PFP: A Golden Opportunity for CPAs

PFP: A Golden Opportunity for CPAs

Are you considering adding financial planning as a service offering? You are not alone. Many CPAs have found it to be an effective path to providing holistic client service, and smoothing out seasonal revenue spikes and troughs that are natural for a tax practice.

What does it take to succeed as a financial planner? Here are four things to consider.

Be clear whether financial planning is a good fit for your practice

Financial planning is not the right fit for every tax practice or CPA. The quantity and intensity of prospect outreach that financial planning requires is significant. After all, only one or two life events will force people to a financial planner’s door! Short of an inheritance or a pending retirement, the weight of explaining the value proposition and reaching out to invite people to have a conversation about their financial situation will rest on you. Do you have the bandwidth, time, and resilience to handle that?

Too many CPAs invest time and money into obtaining financial planner licenses, just to have them framed on the wall as office decoration. If you are not serious about making a commitment to grow a financial planning practice, it may be best to not go down that path at all.

Choose your pricing model

There are three broad categories of fee models used by financial planners and financial advisors.

A fee based on AUM (or Assets Under Management) pays the advisor a small percentage of the assets that the client has invested. This fee structure is effective for Boomers, who are in the final stages of accumulating wealth. It is not effective for Gen X or millennial clients, as most of them do not have the liquid wealth to meet AUM minimums.

The hourly fee model is one where the financial planner charges for the time he or she spends with the client. This model is simple to use, and many CPAs choose it because it is similar to how they currently bill for their tax preparation services. 

The major drawback of this model is that, as Michael Kitces (financial planning industry blogger at Nerd’s Eye View) puts it, it places a transactional cost on what is fundamentally a relationship business. So while this model can work well in situations where the client’s needs are purely transactional and finite (evaluate a retirement plan, help strategize on debt reduction, compare insurance plans), it is not effective for situations that call for ongoing re-assessment, monitoring, and course-correction because it financially penalizes the client for talking with the advisor.

The other problem with the hourly fee model is that it can make it difficult to generate a sufficient ROI on marketing. The time and expense of reaching prospects can be significant. In the case of a primarily transactional client, billable work is finite by definition. Combine that with the inherent limitation of only 24 hours available in a day, and it becomes difficult to generate a sustainable income.

A monthly retainer model offers an alternative. While far from common in the industry yet, it is becoming more popular. The idea is to break the fee down into bite-sized monthly pieces, set it up as an ongoing relationship, and automate billings for a year (unless the client opts out).

This approach offers several advantages. It encourages the client to talk to the financial planner more frequently, and puts the advisor’s focus on delivering value (not closing the next transaction).

It can also allow the advisor to scale the practice. For example, a monthly fee of $100 per household (about the price of the monthly cable bill), times 100 clients, times 12 months, generates $120,000 for the year – and a lot of it is from recurring clients who don’t need to be “closed” over and over to assure financial flow.

Commit to a plan

Once you have made a decision to add financial planning advice to your professional offering, and have selected and acquired the certifications, you must commit to a plan.

What is your dream revenue level from financial planning in 2-3 years? How many clients would you have to add, and what size accounts are you targeting? Setting a measurable goal will give you direction and help maintain momentum.

Commit to working on the financial planning practice year round

Financial planning is not something that you dabble in.

In order to stay current and sharp, you must remain actively involved year round. Some CPAs all but drop the financial planning side of their practice between January and May, which can derail their momentum and be a disservice to clients. Commit to stay involved and engaged during the busy season. Some professionals have found it effective to allocate one day (or even a portion of one day) per week to their financial planning work during the busy season.