The Lazy CPA's Tax Tips

Adding Financial Services: And Sometimes You Don't

Getting lucky with the audio cassette package caused Jim and me to think that if some marketing was good, well then, more marketing should be better.  So we searched out the premiere “marketing” tools of the financial planning industry.  We went to seminars, we talked to the marketing “gurus” and we made a really big mistake:  We believed that what had worked for the financial planning industry would REALLY work for us because we already HAD clients!  Boy, were we wrong. 

Jim and I decided to invest in the BEST marketing system available to the financial planning industry.  We took two staff members with us on a trip to Salt Lake City to sit at the feet of one of the gurus in this industry who believes in the “drip” system of mailing and telephoning to prospects and clients.  We learned about the best way to address an envelope so the recipients will open it instead of throw it away.  We learned how to write letters that would prompt a client to respond.  We learned the best way to talk on the telephone.  We learned how to operate the INCREDIBLE computerized marketing system that this firm had created.  We printed off our first “drip” mailing right there at the conference.  Four days of intensive marketing training left us dazed but inspired to start “dripping.”

Adding Financial Services: Broadening Our Clients' Perspective

The additional benefit of the audio cassette package was that my clients learned more about my firm and me in fifteen minutes than they had ever known before.  Listening to it expanded their perception of our firm beyond what they had personally experienced.  What did it do?  In a few short minutes, it communicated to my clients who we were, what we valued and what we had done for others.  It made it easier for my clients to talk with their friends about our firm.  It made it easier for me to talk with my clients about the changes our firm was going through.  During annual tax appointments, I easily generated new business by talking with my clients about our other services, including financial planning.  They often would reply with, “You can do this for me?”  or “Can you talk to my parents about this?”  I realized that good marketing included reaching our existing clients with a broader picture of our firm.  I also realized that since we were dealing with something that is very intimate to our clients, their money, it was as important for them to know about me as it was for me to know them. 

By communicating a broader picture of our firm to our existing client base and presenting a specific picture of our business to the community, the firm grew by leaps and bounds in the areas we wanted to serve.  The honest testimonials from a few good clients helped new clients understand us more quickly, increased our existing clients’ confidence in us and helped me understand which types of clients I should be working with in the first place.  I found the audio cassette package to be a tremendous vehicle in accelerating this whole process of communication for me.  I believe that if you have something like it in your marketing tool chest, whether it’s a high-tech presentation or a simple brochure, as long as it’s a true reflection of your firm and your values, you will have a great communication tool.

Adding Financial Services: Reaching Our "Niche"

Most tax and accounting firms spend less than ½ of 1% of their revenues for advertising or “marketing”.  Some tax professionals feel that marketing to the public can cheapen our professional image.  Others are just not comfortable promoting themselves.  But with all the pieces in place for my firm to begin providing financial services, we were ready to tell others about the great services they could receive from Hodges, Morris and Company.  As we reviewed the many methods available to us to “market” the firm, there was one method that stood out as a unique opportunity to communicate who we were as a firm and how we preferred to work with our clients.  As a southern California firm, many of our clients and potential clients spent a minimum of one hour commuting the local freeways each day.  We selected a marketing product that could reach them in the convenience of their automobile:  an audio cassette recording promoting our firm.  The cassette tape was divided into two parts:  the first part was an interview with you, the professional, about your background and history with additional comments about how you conduct business.  The second part was filled with client testimonials about what it was like to work with you.  It was packaged in a neat, colorful cassette binder with a photograph on the front cover.  Though some of my partners were skeptical about it, we went forward and produced the marketing piece with a local firm.

Adding Financial Services: Marketing - You Mean We're "Niche" Marketers?

As tax professionals, our industry is built primarily on building good relationships with our clients in the hope that they will like working with us enough to tell their family and friends about our great service.  We do this by serving each of our clients, one by one, discovering what their needs are and finding the best way for us to meet those needs with our services.  In the process, we find that there are certain types of clients that we seem to work with the best.   These are the clients we call our “top” clients.  These are clients we would like to duplicate, or find others like them to do business with.  Reaching similar groups of people is what is known as reaching or serving a “niche market”.  A niche market provider does not try to compete with national businesses by appealing to a broader group of people, or a mass market.  A niche market provider succeeds by reaching more and more people within their niche.  Over the years, we each develop a niche group of people we serve best.  A good marketing program is one that will reach individuals in your niche market with the message of who you are, what your values are and how you like to do business.

Adding Financial Services: Option Two - Teaming With Experience

Now remember, financial planning is a really new and different arena for you as a tax professional.  You’re not dealing with your client’s past tax information; you are dealing with their life’s savings and projecting them into an uncertain future.  Not everyone is comfortable with this new set of dynamics.  I knew that I did not want to make mistakes with my client’s life savings.  I knew that I didn’t know everything I wanted to know to serve my clients well.  So I made the choice to partner with someone who already had the experience – and hopefully had made most of their mistakes.  As a result, I experienced a much faster learning curve with a much better environment for my clients.  I encourage you to consider the same if you have any hesitation at all about operating in the financial planning arena.

Adding Financial Services: Option One - Learning ON My Clients

In my research with a tax professional who had been providing financial planning to his clients for ten years, I had the chance to gain an additional perspective.  We had become rather friendly, and I casually asked him what were some of the major pitfalls of his experience.  He said that in the beginning, he thought he should be both a stock-picker and industry picker for his client.  In the first few years as a new financial planner in the 1980’s, he had a good deal of his clients’ money in gold mutual funds.  Those funds then dropped precipitously the following year.  He also put a lot of his clients’ money into private limited partnerships that had invested in mortgage bonds – it was also a “hot” new investment vehicle.  These investment types were later audited and it was revealed that criminal misappropriation of monies had taken place.  Needless to say, his clients’ holdings were dramatically affected. 

