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PFP: what it takes: credentials, time commitment among considerations of offering PFP services.

CPAs who provide tax and other financial services already possess many of the requisite skills to provide personal financial planning services. And the trust-worthiness and competency inherent in the CPA brand--our status as the trusted adviser--gives CPAs a competitive advantage as financial planners.


Further, as financial illiteracy reaches epidemic proportions, the time is right to be a personal financial planner.

In a 2004 CalCPA survey, 40 percent of California respondents reported carrying credit card debt every month, while 58 percent don't save any fixed amount of earnings monthly. Meanwhile, almost 40 percent of all CPA firms will offer financial planning services by 2006, up from 14 percent in 2002, according to a survey by Tiburon Strategic Advisors.

Whether or not they describe themselves as financial planners, many CPAs may provide some element of these services. For example, advising a client on a home mortgage may begin as a tax engagement. But if the client asks, "How much house can I afford and still be able to retire?" the forward-looking scope of the engagement expands to include financial planning.


To help determine whether financial planning is right for you, ask yourself:

* Are you at ease discussing highly personal subjects with clients? For example, understanding the client's life goals and dreams, addressing their career decisions, and dealing with conflicts between spouses about money are all part of financial planning.

* Are you comfortable giving advice based on assumptions about the future, which are inherently uncertain?

* Do you like learning new skills, such as acquiring knowledge of investments and insurance?

* Are you willing to devote enough time to provide this service proficiently?

Once you've assessed your comfort level, you can turn to honing your skills. Financial planning requires technical knowledge of investments, insurance, risk management, estate and income tax. One way to determine your skill level is through the AICPA's Competency Self Assessment Tool,

But possessing that intellectual capital alone isn't enough. Financial planning takes that technical expertise and applies it to an integrated process of identifying client goals, evaluating alternative paths and making recommendations accordingly.


Obtaining a financial planning credential is an objective way to determine your qualifications and communicate them to the public. There are a variety of credentials to choose from, each with their own features.

PFS--Unlike other certifications, the Personal Financial Specialist is awarded only to CPAs who are AICPA members. The credential differentiates and emphasizes your CPA background, and since the CPA license is a requirement, it requires the highest professional standards of any financial planning credential. Being part of the PFS community also provides a means to network with other experienced CPA financial planners.

To qualify, you must have an unrevoked CPA license, although you do not need to have an active CPA license. In fact, you already may qualify or be on track for the credential since the requirements give significant consideration to lifelong learning, experience and previous exams taken.

For example, a CPA who has provided 1,500 hours of qualifying financial planning services over the past five years, has passed a Series (7, 65 or 66) Exam, and has completed 150 relevant CPE credits or their equivalent in the last five years, is likely to qualify. Advanced degrees, selected readings, and authoring and teaching engagements can also be claimed as qualifying factors. For more information, visit

PFP providers who are AICPA members must adhere to the AICPA's Code of Professional Conduct and should adopt practices consistent with the AICPA's Statements on Responsibilities (SORs) in Personal Financial Planning Practice,

CFP--Some CPAs choose to obtain the Certified Financial Planning certification or both the CFP and PFS. CFP certificants must pass a 10-hour certification exam that tests general principles of financial planning, as well as specifics such as insurance planning and risk management, employee benefits, retirement, and estate and tax planning.

Those pursuing the CFP certificate also must have three years of relevant full-time work experience. CFP certificants must adhere to the CFP Board's Code of Ethics and Professional Responsibility and Financial Planning Practice Standards. For more, visit

CLU and ChFC--The Chartered Life Underwriter and Chartered Financial Consultant credentials usually are obtained by those who provide insurance services.


Before taking the plunge into PFP, consider the services you want to provide and how you will structure your practice. Depending on the resources to be committed, a firm or individual may decide to form a strategic alliance with another firm to provide some or all of these services.

The following models can be thought of as a continuum of offering more services, devoting more resources and developing more technical expertise.

For many, the business model often evolves from ancillary--providing limited advice--to a more dedicated standalone model and eventually to include investment advisory services.

Ancillary--A streamlined approach, the ancillary model has the practitioner providing limited advice as an adjunct to another area of practice, such as tax services.

