Proposed Statement on Standards in Personal Financial Planning

BY ALISTAIR M. NEVIUS

This spring, following a two-year drafting process involving practitioners from across the AICPA, the AICPA Personal Financial Planning Executive Committee issued an exposure draft for public comment on a Proposed Statement on Standards in Personal Financial Planning Practice.

The proposed statement addresses the responsibilities of AICPA members when providing personal financial planning (PFP) services. The statement would apply when the member provides one or more PFP services and either (1) represents to the public or clients that he or she provides PFP services; (2) would be required to register as an investment adviser; or (3) sells a product as a result of the engagement.

The statement is not intended to apply to services, whether or not provided as part of a PFP engagement, that are already subject to other AICPA professional standards, such as tax services subject to the Statements on Standards for Tax Services; compilation of personal financial statements subject to the Statement on Standards for Accounting and Review Services No. 6, Reporting on Personal Financial Statements Included in Written Financial Plans; or valuation services subject to the Statement on Standards for Valuation Services No. 1, Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset. When the statement does apply, it is intended to apply only to the PFP services provided and not to services, such as tax services, covered by other professional standards.

The proposed statement outlines the member’s responsibility in PFP engagements. This includes:

  • Complying with all relevant ethical requirements;
  • Having a knowledge of PFP principles and theory and a level of skill to competently identify client goals and objectives, gather and analyze data, consider and apply appropriate planning approaches and methods, and use professional judgment in developing financial recommendations;
  • Evaluating conflicts of interest, determining if the engagement can be performed objectively, and disclosing known conflicts of interest;
  • Complying with federal, state, and other laws and regulations; and
  • Disclosing in writing all compensation to be received.


The proposed statement calls for the use of professional judgment in obtaining and evaluating personal financial information necessary to develop recommendations, including evaluating the reasonableness, appropriateness, and consistency of material assumptions.

The proposed statement also addresses the member’s responsibilities when undertaking an implementation, monitoring, or updating engagement. In addition, it addresses working with other service providers and using their advice.

Practitioners will note that the proposed statement’s provisions are based on the CPA’s exercising professional judgment throughout a PFP services engagement. The statement is not intended to be a prescriptive listing of mechanical actions, but rather a supporting framework for the due diligence and professional expertise of the CPA in the PFP area.

For a detailed discussion of the issues in this area, see “The Proposed Statement on Standards in Personal Financial Planning: What Does It Mean for You?” by Dirk L. Edwards, CPA/PFS, in the June 2013 issue of The Tax Adviser.

Alistair M. Nevius, editor-in-chief
The Tax Adviser

Also look for articles on the following topics in the June 2013 issue of The Tax Adviser:

  • A discussion of advising clients regarding erroneous tax return positions.
  • An analysis of the tax consequences of secondary transfer-pricing adjustments.
  • A look at safe harbor vs. targeted partnership allocations.

 

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