Is Financial Planning Right for You?
How to figure out if your firm should be offering these services.
By John P. Napolitano
This may be the toughest question that a practitioner can be asked. It is so difficult because it is a question of context, relativity and materiality. Each and every firm and practitioner has the ability to design their practice and work week as they wish.
A vibrant discussion regarding whether financial planning is right for you or not is something that should happen.
For example, there are plenty of small practitioners out there who earn an extra $100,000 per year with a fledgling financial planning practice who think that financial planning is the best thing since sliced bread. On the other hand, there are many mid-sized firms whose financial planning practice is in a range of revenues that appear pretty good from the outside looking in, but they aren’t growing and do not have a large percentage of their clients as planning clients. The answer will be different for both of these firms, with the mid-sized firm having different answers from each partner!
The discussion must start with understanding your client base and their collective needs for a financial planning offering. If your A clients are not-for-profit audits or benefit plan audits, than a financial planning practice is not likely to succeed. You’ll have ethical conflicts where you simply won’t be able to serve both client needs. If your A clients are owners of closely held businesses who rely on you for more than a financial statement and a tax return each year, then you may find the demand for financial planning services quite robust.
The next step is to talk about the service offering. In my opinion, this is where most firms have failed and continue to fail. Financial planning is a lot more than managing assets or selling financial products. In the early days of CPA firms offering financial planning services, I was happy to see the interest. But many years later, many firms still disappoint with their service offering as they are acting more like Wall Street brokers or any other investment advisor, rather than leading with a robust service offering that goes much deeper than assets under management.
Can you succeed with a practice that looks like any other RIA? For now, the answer is yes. Clients are still paying fees in the 1 percent +/- range for assets-under-management-based advice. But how are you going to survive as some of the robo-advisor offerings take off with fees about 75 percent less than a traditional advisor? If your offering is AUM-based, with a heavy emphasis on performance and investments — you won’t. You will be commoditized down to a similar pricing level or need to step up your holistic advice materially to justify your higher fees. You need to do what a robo cannot do. And that is to build a deeply personal relationship with your client’s entire family and make sure that all of their financial issues and needs are driven and coordinated through a planning process led by you.
THE BOTTOM LINE
The service model may be different for each firm. But in terms of building an ideal financial planning practice, financial planning, delivered on a holistic and proactive basis, is the calling. This distinction is important because your clients are confused.
Many firms pitch holistic financial planning and they give the client a fake leather binder with their names inscribed on the spine of the binder loaded with pages of fluff, charts and other useless information. These plans may be valid on the date the book is printed, but as situations change, so do the needs of the plan. Furthermore, each practitioner’s definition of holistic is completely different.
One practitioner may think that it is sufficient to tell a client to go see their property and casualty agent to make sure that there are no gaps and that they have enough umbrella liability coverage. Others believe it is their fiduciary duty to be sure that the client is properly protected from all risks and that their plan, including the coverage that they use to transfer risk, is adequate.
I can tell you that under Securities and Exchange Commission scrutiny from a client complaining about poor planning services, you’ll learn the hard way that, as the planner, just about any financial matter that you could have or should have included in your planning services may become your problem if something goes terribly wrong. This could be the gloss-over advice regarding property and casualty coverage or the casual referral to an estate attorney to “do the estate plan” without making sure that beneficiary elections have changed and ownership of the assets gets shifted to their trusts.
Based on my experience, if you intend to deliver a proactive and holistic financial planning service for clients, anticipate at least 20 to 40 hours upfront to get to a point where you can make recommendations in the context of their desires and situation. As a result, clients need to be willing to pay for that time. More complicated situations will obviously take longer. This is especially true if you use a robust software tool and a planning guide or checklist such as the one published by the Personal Financial Specialist division of the American Institute of CPAs. In your world, where clients are used to flat fees or time and rate, that plan should go out the door priced in accordance with other firm practices. In my experience, clients prefer flat fees as opposed to hourly. It may take some time to properly price engagements, especially if you’ve worked with a financial planner in the past who relies on commissions or AUM fees, claiming to do the planning for free.
For some firms, that service model already tells them that they shouldn’t do financial planning. For a small practice with low-end 1040 clients, they won’t pay for and may not need proactive and holistic planning services. Their clients may want help with retirement calculations, 401(k) rollovers, benefit guidance or Medicaid planning.
But for the firms with clients that need attention to the moving parts of their financial life, looking for someone to get their house in order and keep it that way, financial planning is a natural.
Somewhere along the spectrum of financial planning services, from zilch through proactive and holistic, your firm needs to decide what business they are in. Choosing the right service model will make all of the difference in enhancing your client relationships.
HURDLES TO CROSS
At this point in the discussion, one partner always brings up the topic of other firms that they’ve done business with over the years. Yes, it is true that most CPA firms share some outstanding clients with other professional services firms. In many cases, you share the clients because the financial services firm sent them to you, and they continue to introduce great traditional accounting clients to your firm. The way to deal with this is openly and honestly. Let them know that your firm will not compete with them with regard to the clients that they’ve sent and may continue to send to your tax and accounting world.
Depending on the exact nature of the services provided by that other professional services firm, it is still possible that you can assume the role of financial planner because you can see that the i’s haven’t been dotted nor have the t’s been crossed. Easy evidence: investment accounts in joint name or old beneficiary elections on the retirement accounts managed by that firm. Once you start looking for evidence of holistic and proactive planning in your clients’ financial lives, you’ll be sorely disappointed in what you find. Therein lies the opportunity.
After you pick your path, think about how you may capitalize that business. For smaller practitioners, it is likely to be with your time. You’re either going to work more or begin to take hours from traditional CPA work and devote the time to financial planning.
For larger firms, do this right. If you had an accounting client who came to you with an idea for a new vision, what would you tell them? Would you say, “Sure, go ahead and wing it. Try it and see what happens.” No, you’re going to tell them to have a well-thought-out plan that is properly capitalized. Do the same for your firm. This isn’t rocket science, CPAs — this is Business 101. Because most firms are so busy with the time and billing world, they simply don’t seem to make the time in their hectic schedule to do this right.
In your business plan, you will pick a leader from the firm who is charged with its success. Don’t be wimpy here. Make this a real commitment and don’t keep hounding that partner for traditional billable hours as the financial business is being properly built. From there you need to make sure that you have the staff members who are ready and capable to do the work as it becomes available. This can be outsourced with an affiliate or joint venture partner, but most of these ventures should be focused on the best way to serve your clients and build value for your firm, and not value for the outsourced planner sitting in your conference room with your clients. Perhaps you can find a firm that will get you off the ground, build momentum, and build your staff so that you are eventually housing a self-contained planning team. Most mid-sized firms should have enough client interest so that the firm will have the revenue to run and staff a self-sustaining financial planning department.
The last point that I’ll make is that, if you decide to build a financial planning practice or materially grow a fledgling one, you need to pay attention to training and marketing.
Training is twofold: First for your staff with respect to issue recognition, and then for the partners to learn how to have financial planning conversations that will not offend anyone and tastefully find out which clients may benefit most from a discussion with the financial planning department. If they can check their ego at the door and re-learn how to have effective conversations, they’ll soon realize how big the need is for holistic and proactive advice. They’ll also learn that doing a great job at financial planning will become one of the best business development tools for traditional accounting and tax work.