More than 80,000 CPAs in the U.S. view themselves as providers of personal financial planning services, according to a recent AICPA estimate. Most of these practitioners do not advertise themselves as financial planners, however, clients often ask them to provide information regarding personal financial planning matters.

This model may be appropriate for CPAs who want to be responsive to their customers' needs, but may not want to devote a significant amount of time or resources to this practice area. In such cases, forming strategic alliances with firms who provide financial planning and investment management services can be helpful.

This model also may be serve as a transition for those interested in making a larger commitment, but are not yet ready. Since revenue generated and resources devoted are limited, there is little impact on your business structure. But there are a few issues that deserve a note of caution.

First, be aware that offering PFP services goes beyond providing practical or simple answers to a client's personal finance questions. The financial planner follows a process of establishing the client's goals, analyzing the client's situation and developing recommendations.

CPAs who provide PFP services should become familiar with the AICPA's SORs for PFP engagements and assess how to integrate them into their practice.

In addition, it is important to seek the advice of a securities compliance consultant or attorney. For example, if CPAs provides investment advisory services beyond an "incidental basis" or promote themselves as providing PFP services, they may need to register with the state or SEC as a registered investment adviser.

Standalone Financial Planning--With this model, the firm is in the business of providing financial planning and promotes itself as a PFP provider. Among the issues to consider:

* How will I charge for my service? Hourly? By project? Retainer?

* How much staff and my own time will be devoted to the service?

* What financial planning software will I need?

* What additional policies, procedures, books and records must be adopted to comply with securities laws if registered as an investment adviser?

By its nature, financial planning is labor-intensive and project-oriented. It is common for those offering PFP as a standalone service to conclude it is difficult to offer the service profitably. Through training and experience, however, the process becomes more efficient. This profitability dilemma leads many to expand into offering investment services.

Some firms decide to offer standalone financial planning as part of a package of services to differentiate themselves. They may decide to limit the scope of services, for example, to exclude investment management because that would require additional expertise, regulatory compliance, staffing, software and recordkeeping requirements.

But if the CPA offers standalone planning, many of the clients will still want and need investment implementation assistance. The firm may want to consider forming a strategic alliance with one or more firms that provide investment implementation assistance, that have a shared investment philosophy and would work closely with the financial planning firm.

Financial Planning and Investment Advice--Many CPA financial planners offer investment implementation services in addition to financial planning. This is often seen as a more profitable business model, since some find it difficult to build successful client relationships unless they assist with investment implementation.

Among the key issues to consider are:

* How will you be compensated? Will you operate on a fee-only basis--paid only by the client--or be compensated by third parties generally in the form of commissions? Both the SEC and state regulatory agencies require disclosure of compensation method and California CPAs also must comply with specific rules governing compensation method (Business and Professions Code Sec. 5061 and related regulations). Other decisions about compensation include whether to bill based on assets under management, annual retainer or some other method, as well as determining the target client profile or minimum fee.

* How will you operate your firm? What will be outsourced? Are you willing to hire and train staff in the operational aspects of investments, including trading and client service, to handle day-to-day investment account issues?

* Those who manage investments will either affiliate with a financial institution or, if they provide services independently, register as an investment adviser with California or the SEC, depending on the amount they manage. The burden of compliance has grown in recent years and has become a challenge to small, independent firms. Frequently, CPAs set up and operate an entity separate from the CPA firm due to regulatory requirements. Again, seek the advice of a securities compliance consultant or attorney when considering this model.


The time has never been better to be a personal financial planner. CPAs interested in including PFP in their practice should first consider their comfort level in providing these services. In addition, pursuing credentials, determining the amount of time and resources to devote and how it will affect the business structure, are key steps in the financial planning journey.


Karen Goodfriend, CPA/PFS, CFP, MBA is a Los Altos-based fee-only financial adviser with Allied Consulting Group and past chair of CalCPA's Personal Financial Planning Committee. She also serves on the AICPA Personal Financial Specialist Credential Committee and is a former member of the AICPA's Personal Financial Planning Executive Committee. You can reach her at
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Title Annotation:FINANCIAL PLANNING; personal financial planning
Author:Goodfriend, Karen
Publication:California CPA
Geographic Code:1U9CA
Date:Sep 1, 2005
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