Add value with planning advisory services

Clients often ask their CPAs personal financial questions that go beyond tax matters. Providing helpful answers allows clients to see the value in your service all year long.

Think of topics such as tax planning, estate, retirement, risk management, and investment planning as natural extensions of your knowledge, competency, and overall business.

“I encourage tax practitioners to embrace financial planning,” said Mike Velazquez, CPA/PFS, CGMA, a senior partner at The Accountancy in Glendale, Calif. “Clients benefit because they have a trusted adviser counseling them. If you take the time to demystify and understand what’s involved in providing financial guidance, you might embrace it because it’s a natural outgrowth of your tax practice.”

We asked Velazquez and other experienced CPA financial planners to share some questions their clients commonly ask and how they address them.

How can I make charitable giving tax efficient?

Some personal finance questions, like this one, are closely tied to tax practice. Robert Westley, a CPA/PFS with Northern Trust in New York, recommends giving noncash assets, such as appreciated stocks, rather than selling them and donating the proceeds, for the advantage of avoiding tax on any built-in capital gain. “That’s in addition to deducting the security’s fair market value for the donation, so you receive a double tax benefit.”

How much should I save for retirement?

This common question can open the door to talking through a variety of issues — not only the amount saved, but also potential drawbacks of retiring early. Dave Stolz, CPA/PFS, owner of wealth management firm Stolz & Associates in Tacoma, Wash., said he warns potential early retirees about the heavy cost of medical insurance before they’re eligible to receive Medicare coverage at age 65. Then he does the math with each client based on their situation.

When should I draw Social Security benefits?

The merits of waiting to receive these benefits can be significant. For every year a person delays his or her Social Security checks up until age 70, he or she will receive 8% more in monthly benefits for the rest of his or her life.

“That’s a powerful incentive,” Stolz said. “So, unless someone can’t stand going to work every day, I’d encourage them to defer the decision at least one more year. Assuming you’re healthy, deferring beyond full retirement age generally makes sense.” In some marriages, one spouse may have worked longer and earned more over his or her career, resulting in larger Social Security benefits, Stolz noted. In such cases, having the higher-earning spouse defer may be a good strategy to consider as well.

Should I pay off my mortgage early?

This is a two-pronged question, Stolz said, with both financial and emotional aspects. Financially, you can crunch the numbers and consider your mortgage interest rate and your tax situation. With low interest rates, it’s easy to earn more by investing any extra money rather than using that money to pay down your mortgage principal. But what do your emotions say?

“For many people, having a house paid off by retirement is a huge relief,” he noted. If clients can do that without straining, and it is something that’s important to them, then it would be fine either way, he said.

How do I manage a financial windfall?

Westley said clients sometimes ask him to help them manage an inheritance, large bonus, proceeds from a business sale, or lottery winnings. “Look at how that windfall fits into your client’s life,” he said.

“As a CPA, you have a pretty good insight into their assets and liabilities. It’s helpful to take a step back and do a financial inventory, and think about their entire financial life. First, do they have a fund to cover short-term emergencies and hardships? Once they have 6–12 months of their spending needs in cash, I’d recommend paying off any high-interest debt such as credit card debt or other high-interest rate loans for depreciating assets, such as a vehicle.” After establishing this strong foundation, Westley then suggests looking at ways to save for retirement.  

Life insurance: Term or permanent?

Because they’re required to be objective, CPAs can provide credible, helpful guidance on basic insurance matters. Factors to consider include a client’s age, family responsibilities, life stage, and whether he or she owns large, illiquid assets. For example, younger people raising a family might benefit most from term insurance for 20 years or so, until they’ve finished raising a family.

But permanent insurance can have an important role to play for certain clients. “It’s critical for business owners who have large illiquid assets,” Westley said. “At their passing, will there be estate taxes to pay? You wouldn’t want to see large illiquid assets such as real estate or a private business sold in a fire sale in order to fund the taxes.”

What about long-term-care insurance?

There are three ways to cover the risk related to long-term-care expenses, according to Velazquez. “You can buy long-term-care insurance, and if you never use it, that money is gone as with any typical insurance,” he said. “Or you could self-insure and go without any coverage, putting your own money at risk, rather than the insurance company’s money. Or you can buy a hybrid life insurance product.” The main thing, he said, is to make clients aware of the risks for any option.

As illustrated through these questions and answers, providing some basic guidance to clients who seek financial information and reassurance can add value to your practice.

“Having more extensive discussions allows you to cement your relationship with clients,” Velazquez said. “You can often discover helpful things, such as outdated beneficiary designations or unneeded or expensive insurance policies. It’s easy for any CPA tax practitioner to get their feet wet by doing a couple of drive-alongs with an experienced CPA financial planner nearby. Once you do, you’ll never look back.”

Editor’s note: Click here for statistics, trends, and free resources to help you expand your services to individual clients.

Allan Kunigis is a Vermont-based freelance writer. To comment on this article or to suggest an idea for another article, contact Chris Baysden, senior manager, newsletters at the Association of International Certified Professional Accountants.