I was deeply stirred by this conversation.  Here was a man of integrity; a professional, doing what he thought was the best for his clients – to disastrous effect!  This was all about going to school on his clients – absolutely not an appropriate activity for me!  I had spent years building trust with my clients, serving them, working in their best interests.  I had to make sure that these new services were implemented at the level of professionalism that they had become accustomed to.  I could not allow myself to learn ON my clients.  I believe strongly that it is okay to learn from your clients, but not to learn on your clients.  I had done enough of that in my early years to learn that lesson well.  I realized that our job is not to make our clients money by maximizing their returns, picking the “hot” stock or timing the market.  Our job is to make sure our clients keep their money by our helping to minimize their risk.  I knew I would sleep better at night with that perspective… and I would find that my clients would too.

Adding Financial Services: Getting Experience

One of the key differences is experience.  In the tax arena, we have the tax code to use to guide our activities.  We have computer programs to perform the calculations, and the calculations are straightforward.  There is no such code in financial planning.  Instead, there is a lot of information and many differing applications of that information.  There are computer programs, but their calculations are dependent upon variables that you have to make decisions about before you key them in.  The regulations surrounding the financial planning industry are different and change more rapidly than our tax code.  The bottom line is this:  if you are going to be successful in the financial planning business, you are going to need experience.  Just like when we started in the tax preparation business, there are two options:  you can get all the experience yourself by learning (and making your mistakes) on your clients, or you can team up with someone who has the experience you need.

Adding Financial Services: Getting the Licenses

So far, I had completed the following:

• Met with other tax professionals who were offering financial planning services to their clients and reviewed their operations.
• Reviewed several broker-dealers and chose one to start with.
• Received all kinds of “introduction” information from my broker dealer, mutual fund companies and one life insurance company.
• Spent about 120 days getting licensed. I took the Series 7, the Series 63, became an investment advisory representative, got my insurance license, challenged and passed the CFP™ (Certified Financial Planner®) designation, challenged and passed the PFS (Personal Financial Specialist) designation.

Wonderful, I had passed all these hard tests and exams.  Boy, was I smart, or what?  I was ready to call in my first client.  I was ready to start doing financial planning.  I was very excited!  There was just one problem.  I didn’t have a clue!  What was I supposed to do next?

Adding Financial Services: "Whose Client Is It - Really?"

It is a question I asked each broker-dealer and a question I will ask often in this book.  I was adamant in my pursuit of a broker-dealer, that my clients remained my clients at all times.  I wanted to be sure that my name would be on the brokerage statements and that I had the right to take this client anywhere I liked, anytime I liked.  I didn’t want to end up like Tom almost did.

I talked with a tax professional; let’s call him Tom, who was very motivated to serve his tax and accounting clients with financial planning.  His state had recently passed legislation allowing him to do financial planning and he had several clients who were anxious to work with him.  He had interviewed several broker-dealers with his list of questions and had finally settled on a larger broker-dealer with a good deal of name recognition.  He knew his clients would be more comfortable working with a broker-dealer they recognized.  He wanted to have access to the broker-dealer’s wide body of research information (something this broker-dealer was very proud of, by the way.)  He wanted to be able to serve his clients right there in his office where he had been doing their taxes for nearly twenty years.  Tom was very excited to be affiliating with this broker-dealer.  He felt that he had covered the topic of client ownership in their discussions and had been reassured that the clients were his.  Tom did a very smart thing then.  Instead of continuing to nod his head with the regional representative of this very large broker-dealer and sign his name on the contract’s dotted line, he took the contract home and read it thoroughly.  Tom was startled to read the contract’s conditions regarding disassociating with (quitting) this broker-dealer.  Now Tom was happy with his choice in a broker-dealer, he had done his research well and picked this one because it best suited his goals for his clients.  He had no intentions of quitting them any time soon – why should he?  And then Tom read that if he did happen to quit the broker-dealer, the broker-dealer retained all his clients – he could not take them with him to another broker-dealer.  Not only that, but Tom was required by this contract to MOVE HIS OFFICES to another location – he could not continue his tax and accounting practice at the location where he had offered financial planning services through this broker-dealer.  That was astounding to Tom.  He had been serving his tax and accounting clients there for twenty years!  Needless to say, as anxious as Tom was to join with this broker-dealer, he did not sign the contract and affiliate with them because of this clause.

Adding Financial Services: Finding The Key

My next step was to research broker dealers. If I wanted to be able to serve my clients fully, I needed to associate with a broker-dealer that could help me become properly securities licensed, investment advisory registered, and insurance appointed. 

Again, I had another list of questions.  But, there were only two real questions I wanted to know the answer to:

“How do I convert my tax clients into financial planning clients without alienating them?”

I asked this question face-to-face with five different broker dealers.  From four of them I got the answer, “Don’t worry, we can sell your clients anything.”  Well maybe it wasn’t word for word, but it was close and that was clearly their intent.  The other broker dealer was subtler with a different tack.  His response was, “That’s your job, and we are sure you will be very successful.”  That wasn’t the answer I was looking for either.  But I knew I didn’t want my clients to be “sold” anything.  So I decided to go with the lesser of two evils.  But I did feel a certain foreboding, an uncertainty; I really did not have enough information to make a good decision.  But as I mused, my excitement about going forward and my ego got the better of me.  Of course I would be successful; I had always been successful!  Oh brother!  I should have stopped and pondered this a little more.  Was I really going to go into a completely different business, managing my client’s money no less, and think I would be successful?  But I had found the way to work within the current State regulations, my partners had cautiously agreed to go forward, my clients were eager to sit down with me, and, well, I felt ready to get moving!

I should have studied this broker-dealer a lot closer.  I should have pressed my question more fully.  I should have this and I should have that…  But I went forward with the largest broker-dealer dedicated to tax professionals:  “Hey, everybody’s doing it here!”  In my haste and pride, I figured it must be the best choice.  Over the years, I believe they have recruited over 20,000 tax professionals, isn’t that great!  The problem is they only have about 6,000 left.  And most of those are making very little.  Because I didn’t pursue my main question more fully with the broker-dealer market, I set myself up for some expensive lessons.

Adding Financial Services: A Full Tool Chest is a Win-Win For All

I have discovered that there is a sort of hierarchy to using my “tools”.  It readily combines the twin ideas of providing the best product for my client’s current need with appropriate compensation for my efforts with them.

Most of my clients with any significant dollar amount to invest (usually $100,000 or more) are invested in some sort of fee-based program, usually based on the percentage of assets under management.    I believe that this is generally the best way to go for larger investments because it provides the best service situation for the client.  A fee-based program typically provides thorough quarterly statements, opens the door for regular client dialog and compensates me on an on-going basis – just like the work I am doing for them.  The larger accounts that are under money management, are typically paid over a period of years, and what I’m getting paid for is the on-going relationship needs of that investment and the on-going servicing of that client’s changing life and changing needs. 

Adding Financial Services: One Tool or Many?

The debate coalesced over whether one should be a fee-only advisor or accept commissions.  It centered on the pronouncement that shifting fees from the product to the service is the surest way to provide unbiased advice and protect a client’s interests.  It implied that anyone who offered anything else, might be tempted to recommend products to their clients that offered high commissions, thus “tainting” our objectivity (and insulting our integrity – there was that conflict of interests discussion again.)  My goal was to be able to serve my clients at their point of need and I needed to know more:  How did the fee-only perspective work for each of my clients?  How did it work for me? 

Many organizations out there told me that I absolutely, positively did not need to affiliate with a broker-dealer.  I could decide to be a fee-only advisor.  I could become a registered investment advisor (RIA) and charge a flat fee, an hourly fee or a fee as a percentage of assets for managing my client’s money.  I understood that, as I was already in a service industry and often handled client accounting and tax services in similar arrangements. 

Adding Financial Services: Do I Need a Broker-Dealer?

With all of this input completed, I could no longer sit by.  I had to move forward for my clients, and find a solution that fit them, my partners, the state regulations and myself.  But the hard work was just starting.

I learned that the “products” offered in the financial planning industry break into three basic categories:

• Commission-based securities products such as stocks, bonds, mutual funds, limited partnerships and unit investment trusts.
• Commission-based insurance products, typically annuities and life insurance products that may also have securities products associated with them.
• Fee-only or fee-based products that may technically be considered service products, but are usually based on a percentage of assets under management.

In order to understand how to best serve my clients, I needed to explore what offering these products and services meant to meeting their needs.  I wanted to know if I could just pick one category over another (to keep it simple for me) and determine how that choice might affect my clients.  Since the discussion of adding financial planning services was clearly out in the public arena, there were nearly as many perspectives to review as there were investment vehicles!

Adding Financial Services: Evaluating Your Client Base

Effectively adding financial services to your practice requires only a couple of things of your client base.  Now I know that you are hoping for one of those lovely checklists in this situation, but quite frankly, there won’t be one!  While checklists are important, they will only get you part of the way there.  I have learned through this process that my client base is an endless source of surprise to me with what I didn’t know about them even after years of preparing their tax returns.  I have clients who have surprised me with investments I knew nothing about.  Let me tell you about Charlie. 

Adding Financial Services: My Clients Said "You Can Do This For Me?" - Interviewing My Clients

As I stated before, I was talking to everyone who would listen to my questions about the financial planning industry.  Before I made my final decision there was one last group I needed to hear from:  my clients.  It was here that I had the most apprehension:  what would they think of me?  Of the firm?  Would they see this as compromising the relationship that we had built together?  Would they think I was becoming a salesman?  Did they think I was unqualified to participate in this process?  These were questions I needed their answers to. 

Adding Financial Services: Tossing Our Hat Into The Arena

So how did we enter the financial planning arena in 1996, while it was still illegal in the State of California for CPA’s to participate in commissions and contingency fees?  With all the research I was involved in, I believed the state legislature would change the rules in California within three years.  Many other states had already enacted legislation allowing CPA’s to offer financial planning. 

It was during this time that a traditional CPA’s-meet-the-State-Legislature night was scheduled in the Newport Beach area of California.  One of my partners and I attended the gathering to meet some of the legislators face-to-face and to specifically discuss this issue.  It was hosted at someone’s very fancy home in the Newport Beach area, quite lovely and pleasant.  As we approached several of the legislators with this topic, each one in turn was stunned that their own CPA’s couldn’t provide this kind of service to them if they elected to and were properly licensed.  All of them felt that it was a natural fit, and all said that they were willing to support the process without any real qualms about it whatsoever.  That further encouraged me that California would change its position on this issue at some point in the very near future. 

Adding Financial Services: Ross Johnson, CPA - Industry Example

It was 1996, when our firm decided that we were going to enter the financial planning profession; California had not yet allowed CPA’s to do financial planning.  There was, however, a number of CPA’s doing financial planning in the state of California.  One of those CPA’s was a gentleman in northern California by the name of Ross Johnson.  Ross is an incredibly nice man who is extremely bright.  And Ross believes, as I do, that your clients always come first. The reason that he had entered the financial planning business was very similar to the reason I was considering entering the business:  to protect his clients and do a good job for them – he didn’t want them to be taken advantage of by going down the street. 

Adding Financial Services: Making Room For the Tax Professional - One State's Debate

In 1995 when I first started looking into the financial planning opportunity, several states had enacted legislation allowing CPA’s to receive commissions on investment related products.  I discovered that receiving commissions or contingency fees by CPA’s was banned by statue (law) in some states and banned by rule (societies) in others.  In either case, the atmosphere regarding this changing perspective was charged with risk and negative opinions – but it WAS changing.  And one person at the forefront of this change in California was Ross Johnson.  I wanted to meet Ross.  I wanted to talk with him about what he was going through. 

Adding Financial Services: "It's a Conflict of Interest" My Partners Said

My partners were an essential part of the process.  My partners needed to approve the plan to offer financial planning services, and they were convinced I was crazy.  Of course, I was crazy, but I was also convinced that this was the right direction for the firm, the industry and most importantly, our clients.  When I talked to my partners, their concern, of course was like the general concerns in the industry:  that accountants will lose their objectivity and public trust by becoming more involved in a client’s business and financial activities.  They were concerned that our firm and the industry would face the risk of losing the public’s trust in our impartiality.  We were in an industry where the services are by nature provided by an advocate who must put the client’s interest first.  So the debates on the conflict of interest question began. 

Adding Financial Services: There's A Cultural Difference

In the course of my interviews, I learned that the financial planning industry was created and is based on the culture of transactions.  Let me explain that.  The financial planning industry started with a stockbroker selling stock.  If his client did not buy or sell a share of stock, the broker received no compensation.  His only form of compensation was a percentage of the trading fee or commission.  The life insurance industry is very similar.  The agent does not get paid over the lifetime relationship with a client; he gets paid up front in the form of a commission based on that original transaction. Therefore, a large part of the typical stockbroker or life insurance agent’s time must be spent finding new clients with whom to create new transactions.  Indeed, it is not unusual to see a high turnover of clientele in these businesses.  When mutual funds came on the scene, they originally paid an eight percent commission up front to the stockbroker.  So, if the stockbroker had a brand-new client with $100,000 to invest, the broker could put the client into a mutual fund and earn $8,000 on that one transaction.  Mutual funds have changed quite a bit and now have different types of shares with different types of payouts.  I will explain these different shares types later in this book, but right now I want you to see that this business is primarily set up to create transactions and earn you money or commissions up front.  As you can imagine, the client with $100,000 to invest in year one is a pretty important client.  In fact, he may get taken to dinner or a ball game or who knows what.  In today’s market, a typical stockbroker may still end up earning a $4,000 gross commission on this client in year one.  But what happens in year two?  The gross commissions on this client in year two are probably only about $250.  If the client calls up and asks a question in year two, he needs to talk a lot faster.  He may still think he has $100,000 with the broker, and he does.  He may still think he should be important to the broker, but he is not.  The broker’s job in year two is to go find another client and earn another $4,000.  If he loses the first client in year two, he only loses $250.  But if he loses the new client, he could end up losing $4,000. Think about it.  How would you like to be in a business where you had to be constantly selling?  Always bringing in new clients, always losing old clients, always pushing to create a new transaction to get paid?  Be warned, this is the basic culture of the investments industry.  This is why they want our clients:  they need them, and they have to sell something to them to get paid.

I found this perspective to be very uncomfortable.  In the tax and accounting world, we will work with our clients for twenty years or more.  When I do a tax return for parents, at some point I want to do the children’s tax return.  And when they have children I want to do their tax return.  And when their children have children, oops that’s enough!  Most of us don’t do a lot of advertising and marketing; we do the work at hand.  We do the best job we can, we try to be thorough and diligent and our clients reward us by both paying our bill and recommending us to their family and friends.  This is the way our profession has been for many, many years.  We build long-term relationships with our clients and with the community.  Most of us are well respected, trusted, and recognized to have a good deal of integrity. 

Adding Financial Services: The Search - Due Dilligence Checklists

After that first experience of purchasing a business with my partner, Chuck Morris, I learned that due diligence is a vital part of any process, so I started interviewing.  I interviewed anyone and everyone who would talk to me:  friends, family, financial planners, other tax professionals, clients, broker-dealers, insurance brokers, brokerage firms, clients, the supermarket clerks…  You name it; I talked with them.  I was on a quest to uncover the best method for implementing financial services:  I was going to do it right and without any mistakes, because I knew that mistakes might not only cost me money – but my clients.

Between late 1995 and the second quarter of 1996, I had interviewed approximately twenty-five tax professionals, both EA’s and CPA’s, that were offering financial services to their clients.  Like most bean counters, I had developed a list of questions to ask each one (a checklist, what would we do with out our checklists?)  I was amazed to discover that all these folks seemed to be running good businesses, all seemed to have happy clients and all seemed to have become comfortable with the idea of providing this service to their clients.

Adding Financial Services: The Journey of a Thousand Miles Begins With... A Rock in My Shoe

During 1995 I was pretty fed up with what was happening to some of my clients.  Over the last three or four years, many had been taken advantage of in some form or another.  As I began to review these mishaps that had occurred with my clients, I noticed that other professionals, thinking they were doing a good job, had made many mistakes. This surprised me!  Why would honest bankers, stockbrokers and others do such a poor job?  I had met many of these people, many where bright and hard working.  What was wrong? 

