What a difference 10 years can make. During the past decade, many accounting firms have gone beyond offering traditional accounting and tax services to developing signif icant financial and estate planning practices. In addition, in the fall of 1999, the Group of 100 (an advisory group formed by the AICPA to help map out the future of the accounting profession) recommended that the profession position itself to provide one-stop shopping for clients. Thus, it is not surprising that some accounting practices now offer investment advisory services and, in states where it is authorized, investment and insurance products.
Life insurance is a planning opportunity. The transaction can mean additional income and the chance to provide a valuable service. CPAs can be involved in several ways:
Policy audits. By ensuring that insurance policies have the proper ownership and beneficiary designations (e.g., designations that keep the insurance out of the insured's estate and avoid having a beneficiary such as a former spouse who may no longer be the intended beneficiary).
Insurance trusts. By reviewing any existing insurance trusts in order to guard against gift tax problems, protect the estate tax benefits of the trust, and confirm that Crummey notices are being sent to beneficiaries.
Buy-sell agreements. By reviewing existing buy sell agreements to determine whether businesses are adequately funded (e.g., by life insurance).
Maximize retirement funds. Where a substantial IRA or retirement plan interest will generate income in respect of a decedent (IRD), by determining whether life insurance should be used to provide liquidity to the estate and heirs for paying estate and income taxes on IRD (so they don't have to prematurely withdraw funds from the retirement accounts). This could allow the client's retirement funds to grow tax-deferred (or in the case of Roth IRAs, tax free) for much longer.
Other insurance needs. By discussing the related insurance coverage (such as long-term care and disability insurance) that should be part of every client's financial plan.
Clients can purchase life insurance from their own insurance agent (or one recommended by a CPA) or directly from a CPA licensed to sell insurance. Obviously, if the insurance were purchased through a CPA, compensation for work performed on behalf of the client would normally come from the commissions. This may also be true when the insurance is purchased from someone with whom the CPA has a commission-sharing arrangement. In fact, when presented with the various choices, clients often have no problem with their tax or financial planning advisor sharing in commissions (especially if the advisor would otherwise be sending a bill).
Traps and Pitfalls
State accountancy boards. Most states permit CPAs to accept commix sions and contingent fees (for guidance on state rules, see the list at www.aicpa.org/states/uaa/commfees.htm). Still, the decision to participate in insurance sales should be based on a firm's marketing philosophy and degree of comfort with product sales. As might be expected, certain requirements must be met to maintain objectivity and independence.
CPAs cannot sell insurance products to attest clients. But can they sell to an employee, shareholder, or employee benefit plan of such a client? Yes, according to a recent AICPA ethics ruling ["Commission and Contingent Fee Arrangements with Nonattest Clients" (ET 591.383-384)]. Nevertheless, it is important to consult with state regulations and an attorney knowledgeable with these rules to determine whether a different answer applies at the state level.
Based on AICPA Code of Professional Conduct Rule 503 (ET 503.1), CPAs are required to disclose their compensation to clients at the onset of an engagement if the possibility exists that they could sell an insurance product and receive commissions. …