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When Brian McKee, Jesse McKee and I decided to start 4Thought Financial Group (4TFG) 10 years ago, it was a process where we felt comfortable giving up some of our independence. As I later learned, being “uncomfortable” is a good thing.
When Brian and I entered the life insurance business with Cigna Individual Financial Services Company (CIFSCO) in 1979 and 1984, we realized that what we loved most about the industry was the ability to determine our own destiny. If you work hard and are lucky, you can make a lot of money.
Throughout our company’s history, we’ve gone through a variety of business models prioritizing the services we provide. While financial advice, financial planning and wealth management have changed, the core of CIFSCO’s philosophy remains the same. First serve! Always put your customer’s needs first! For years, the industry has debated the “level of integrity.” We are trustees. We are not affiliated with any broker/dealer, we are only federally registered with the SEC as a “Registered Investment Advisor (RIA)” firm. We work for our customers – not the broker/dealer.
What we do is “True Financial Planning”: We review the client’s objectives, current plan and recommendations to ensure the client is on track to achieve their goals. At that point, the client can take our financial plan and go anywhere to implement it. We do not conduct any trading investment business, property and casualty insurance or legal work.
But most clients still choose to act with us when looking to manage their finances and potential life, long-term care or disability insurance needs. Why do we get such loyalty from customers? The answer is simple: most of our clients come from accounting referrals.
We have always known that CPA firms are not allowed to ethically perform wealth management services for the business owner for whom they provide certification services. Part of the reason for this value addition is that we don’t do any accounting or tax work for clients.
commercialism
January/February 2022 by Vincent J CPA Journal.
We work with small to mid-sized CPA firms that don’t have all the resources to have an in-house “financial planning” or “wealth management” department. It is true that these firms provide these services by providing full information to the client (whether they choose to receive a referral or not) as a “provisional” service. But in my view this is in the best interest of the customer. First, as Love points out in his article, there is no such thing as “unconscious bias.” Secondly, CPAs are only outsourcing these services to specialists like us.
I have never understood how mid to large CPA firms can do both auditing and financial consulting. In my opinion, the client is not being served better, and there may be a conflict of interest. I’ve talked to accountants who don’t mention their wealth management departments internally. Some CPAs are not comfortable performing this referral activity (although they may be compensated) and others may not like the internal choices available. There is an argument that the accountant plays an important role in the financial planning process – we certainly agree. As we like to say, a tax advisor should be at the table to guide a client on the tax implications of any financial planning decisions.
CPAs have always been America’s most trusted advisors, and I believe they still are. But if the financial solutions recommended by the wealth management departments of mid- to large-sized CPA firms don’t work, their status as America’s most trusted advisors could be in jeopardy.
This should not happen. According to Love, “The accounting firm’s leadership must be committed to maintaining integrity and ethics, or ‘top tone,’ must be reflected in the communication within the firm.” He added, “Professionalism should be promoted and maintained for the sake of accounting and public interest.”
Working with accounting firms
One key for professionals in the financial advisory community when working with CPAs is knowing how a CPA firm works. A consulting firm must be proactive and notify the accountant (as well as other professionals such as attorneys) when the client is recommended by the consulting firm or is considering outsourcing. All professionals must be on the same page; We call this Group presentation. It’s all about the client and making sure all advisors do their best for the client – not who gets credit for what.
CPAs must be familiar with the tax aspects of a client’s investment portfolio. In this age of paperless transactions, a value-added service by a financial advisory firm is to ensure that the accountant reverses all 1099s or 1099 Rs as well as administrative charges (as opposed to taxes) paid on taxable accounts. – Deferred accounts). Consulting firms should contact accounting firms to determine if there are any carryforward losses that can be used to offset capital gains.
Another area where the consulting firm should work with the accounting firm is to determine which effective tax rate to use for required minimum distributions (RMD) for tax-deferred accounts each year. The last thing a CPA wants to know is whether enough income tax is withheld from the RMD. CPA firms have an advantage here because they already know what the client’s effective tax rate is. Are there any Qualified Charitable Distributions (QCD) that were not correctly reported on the client’s 1099R? If this is the case, the financial advisor must notify the CPA; Here, the consulting firm can have the advantage.
I learned a long time ago (I left public accounting in 1984, but am still waiting for my CPA license) that once the tax year is over, putting together clients’ tax returns is a story. It’s all about income tax forecasting and being proactive before the end of the year. A financial advisory firm must report any taxable income (dividends or interest), gains or losses in a taxable portfolio, or RMD information to the accountant for tax purposes.
Estate planning
If a business owner dies and has assets to pass between generations, it is important for their CPA to ensure that the individual has a comprehensive estate plan that includes asset protection, minimal depreciation, and estate and gift taxes. This is an area where RIA firms are more experienced than CPA firms in getting clients to work. The reason is that they are better trained than most if they study life insurance. Some say that life insurance is not bought but sold for reasons that may be very good. Human psychology in this area is complicated to communicate and it becomes part of the problem why nothing is done, including unsigned legal documents.
If CPA firms do not properly communicate a client’s business with estate planning, the business cannot survive. But this cannot be done in a vacuum. Personal property, real estate and liens should be examined to facilitate the desired outcome. Does the accounting firm look at the names of owners and beneficiaries on life insurance policies? Are they going to require active underwriters (new predictors) to work with old life insurance policies? Are you aware of liability if certain life insurance policies lose cash value in a low interest rate environment? Finally, if the plan fails, and do you really want the reputation that the engagement’s auditing and accounting department may lose?
Living together
I applaud CPA firms that have figured out how independence and business can coexist. In my opinion, this is the definition of trust – freedom combined with entrepreneurship. I guess Vincent Love is right because many accounting firms can improve how they are perceived by the outside world. If there is a bad result, it will be on all social networks. Maybe it’s time to reconsider changes to the business model before something like another Arthur Andersen happens.
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