The AICPA released an exposure draft of a Proposed Statement on Standards in Personal Financial Planning Services on Tuesday as part of an initiative that’s expected to help boost the profile of CPA personal financial planning (PFP) practitioners.
The proposal outlines members’ responsibilities in PFP engagements. These responsibilities include:
- General professional responsibilities;
- Responsibilities of members in PFP engagements;
- Planning the PFP engagement;
- Obtaining and analyzing information;
- Developing and communicating recommendations;
- Monitoring and updating engagements;
- Working with other service providers; and
- Using advice provided by other service providers and documenting the engagement from start to finish.
The standards, which were drafted over a multiyear process, are designed to protect both the public and CPA PFP practitioners. The codification of best practices is designed to benefit the public by helping to ensure consistency in the regulation and delivery of financial planning services by CPAs. For CPAs, the standards provide clear competency guidelines and further boost the profile of practitioners who are AICPA members.
The new standards impact personal financial planners who provide the following services:
- Cash flow planning;
- Risk management/insurance planning;
- Retirement planning;
- Investment planning;
- Estate/gift/wealth transfer planning;
- Elder planning;
- Charitable planning;
- Education planning; and
- Tax planning.
The standard applies when a member provides PFP services and does any of the following:
- Represents to the public or clients that the member provides PFP services;
- Engages in activities that would require registration as an investment adviser under federal or state law; or
- Sells a product as a result of the engagement.
The standard does not apply, regardless of whether it is provided as part of a PFP engagement, to professional services subject to other professional standards, such as:
- 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 Personal Financial Plans (AICPA, Professional Standards, AR Sec. 600);
- Tax services subject to the Statements on Standards for Tax Services;
- Valuation services subject to the Statement on Standards for Valuation Services No. 1, Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset (AICPA, Professional Standards, VS Sec. 100).
When the standard does apply to a member, its application is only to the PFP services provided and not to those services covered by other professional standards.
The exposure draft of the standards is available for public comment until Sept. 9. After the comment period ends, the Personal Financial Planning Executive Committee (PFP EC) will review and respond to comments. Comment letters will be posted to the website after the comment period closes and will be a matter of public record for one year.
“The current exposure period for comments in the standards process is the opportunity for members to affirm the commitment of CPAs for both protection of the public and best practices within the personal financial planning discipline,” said Dirk Edwards, CPA/PFS, J.D., MBA, the chair of the Responsibilities in Personal Financial Planning Services Subcommittee and past chair of the PFP Executive Committee.
The proposed statement will be effective for applicable members on Jan. 1, 2014. This effective date is provisional but will not be earlier than the date of adoption by the PFP Executive Committee.
While the new standards are an important step forward, CPA personal financial planners already are subject to various forms of oversight. Licensed CPAs are subject to regulation by their respective state boards of accountancy and the strict professional ethics rules adopted by those boards. The ethics rules are designed to protect the public against fraud, incompetence, and conflicts of interest. In addition, AICPA members have to adhere to the AICPA Code of Professional Conduct, which sets forth certain standards of professional conduct.
Substantive guidance and minimum guidelines for professional behavior were issued initially from 1992-1996 by the PFP Executive Committee as five separate statements called Statements on Responsibilities in Personal Financial Planning Practice (SORs). The SORs were designed to provide process-based guidance when developing, implementing, and updating a financial plan as a way to protect both the public and the CPA planner.
On Oct. 22, 2012, the AICPA governing Council granted the PFP Executive Committee standard-setting authority, paving the way for the creation of enforceable PFP professional standards.
—Chris Baysden (email@example.com) is a JofA senior editor.