CPAs providing personal financial planning services to individual clients in estate, retirement, tax, investment and/or insurance planning need to ensure they are meeting their professional responsibilities. The AICPA Statement on Responsibilities in Personal Financial Planning Practice (SOR) provides guidance that can help protect against unforeseen risks of litigation. Here are some of its best practices:
Before undertaking a PFP engagement, assess your ability to perform the services with competency, objectivity and integrity. Objectivity is a state of mind requiring CPAs to be impartial, intellectually honest and free from conflicts of interest.
Disclose any potential conflict of interest to the client in writing. An example is receipt of a payment from a third party when the client purchases the third party’s product or service. Remember that a conflict that impairs your objectivity is a violation of the AICPA Code of Professional Conduct.
Be aware of all governmental regulations and professional standards that apply to PFP engagements. Besides the code and other AICPA standards, be sure to understand the implications of the Investment Advisers Act of 1940 and SEC Interpretive Release IA-1092, which defines the applicability of the Investment Advisers Act to financial planners.
Document the understanding of the engagement with the client in writing. Communicate the scope and nature of services to be performed, including any limitations that could impact the recommendations, and clearly and adequately disclose compensation for the service.
Develop a basis for recommendations. Collect relevant quantitative and qualitative information, analyze it against the client’s goals and objectives, and formulate appropriate strategies for achieving the goals.
Determine if other service providers are needed to complete the engagement. If so, and the client asks for assistance in seeking one, provide a summary of review and evaluation procedures followed. If compensation is received from a third-party provider in return for the referral, this should also be disclosed.
Document advice of another service provider in carrying out the engagement. If you do not concur with the other service provider’s advice, this should be communicated to the client.
Communicate the recommendations. This communication should ordinarily be in writing and in a manner that helps the client understand the strategies and implement financial planning decisions.
Identify tasks for taking action. Help the client prioritize essential tasks for acting on planning decisions.
Understand de facto standards. While the SOR is meant to serve as a set of best practices, a court may hold a practitioner to the responsibilities outlined in the SOR as if they were standards. In addition, seven state boards of accountancy have adopted the SOR as standards. (Colorado, Florida, Washington and Wyoming specifically refer to the SOR. Kentucky, Indiana and Michigan adopted the SOR via adoption of the AICPA’s Professional Standards.)
The SOR (available at tinyurl.com/448puc3) is intended to provide guidance to the CPA financial planner in applying the highest levels of integrity, professionalism, objectivity and competence to the delivery of personal financial planning services, so as to serve the best interests of the public, regardless of the form of the CPA’s practice.
—By Clark M. Blackman II, CPA/PFS, CFA, CIMA, CFP, (firstname.lastname@example.org) president and founder of Alpha Wealth Strategies LLC in Kingwood, Texas, and chairman of the AICPA’s Personal Financial Planning Executive Committee.
More from the JofA: