The Commission Commitment: Is It Right for You?

By Klein, Ron | The CPA Journal, September 1999 | Go to article overview

The Commission Commitment: Is It Right for You?


Klein, Ron, The CPA Journal


In Brief

Is it Time to Take the Plunge?

CPAs have long looked with envy at the sizable commissions that third-party vendors-securities brokers and insurance agents-are paid for executing a financial or estate plan that the CPA has masterminded. Exacerbating this envy, was the willingness of the vendor to share some of the commission. But licensing regulations and ethical restrictions have kept CPAs from participating.

But that is all changing. For some time now, the AICPA code of conduct has allowed its CPA members to accept commissions on behalf of clients for whom they perform nonattest services. The latest version of the Uniform Accountancy Act (tAA) follows the AICPA rule, and many states, including New York, have enacted or are considering legislation that follows the UAA. In the meantime, New York regulators have recently concluded that under the existing rules, commissions can be accepted where no financial statement (attest) services are provided to the client.

In this environment, CPAs and CPA firms are seriously considering whether to enter the commission-based world of financial planning services. Ron Klein, president of CAlICO Insurance Company's educational arm gives advice to those planning to take the plunge. He especially focuses on best practices in situations where the CPA decides to enter into alliances with third parties to help deliver services to clients.

Should CPAs accept commissions from third parties for the performance of professional services for their clients? Few issues seem more debatable-or more timely-within the accountancy profession. A commission-based practice can be a lucrative tool to provide additional and improved client services. But it can also open a Pandora's Box of legal and perceptual questions that many would prefer remain closed.

Traditional CPAs that oppose commissions fear the practice poses a threat to their professional reputation. CPAs, they argue, have earned the public's trust as independent advisors. This trust can easily be violated because the CPA places, or is perceived to place, the opportunity to obtain a profitable commission ahead of the clients' best interests.

Other CPAs support a commission-based practice. To compete in today's one-stop-shopping world, many firms are offering a broader array of services to their clients. They set up separate business entities for these commission-ased services. Proponents maintain that clients are willing to accept commission-based practices in exchange for these services, provided their accountant's objectivity and ethics are not compromised.

The issue of commission-based practice has less to do with how CPAs are compensated and more to do with the kinds of new services they offer and how such services will be delivered. Many CPA firms simply aren't large and diverse enough to offer the wide range of services that clients typically demand. The services can range from tax and financial planning to technology consulting, organization development, and investment advice.

A viable option for those CPA firms is to build long-term alliances with other service providers. In other words, CPAs should only consider commissions after deciding which services they can and wish to offer. Those CPAs who simply regard commissions as a route to earn more money should be aware that poor planning could make them vulnerable to liability suits.

State Rules on Allowing CPA Commissions Gathers Momentum

Currently, more than 30 states allow CPAs to accept commissions in limited situations. In the context of the accountancy profession, a commission is a payment from a third party to a CPA for services the CPA renders to the CPA's client. A commission is not a referral fee. Most state laws expressly bar CPAs from accepting a commission solely for referring a client to a third party.

The issue of commissions is currently before New York State legislators. …

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The Commission Commitment: Is It Right for You?
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