As I studied the problem, I began to see that each of these other professionals was approaching my clients from their own limited point of view.  They were following their training and they “sold” my clients what they had to sell.  It was kind of like asking the butcher, “What should I have for dinner tonight?”  You know the answer is going to be meat!  It may be pork or turkey or beef, but odds are it is going to be meat.  What if my clients didn’t eat meat?  What if they really needed a nice salad?  Too bad!  Meat was the only thing the butcher had to sell.  In addition, my client might have a stockbroker, a life insurance agent, a banker and others, with none of the parts communicating or working together.  There was no overall plan!   No one was making sure that all the pieces fit, and most of all, that the income taxes were reduced or kept to a minimum.  Except of course me, after the fact, when there was nothing I could do but explain to the client the mistakes that had been made.

Adding Financial Services: Whatever Your Motivation

Whatever your motivation, I believe you will come to the same conclusion I have:  That offering financial planning services to your clients is a vital part of the future of your tax practice!  Whatever your motivation, you will need to go through the same processes I did in order to successfully expand into the financial planning arena. 

Adding Financial Services: But I'm Too Close to Retirement to Start Something New

I decided to partner with a financial planning professional in order to offer financial services to my clients.  As a CPA who genuinely enjoys my chosen profession, I wanted to continue doing what I loved, while serving my clients’ financial needs.  In the process, I have been able to generate nearly $60,000 in additional earnings per year.  As I look toward retirement, I see the advantages of having implemented these services. 

Many tax professionals nearing retirement feel that taking on the implementation of financial services so close to retirement is not a valuable or necessary activity to their business.  If you are looking at retiring in the next five to ten years, you might think that adding financial services to your practice will require too much time, energy and money.  I encourage you to take a second look at the industry through the eyes of partnering with a financial planning professional.  The costs to get started are minimal and could generate recurring revenues like mine, though your individual results may vary. 

When I talk to tax professionals about financial services and up-coming retirement, I like to say to them, “Listen, if you enter this profession for three or four years – using the methods that we suggest – you could possibly add another $5,000 per month to your retirement income.  Wouldn’t you like to have someone else to build a financial planning business for you out of your tax practice that could provide additional retirement income?  Without having to do all the work, you just continue acting as the coach.  How does that sound to you?”  And, so – how does that sound to YOU?  Adding financial planning services to your practice through partnering is a great way for tax professionals who are looking at retirement in the next five to ten years to greatly augment their retirement income, as well as help out their clients.

Adding Financial Services: Do You Fear Competition?

Are you feeling the competitive pressure from other industries vying for your tax and accounting clients?  The convergence of banks and financial planning businesses into the tax and accounting field is a cause for concern.  We read regularly how the entire marketplace is blending boundaries.  Banks are offering investment services, buying accounting firms and broker-dealers.  Broker-dealers are acquiring CPA firms and traditional tax preparation companies are merging with broker-dealers.  And all of them are willing to offer tax and accounting services as loss leaders to reach your clients with their financial planning services.  Remember that gold mine we talked about earlier?  They know it’s there and they are trying to reach for it through these mergers and acquisitions.

Why is this happening?  It is because your clients are demanding one stop shopping for their financial needs.  In July 1999, the Journal of Accountancy published the article:  “Winning over Mrs. Fisher (consolidation of CPA firms resulting in their offering broader financial services)” by Carol E. Curtis.  In this article, the Mrs. Fishers of the world are introduced, and Mrs. Fisher doesn’t like the fact that it took three financial professionals to manage the money she received from a recent divorce settlement.  Mrs. Fisher didn’t like the time that it took to talk to all of these professionals separately and didn’t like the fact that they all had to have access to her personal financial information.  Ms. Curtis goes on to write:  “Mrs. Fisher currently is looking for a single person who can handle all her financial affairs.  The trusted professional who gets the job – whether it be a CPA, financial planner or a combination – holds the key to the future of financial services.  That’s because clients like Mrs. Fisher, along with business owners and other high net worth investors, are making it clear they want a single source for most of their financial needs.  And the financial services industry – be it through banks, insurance companies, broker-dealers, financial advisers or accountant – is transforming itself to provide it.”

And transforming, it is!  Consider this:

Adding Financial Services: Everyone Else Is Doing It...

Do you think this is a good idea because all your peers are doing it?  This is clearly the direction the industry is moving.  In the past ten years, thirty-three states have moved to allow CPA’s to receive commissions and fees associated with financial planning.  It is projected that seventy-five per cent of CPA’s expect to be involved in offering some kind of financial planning in the next three years.

On another front, the clients of CPA’s report that they prefer doing their financial planning with their CPA.  A survey by Chesser and Moore (The CPA-Financial Planner: Some Insights, The CPA Journal, April 1996) indicates that individuals want independent and objective advice when selecting a personal financial planner, and CPA’s are viewed as having these qualities.  Everyone is indeed, “doing it.” 

If you desire to offer financial planning services because a colleague is successfully doing so, you need to find out how it will work best for you.  Keep in mind that this is a unique business that differs significantly from your tax and accounting practice.  While financial planning works with the same clients, it uses a different information base, different regulations, different files systems, different forms and materials, different professional and interpersonal skills sets, a fluctuating market and a different relationship with your client.  You will need to make sure that your personality and skills fit this new service, as it is not for everyone. 

Adding Financial Services: Tax Returns, Shmax Returns - Isn't There Something More I Can Do?

If all you are doing is tax returns year in and year out, you might find yourself getting bored. Once again, offering financial planning services gives you the opportunity to expand your scope, grow as an individual, help your clients, and build a deeper relationship with them.  Therefore, adding financial planning services is a natural dovetail to your tax practice.

