Magazine article The CPA Journal

PFP | Advisors Involved in Financial Planning

Magazine article The CPA Journal

PFP | Advisors Involved in Financial Planning

Article excerpt

Many CPAs perform financial planning services, as do numerous other types of professionals. This article provides an overview of different kinds of financial advisors and their role in the overall financial planning process. It also covers recent legal developments regarding the duty to act in the client's best interests.

Proposed Regulations

The Department of Labor (DOL) recently announced a proposed Fiduciary Rule that would require financial advisors to consider the best interests of their clients when they make recommendations. Whether promulgated or not, this rule raises the serious issue of whether clients engaging financial planning professionals are being shortchanged or not getting what they expect. In addition, the proposed regulations have opened a floodgate of lobbying against the implementation of the requirements to serve the best interests of the clients.

Those opposed to the rule claim it could change the way they do business, affect their client relationships, and increase their costs. Implicit in their opposition is that it will reduce their revenue. Furthermore, some major organizations have announced plans to sell off parts of their businesses because they will not be able to make money under the Fiduciary Rule.

This rule will require financial advisors and brokers handling IRAs and 40i(k)s to act in the best interests of their clients. The authors believe this should also apply to all client investment activities and accounts that are provided financial advice. "We put our clients first" is a myth for a large part of the financial services industry, and the DOL wants to make it the reality.

Fiduciary Responsibilities

According to the DOL, most people believe that when they engage an investment advisor, the advisor will act in their best interests. That is not the case, and violations of trust are so egregious that the DOL has proposed regulations to address it. The financial services and insurance industries are very broad, and many people hold themselves out as investment advisors, registered representatives, financial planners, and other similar designations. Many have multiple initialed credentials, supposedly signifying expertise and trustworthiness. In reality, these designations might not mean either.

Financial Professionals

All CPAs can provide financial planning services, and many do, especially in conjunction with tax return preparation. Some of this is incidental to tax advice, and some is offered as a separate service. Furthermore, many CPAs are licensed to sell products, manage investments, or receive referral fees and portions of the income when they recommend a person or organization to a client for such services. There is nothing wrong with this if the CPA is properly licensed, full disclosure has been made to the client, and the services are not performed for an attest client.

While CPAs do not need additional licenses to provide the services incidental to their other services, they will need to be properly licensed if they sell products or manage investments. An estimated 100,000 of the AICPA's 400,000-plus members provide some form of financial planning services. Furthermore, the AICPA offers a Personal Financial Specialist (PFS) designation, with approximately 5,000 members holding that credential. In addition, there are over 10,000 members in the AICPA Personal Financial Planning section, including the PFS holders. The vast majority of CPAs providing these services feel that the CPA license, their additional learning and continuing education, and their experience are sufficient to provide financial planning services. The authors-who both hold this designation-feel confident that this demonstrates expertise to people who are not already familiar with the services CPAs offer.

By way of comparison, the primary certification in the financial planning industry is the Certified Financial Planner (CFP; designation, currently held by more than 73,000 U. …

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