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Public accountants and personal financial planning: do we really want to play second fiddle?

Public Accountants and Personal Financial Planning: Do We Really Want to Play Second Fiddle?

Public accountants are ideally positioned to take part in the personal financial planning revolution. However, public accountants need to decide what part they want to play. In a recently published IAFP/Gallup consumer survey(1) only 22% of the respondents indicated that, if they were to chose one financial professional to help them plan budgets, savings, investments, taxes and retirement, they would select an accountant. Almost twice as many individuals reported that they would choose a financial planner. Accountants fare even worse among consumers currently using professional financial planning services. The survey reports that individuals currently use financial planners more than three times as often as they use accountants for these services. Because of their training and experience, accountants should be natural choices as personal financial advisers. After all, they understand budgets and financial statements and are intimately acquainted with the Tax code and their clients' tax returns. Yet, based on market perceptions, accountants may be doing something wrong, and playing second fiddle.

The objective of personal financial planning (PFP) is to help individuals identify their financial objectives, develop a plan for meeting those objectives, implement the plan and then monitor its performance and make any necessary adjustments as objective and circumstances change. Comprehensive and coordinated planning services cannot be provided unless the accountant is willing and able to provide support through the entire planning process while focusing on all of the client's financial objectives. Individuals' objectives differ widely, however they generally fall into the categories of risk management, wealth accumulation and management, retirement planning, and tax and estate planning.

The specialized services offered by most public accountants may appear to limit their ability to solve clients' personal financial problems and demonstrate a lack of interest in them. Individuals offering personal financial planning services need to be broad-based generalists. The accountant/financial planner needs to be part psychologist, part investment and insurance analyst, part tax professional, part accountant and part lawyer.

Public accountants are well-qualified to help their clients develop and implement tax plans. In fact, public accountants in general may be viewed as tax and financial reporting specialists who are unqualified to function in the other areas of financial planning. After all, risk management planning presupposes a certain degree of expertise in all aspects of insurance. To develop wealth accumulation and management plans, the accountant must be familiar with investment opportunities ranging from mutual funds to private placement limited partnerships. Retirement planning is as complex and foreign to many accountants, and tax and estate planning requires that the accountant go beyond the normal function of return preparation and consider such varied subjects as wills, estates, trusts and life-time giving.

In spite of the perceptions and obstacles that may stand in the way, by carefully developing a PFP business plan, individual public accountants can change the part that they play in their financial planning markets. Making a strategic change in a practice's service mix without completely understanding why and without a well-developed implementation plan is a common cause of enterprise failure. It results in overextension without the necessary resource base and commitment. The PFP business plan helps public accountants identify their practice objectives, develop a plan for meeting those objectives, implement the plan and then monitor its performance and make any necessary adjustments as objective and circumstances change. The process is very similar to that used in preparing a financial plan for a client.

The first step in developing a PFP business plan should be to identify the objectives and rational for practice expansion. Any accountant considering adding personal financial planning services should ask several "why" questions. Questions like "Why do I think that I would enjoy personal financial planning?", "Why do I think that I would be any good at it?", and "Why do I need to add this service to the services that I already provide?"

The business planning process should continue with a self appraisal only if honest positive responses can be given to questions like these. This inventory of technical strengths and weaknesses is conducted to identify areas where additional expertise will need to be developed and to identify strengths that can be built upon. Training programs, courses, conferences and journals are available from a variety of sources, such as The American College(2), The College for Financial Planning(3), the International Association for Financial Planning(4), The Institute of Certified Financial Planners(5), and professional accounting organizations and societies. Continuing professional education courses can be used to enhance existing skills and to develop weak or missing skills. A practice review will also provide information that is critically important in developing a business plan. A review may show that clients have been drawn from a few related occupations, for example, teachers and social workers. These clients may provide a basis for a financial planning specialization based on the accountant's knowledge of these clients' common problems. The review may also disclose clients in related industries (law, insurance, and investments) with whom financial planning liaisons could be established.

These first two steps in developing a personal financial planning practice will help the public accounting firm identify where it is and where it would like to be. The third step is to develop the strategic plan. This plan answers the question, "How do I get from where I am to where I would like to be?" The plan should list, with a time table, the actions that will need to be completed before the service can be offered to clients. Several different approaches to practice development are possible within the plan. The go-it-alone approach may entail both the most risk and the most effort, but in the long run may also be the most rewarding. The public accountant who wants to go it alone will have to develop a wide range of skills and may need to undertake a lengthy professional education program.

The orchestral approach on the other hand is the quickest and least costly. Because diverse skills and expertise are needed in financial planning the public accountant may conduct and coordinate the efforts of investment advisers, insurance agents, lawyers and trust officers as they work together to develop a financial plan for a client. This approach may not be as rewarding because the public accountant does not act as the financial planner. However, it does provide the public accountant with broad exposure and can provide significant on-the-job training for the accountant. Moreover, it is an easy way to test the water without making a substantial investment in practice expansion.

The business plan must address the type of service to be offered. Financial planners have traditionally offered either fee-only planning services or commission-based services. Recent action taken by the Federal Trade Commission(6) may make it possible for public accountants to house the "orchestra" within the public accounting firm. A consent agreement with the AICPA, recently issued for public comment, would open the door for members of the AICPA, and most likely all public accountants, to accept contingent fees, and commissions and referral fees. This would make it possible for public accountants who orchestrate financial plans to accept referral fees and even accept slit commissions. However, the National Society of Public Accountants Code of Ethics prohibits its members from accepting commissions.

In the third alternative, the do-it-together approach, public accountants and other fee and commission based financial professionals join forces within a single firm to offer a complete range of accounting and financial planning services. This approach would make it possible for the public accountant to acquire expertise from practicing professionals while, at the same time, maintaining control over the planning process.

Personal financial planning services will never be offered by all public accountants, nor should they be. However, even if accountants do not become involved in personal financial planning, they must be prepared to share some of the traditional services, and clients, with financial planners. For example, many financial planners already offer tax return preparation services as part of their annual financial check-up. Nevertheless, with careful planning public accountants can position themselves as key players in this exciting segment of the financial services industry. There is no reason to play second fiddle unless you enjoy playing harmony.


(1)Green, C., "Win Some, Lose Some," Financial Planning, (June, 1989, pp. 97-104.

(2)The American College, 270 Bryn Mawr Avenue, Bryn Mawr, PA 19010, (800) 441-9466.

(3)The College for Financial Planning, 4695 South Monaco Street, Denver, CO 80237-3403, (303) 220-1200.

(4)International Association for Financial Planning, P.O. Box 100754, Atlanta, GA 30384.

(5)The Institute of Certified Financial Planners. Two Denver Highlands, 10065 East Harvard Avenue, Suite 320, Denver, CO 80231-5942, (303) 751-7600.

(6)"AICPA Throwing in the Towel?" Financial Planning, June, 1989, pp. 32).

David S. Murphy, PhD, CPA, CFP, is assistant professor of accounting in the School of Accounting at Oklahoma State University in Stillwater, Oklahoma.
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Article Details
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Author:Murphy, David
Publication:The National Public Accountant
Article Type:column
Date:Apr 1, 1990
Previous Article:Social security: the national dilemma.
Next Article:The client survey; a practice development tool.

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