally realize that Social Security and pension benefits may not be waiting for them at the finish line.

An astounding 94% of CPAs surveyed in last month's Bay Street Group/CPA

Insider[TM] reader poll felt that Baby Boomers--Americans born between 1946 and 1964--are not prepared adequately for retirement, with particular disconnects between how long they'll need to keep working, how much they'll need to save, how long they'll be retired and what kind of investment returns they'll earn on their retirement accounts. Nearly 1,200 AICPA members had responded to the survey at press time.

"Assume Social Security will be zero and plan accordingly," advises Richard J. Auld, retired partner of Eide Bailly LLP in Sioux Falls, SD. "Then whatever you get from Social Security will be like finding money in the street."

The good news for aspiring retirees is that, increasingly, CPAs are providing financial planning/advisory services to their clients--nearly 20% are doing so today, almost twice as many as were doing so in 2002, according to research conducted by CEG Worldwide; LLC, Bay Street Group, LLC; and the AICPA's PCPS division. Nearly nine in 10 (87%) respondents to the latest Bay Street Group/CPA Insider[TM] poll thought that CPAs would become more involved in financial planning over the next half decade. Many savvy financial service providers have developed CPA alliance programs to build on this momentum.

Taking a cue from the AICPA's Financial Literacy Program, members can be particularly effective at helping clients overcome their financial inertia. More than half (53%) of CPAs surveyed told us that Baby boomers in general had unbalanced investment portfolios; 52% said boomers were reluctant to "follow through on retirement planning"; and one in three said Boomers "failed to heed professional advice."

"Failing to plan is planning to fail" notes Scott M. Wakerley, CPA, president of a small Newaygo, Michigan firm. Adult workers should be putting "the necessary time and thought into planning, and then stick to it long term. They need to set aside at least 10% of salary for diversified investments utilizing tax advantaged savings."

Five out of six (84%) CPAs surveyed indicated that Baby Boomers have significantly under-funded retirement accounts, compounded by the fact that they'll be earning only 6.2% on average, on their retirement funds--and that's pre-tax. Nearly one third of surveyed CPAs said retirees should project annual rates of return of 5% or less (pre-tax) on their retirement savings.

Not only must aspiring retirees adjust to a single-digit investment climate, they must also stretch out their time horizons. Nearly two-thirds of CPAs surveyed said boomers are going to have to work longer than they planned, and they're going to have to make their retirement assets last longer. More than seven in 10 (71%) CPAs expected the typical boomer to be retired for at least 21 years, and nearly one third expected the typical boomer to be retired for 26 years or more.

"Too many individuals are focused on early retirement instead of working longer and planning a life span of 85 or more years," said Bill Quinn, president of a small firm in Clarksburg, WV. "The question for many should be: 'Would you be willing to postpone your retirement date if you thought you might live to be 85 years old or older?'"

"Personal financial planning is by definition a process," notes Daniel G. Corrigan, President of Middletown, Rhode Island-based Corrigan Financial, Inc. To be successful, clients and their financial advisers need to embrace a three step process: "One: Construct a financial framework. Two: Establish an investment policy. Three: Execute the financial plan/investment policy."

As we discussed in the July 2005 issue of The Journal of Accountancy, CPAs are particularly adept at helping clients understand the pros and cons of increasingly popular, but relatively complex investment options such as separately managed accounts, life settlements and 1031 property exchanges. Above (top left) are financial planning products and services most likely to be on the radar of today's CPAs.

Keys to successful financial service partnerships

While CPAs are undoubtedly intrigued by the potential windfall of offering financial services to their clients, they are taking great pains to ensure their integrity and objectivity remain intact. "We're are not really trying to sell our clients a product as much as we are offering independence and objectivity for what's best for them," cautions Chris

Bonfanti, head of a mid-size St. Louis firm. Before enlisting the expertise and considerable resources of major financial services providers, CPAs are particularly looking for vendors who can minimize the sales stigma, who match the CPA's dedication to objectivity, integrity and clients service, and who understand that a single unsuccessful financial services engagement can jeopardize a CPA's longstanding relationship with a client. Understanding "CPAs' responsibilities" and "respecting clients' best interests" are particularly important for financial service providers who are anxious to partner with small to mid-size CPA firms. The years ahead are sure to be an eventful time for Baby Boomers, but an exciting time for CPAs and savvy financial services providers.

Edited by Hank Berkowitz and Gordon MacPherson Designed by Lisa DeBellis and Sima Miladinov Coming in March: "Technology and the 21st Century CPA." For reprints or sponsorship information contact Hank Berkowitz [e-mail] 201-938-3538

Are Baby Boomers adequately prepared
For retirement?

% of surveyed CPAs who agree

No     94%
Yes     6%

Note: Table made from bar graph.

Source: Bay Street Group, LLC 2005

Will CPAs become more involved in
financial planning over the next 3-5 years?

More involved    87%
         Same    11%
         Less     2%

Note: Table made from bar graph.

Source: Bay Street Group, LLC 2005

In which areas of retirement planning
are Baby Boomers most lacking?

(% of surveyed CPAs who agree. Includes multiple responses)

                 Under-funded retirement accounts    84%
                 Not planning to work long enough    63%
Unreasonable high ROI expectations on investments    56%
                            Unbalanced portfolios    53%
     Not following through on retirement planning    52%
              Failure to heed professional advice    33%

CPAs projected annual rates of
return (pre-tax) on retirement
accounts over the next 20 years

79% estimate 7% or less
30% estimate 5% or less
Median ROI 6.2%

How many years should Baby
Boomers plan to be in retirement?

16 years or more    92% of CPAs agree
21 years or more    71%
26 years or more    32%

Note: Table made from bar graph.

Source: Bay Street Group, LLC 2005

Financial planning issues most likely to be addressed or
Recommended by CPAs in the year ahead

(% of surveyed CPAs who agree. Includes multiple responses)

         Retirement planning    75%
       Estate/trust planning    62%
           Wealth management    45%
             College savings    42%
Business succession planning    41%
     Health savings accounts    37%
     1031 property exchanges    36%
                   Insurance    34%

Note: Table made from bar graph.

Source: Bay Street Group, LLC 2005

CPA concerns addressed by the best
financial service providers

(% of surveyed CPAs who agree. Includes multiple responses)

   Avoid being too "salesy"    67%
  Understand mistakes could    54%
jeopardize client relations
  Sensitive to client needs    48%
                 Match CPAs    42%
      integrity/objectivity
           Understand CPAs'    29%
           responsibilities

Note: Table made from bar graph.

Source: Bay Street Group, LLC 2005

Top CPA concerns about partnering with financial services providers

by sector of the profession

                                       PA       BI       GNE

Understanding CPA responsibilities    34.1%    16.7%    25.0%
  Respecting client best interests    53.5%    35.5%    36.4%
   Protecting client relationships    61.1%    44.9%    34.1%

Source: Bay Street Group LLC, 2005

Key: PA = Public Accounting BI = Business & Industry

GNE = Govt., Education, NFP

                                    Small
                                    Firm     Med. Firm    Large Firm

       Understanding CPA            33.8%      29.1%        18.1%
        responsibilities
Respecting client best interests    52.9%      50.6%        34.6%
Protecting client relationships     56.8%      60.5%        41.7%
         Matching CPAs'             45.1%      37.2%        47.2%
     integrity/objectivity

Source: Bay Street Group LLC, 2005