As their tax professional, you are aware of their entire financial picture.  While collecting information pertinent to their tax return, I also talk with my clients about their lives:  this past year, their family, their hopes and dreams.  Whom do they talk to when they buy (and sell) their first home, decide if they should lease or buy that new car, prepare for a new business or begin contributing to the company’s 401(k) program?  When their parents need help, whom do they talk to about their care and the management of their estate issues?  When children and grandbabies are born, whom do they talk to outside of their immediate family about their hopes and dreams for them?  As tax professionals, we cover a great deal of client information during the tax interview.  If your clients are like mine, they talk with you about all this and more.  Some of us will hear more confessions than many who joined the clergy.  We see our client’s whole picture and find that implementing financial planning services can be an especially rewarding experience for us and for them. 

Adding Financial Services: Just Doing Tax Returns? Extend Your "Season" with Your Clients

Maybe you are looking for ways to keep busy in the summer months.  Many tax professionals do only taxes and are essentially closed for the summer months.  They don’t want to be bothered with the monthly/quarterly/annual cycle of providing bookkeeping services to businesses.  They don’t want to have to employ and supervise additional employees or manage a bookkeeping department.  However, offering financial planning services is an opportunity to work with your tax clients year-round.  This will help to broaden your relationship with them, stay in touch with them throughout the tax year, and, if you have any clients like my Helen, help them BEFORE they make an investment mistake.  This extended contact with your tax clients reduces your annual attrition and naturally generates referrals.

Adding Financial Services: Reduced Fees, Increased Expenses - Do You Need Greater Revenues?

Maybe you are looking to introduce additional revenue streams into your business.  The accounting industry has been hard-hit on many fronts by changes that erode our traditional fees or require additional investment in assets to stay competitive.  In this current situation, technology is both our friend and foe.  With the introduction of QuickBooks and other do-it-yourself bookkeeping programs, many of our smaller bookkeeping clients have elected to do their own bookkeeping throughout the year and then deliver their information to us on a lovely little diskette with their personal tax return information.  Delightful!  Efficient!  But now, in order to accommodate this new form of information exchange, you, as the tax professional must invest in the computer and programs that will process it.  And while you may raise the fees for preparing the tax return somewhat, it’s not enough to cover your costs for this increased technology purchase.

Additionally, we have seen some significant attrition in our tax practices as relates to the creation of the computerized tax preparation software, the proliferation of web-based tax filing (often for FREE) and the introduction of the IRS’s telefile services.  Our clients with simpler returns who aren’t afraid of the computer have made smart budget choices about how they file their taxes:  why pay $150 annually when they can file for fifty dollars or less – or even nothing! 

Adding Financial Services: Your Motivation

What is your motivation?  Maybe your motivation is different from mine.  There are many reasons to enter the financial planning arena, but realize this – as millions of baby-boomers enter their retirement years, and their parents transfer trillions of dollars in accumulated wealth to them through inheritance, your clients are in great need of your objective, overall perspective of their financial picture like never before.  They need someone who will work on their behalf, and they are smart enough to understand that someone will benefit from their investing processes – and they are just as happy to know that it can be you, their trusted tax professional.  Finding the motivation and inspiration to take the next step is up to you.

Adding Financial Services: Client Trust

As tax professionals, we are in a unique position of trust.  Our clients trust us.  Why?  Part of the reason is because we have an extensive education in a field that our clients do not fully understand.  We have experience in a financial world that they do not usually operate in.  But I believe the real reason our clients give us their trust is because we work with them in one of the most intimate areas of their lives:  their money.  In our society, money is a private concern that must be held strictly confidential.  Undressing financially is very difficult for anyone, and our clients go through that ritual with us every year when they file their tax returns.  Filing a tax return is an annual, private and confusing chore that we try to make simple, pleasant and personal for our clients year after year.  It is a natural progression that they want us to do the same for them with their investments and financial services.

I was introduced to Mr. Edison when he was essentially homeless.  He was a friend of one of my tax clients and he was in trouble with the IRS.  As a favor to my client, I met with Mr. Edison.  As I interviewed him, I realized that I genuinely liked the man.  As we talked, I got a sense that he was a man of integrity and a hard-worker with strong entrepreneurial instincts who would do well in the future.  Against all practical business wisdom, I agreed to work with him, even though I knew I would probably not be compensated for it.  Mr. Edison and I formed a bond as we worked through his IRS woes.  Shortly thereafter, he opened his own widgets manufacturing company.  He was a great inventor, and we started doing the monthly bookkeeping for his new company.  At the same time, Mr. Edison started teaching other manufacturers his very unique perspective.  That led him to meet a couple of other individuals and together they launched a new products company.  I believe his original investment in the new company was less than $10,000.  We kept doing the bookkeeping for the widgets company and his individual tax return.  During our meetings and other conversations Mr. Edison would inform me that things were going well at the new products company, but he specifically did not want me to meet or get involved with any of his partners in that organization.

Adding Financial Services: Is the Client Happy?

I was eighteen at the time, and worked for a public accountant in California.  I was officially working at a desk job in the accounting industry.  One of our clients was a building contractor in Newport Beach.  The owner, Mr. Henderson, had requested a luncheon meeting at a five-star restaurant on Pacific Coast Highway to go over his financial statements, and at the last minute the firm partner couldn’t make it.  Rather than cancel the luncheon meeting, he decided to send me in his place.  Having made it through the first ninety days, I believed I could do anything, and, though absolutely terrified, I accepted the assignment, grabbed the financial statements and headed for the restaurant.  When I arrived at the restaurant to meet Mr. Henderson, he was already there – an imposing figure, seated at his favorite table and just finishing his first highball.  I went over, introduced myself, sat down, and immediately tried to get started discussing business.  Mr. Henderson had a different idea and suggested we order first.  And the first thing he did was order himself and me a drink.  He then ordered two more drinks for us before he asked for the menus.  During this time, I did not realize it, but we were talking business – just not the business I thought I would be discussing.  Mr. Henderson was telling me stories and I was listening to him tell his stories.  Finally, in possession of the menus, we ordered lunch.  With our lunches came two additional drinks.  By the time Mr. Henderson was ready to discuss the financial statements, I could barely speak.  As I realized my condition, he received a phone call and informed me that he needed to leave.  I then handed him the financial statements, told him I would be happy to discuss them with him later, and went back to the office. 

It was 2:30 in the afternoon when I returned to the office.  Having left for the meeting at 11:30 a.m., I had been gone for three hours.  As I walked into the office, reeking of alcohol, I went straight to the senior partner’s office, sat down in the closest available chair and told him that I understood if he was ready to fire me.  To my surprise, he asked me one question, a question I will never forget:  “Was Mr. Henderson happy?”  I informed him that Mr. Henderson was absolutely feeling no pain and was very happy with our services.  I was then instructed to go back to my office, close the door, put my head on the desk, and I was forbidden to do any further client work that day.  Mr. Henderson was the firm’s largest monthly account.  He would have been very, very upset to be left by himself to have lunch, and by taking time to have lunch with him, I had succeeded in making him feel important to our firm.

While I do not advocate this type of behavior (and I rarely drink at all these days), my point here is that I learned early (and in the extreme) that the major focus of our business lies in placing the client first. 

Adding Financial Services: From Labor to Service

I didn’t start out with this perspective – I chose this profession because I could sit at a desk in an air-conditioned building.  Actually, I was attending Orange Coast College at night and working during the day.  I was working in the kitchen for a caterer, washing dishes all day long.  Though I had sworn I would never follow in my father’s footsteps and become an accountant, it seemed to me that a desk job would be a whole lot better than standing on my feet washing dishes for eight hours a day.  So I answered an ad on the college job board, and I was hired as a bookkeeper for an accountant on January 15th of that year.  You can just imagine how busy that tax office was on January 15th.  They were desperate.  They needed a warm body right away, and they figured I would do.  I was shown about thirty sets of books, all in those big black ledger books, all done manually.  I unflinchingly told the owner that I was certainly capable of doing any bookkeeping he could throw at me.  Of course, I’d only taken one semester of accounting in college at the time!  But if it got me out of washing dishes in the kitchen, I could do it!  In my college accounting courses they taught me all about debits and credits.  As many of you may remember, the columns in the big manual ledgers we used were marked:  Debit and Charge.  There was no “Credit” column.  This terrified me!  It took me a month or two to figure out that Credit and Charge were different words for the same thing.  Needless to say, the first month I started to do accounting, I messed it up pretty well.  The second month I started realizing where I was making mistakes, and by the end of March, I had full knowledge of what needed to be done, thanks to decoding prior histories.  I went back and corrected both January’s and February’s work.  By the end of April, the firm was through tax season, and ready to review the work I had been doing.  It was remarked that my work was “exemplary”.  I suspect that without the luxury of that extra ninety days to make my mistakes, I might have never made it as an accountant. You see, I desperately needed experience and I got it at the expense of the firm’s clients.  Thank goodness no noticeable damage was done.  What I learned from that experience was that you don’t always know what you think you know when first starting out in a new business. 

Adding Financial Services: Keeping the Clients First

Over the years, I have developed a golden rule as it relates to my CPA practice.  The client always comes first.  No matter what product or service I provide, my client’s needs and wants and desires should always come first.  It is a natural fit for our profession to take this perspective because we are a service industry.  While it is not always emphasized in our studies, it is a concept we are exposed to in the early years of our training.

Adding Financial Services: My Motivation

When I was in high school I was a thespian, and I was lucky enough to be the lead in the high school play.  My teacher, Mrs. Van Holt, was an excellent drama coach, and helped us with many great acting techniques.  One of those techniques was called method acting.  Method acting required us to look deep within ourselves to find the motivation for our character’s behavior.

Well, as Shakespeare is often quoted, “All the world’s a stage…  And one man in his time plays many parts.”  I have often used the experiences from other parts of my life to determine why I am doing, acting, or responding in a certain way.  All of us tend to “act” differently in different situations and many times it is our underlying motivation that drives us in the directions we take in life.  How you enter the financial planning industry will in large part depend on what is driving you here.

I spent many years actively building my tax practice by getting to know my clients and providing them with more than just competent tax advice.  As many of you know, when you work closely with someone over many years, discussing the very private matter of income tax usually develops a very strong bond.  Now, my clients are like my extended family.  I feel that it is my job to provide them with the best advice I possibly can.  It is my job to listen and understand their concerns and, when I can, point them in the right direction.  It is my job to protect them by using all my skills and resources.  As I travel across the country, it is clear to me that many other tax professionals feel the same way I do about their clients.  I suspect that if we didn’t feel this passionate about our clients, we wouldn’t keep them for two minutes – instead many of us spend a lifetime with them.

Adding Financial Services: My Journey

I started doing income tax returns while putting myself through college in 1975.  To be honest, I was not very good during the first few years and have always been thankful that the statute of limitations has long since lapsed.  I still remember doing tax returns by hand back in those early years: using a ballpoint pen and carbon paper between two actual IRS forms.  Of course, things have changed a lot since then.  In 1987, my partner Chuck Morris and I started Hodges Morris and Company.  We were two escapees from larger firms who wanted to chart our own course.  Our original plan was to do a few tax returns maybe some bookkeeping accounts, work hard during tax season, and go fishing during the summer.  To this day, I don’t believe Chuck and I have ever taken the time to go fishing together.  But I guess that’s another story.

Chuck and I got into the business by purchasing a small tax practice.  We both thought that we had performed a complete due diligence prior to the acquisition.  What a surprise to find out the prior tax professional was using a completely different tax code!  We lost a good many of our clients the first year as a result of not taking certain deductions that the clients had become used to, that if not illegal, were certainly very, very questionable.  Chuck and I bought the practice at a fixed price.  This meant even if we lost clients by doing the right thing we would still have to pay for them.  While Chuck and I were not happy about the situation, we quickly decided the following: 

Adding Financial Services: The Lazy CPA's Way

Often in life, we are unexpectedly confronted with great personal tragedies, tragedies that many of us quietly suffer through, wondering how something like this could happen to us.  If we are very, very lucky, and if we strive never to give up hope, we may be fortunate enough to find silver linings in very dark clouds.

When I started on this odyssey to bring personal financial planning to my clients, I felt I had a clear grasp of the direction my firm was going in and had plenty of opportunity to accomplish it – just as I had with other growth programs for the practice.  But life is what happens to us while we’re busy making other plans.  And my life was no exception.  In the middle of the process of adding financial services to my practice, and at the conclusion of a hectic tax season – April 10th 1998 – my wife was diagnosed with Stage Three breast cancer.  Faced with the prospect of losing my wife and raising two small children, ages three and seven, I was forced to find an efficient way to manage both my personal and professional priorities.  I needed to make sure my clients continued to receive the very best service possible, but with the least day-to-day involvement on my part.   I realized that my clients depended most upon my perspective and advice, so I positioned myself to be their investment “coach” – their overall strategist, helping them make good decisions.  As their coach, I made sure my decision-making abilities were always available to my clients.  I was able to position myself to accomplish this most important aspect of serving my clients without being tied to completing the detail paperwork.

So out of necessity, came my approach, which is truly, a very lazy way for a tax professional to build a financial planning business.   It is, for me, a silver lining revealed through tragedy and necessity, providing me the opportunity of greater service for my clients and a substantially greater personal income with a minimum investment of personal time and energy.  It is my hope that my story will help you to do the same without having to navigate a personal crisis of your own.

I’d like to note that at this writing, my wife has beaten all the odds and remains cancer-free.

Adding Financial Services: The Best Success is Found in Serving Your Clients

In the short span of twenty-four months after implementing financial services in my tax practice, my net annual cash flow increased by fifty per cent from financial planning revenues alone.  My “planning partner” jumped from $140,000 in annualized rolling gross to $450,000 in the first twelve months of working together with me.  His production soared to $750,000 by the end of our first two years – over five times his beginning amount!  We then taught what we had learned to another tax professional who was also providing financial planning services to his tax clients.  His annual rolling gross leapt from $30,000 to nearly $150,000 in the first year he that he worked with us!

We achieved these dramatic results while still maintaining our strong commitments to professional integrity, client satisfaction and excellent service.  We tested many industry programs that promised success.  Only when our focus changed from the perspective of “selling” to our clients to SERVING our clients, did we experience the success we had been looking for.

In these pages, I share with you my personal discoveries about the process and options so that you can use your time efficiently and make your decisions wisely.  I share with you the lessons my clients taught me when I started working with them.  I have many clients who, through their lives, questions, needs and dreams, have taught me many great lessons.  Their lessons are precious memories for me.  I’d like to share with you what they taught me (that the industry “experts” could not) as I expanded my tax practice to provide financial planning services.  I will share with you what has worked for my clients and me so that you don’t have to start from scratch like I did.  You too can benefit from their lessons (and my mistakes) and successfully expand your tax practice to a full service financial planning center.

Adding Financial Services: Stepping Through the Comfort Zone

Leading my clients through the maze of investment products and financial professionals required that I get involved in the process.  This book is the record of that process for me.  Perhaps your process will be a little different.  Perhaps your process will be similar.  Either way, you will have to step through your comfort zone of tax preparation into the different world of financial planning services.  You will find, as I did, that you will have some skills that transfer over, and some skills that you will need to learn.

While financial planning services differ significantly from the tax preparation industry, there are several options available to tax professionals that can help streamline the process.  This book is about my search for just such options for my clients and how those options can work for yours. 

If you are committed to making the best decisions you can as you implement financial services, you will open up a whole new world of service to your clients.  I have found that adding financial services brought new meaning and new joy to my experience with my clients with the added plus of increasing my revenue streams.  I believe you will experience the same benefits when you move through your comfort zone to provide financial services to your clients.

Adding Financial Services: Your Clients WANT You to Know This

My clients were genuinely relieved when I began offering financial planning services.  They were tired of giving the same information over and over to the multiple financial advisors they had been dealing with.  Since they had always asked me what they should do in their financial situations, they were delighted to be able to work with just one professional whom they already trusted who could provide them with sound financial advice.

Your clients want you to know this information because they trust you.  They trust you because you know them better than any other financial professional they work with.  They trust you because they know from experience that you provide them with clear options that are in their best interests and the best interests of their future.  They want you to be the trusted advisor that they turn to with all their financial and investment needs.

Adding Financial Services: Foreword

John P. “Jack” Walsh, RFC®
Founder and Chairman of Money Concepts International

When I first met Nick Hodges in May of 2000, I was impressed with his strong commitment to serving his client’s best interests in providing financial services.  In my industry, we called that being “planning-focused” rather than “transaction-based” in serving our clients.  Money Concepts has been dedicated to being planning-focused since its inception in 1979.  With that driving purpose, Money Concepts has consistently attracted tax professionals to enter the financial services arena.

At Money Concepts, we knew from experience that the tax professional was very careful about entering the financial services market – often delaying services and productivity until they understood everything possible about the investments field.  While this process was founded in the good intention to protect their client’s best interests, it was counter-productive for everyone, costing them time, money and opportunity with each year of waiting...  and their clients suffered from their lack of involvement.