Abstract: During last fall's stock market turmoil, when millions of frenzied investors were calling their brokers on Blue Monday for reassurance and guidance, many Americans were on the phone with their CPAs. Why? Because a number of CPA-financial planners have expanded their practices to include investment management services. The services CPAs can provide are as varied as the professional issues they face. Ultimately, individual circumstances will dictate if or how a CPA decides to expand his or her practice into the growing area of investment management. Investments have always been an integral part of the financial planning process. For many years, however, CPA-financial planners only recommended what classes of investments a client should have, stopping short of recommending specific investments. And most CPAs did not offer implementation assistance. As traditional barriers begin to fall, CPAs today are going well beyond asset allocation and referring clients to investment managers, recommending specific securities -- stocks, bonds or mutual funds -- and in some cases even earning fees or commissions on the sale of these products. FRAMING THE ISSUES As the CPA profession moves into the next century, Phyllis J. Bernstein, director of the American Institute of CPAs personal financial planning division, says she believes more CPAs will realize that the market wants them to provide investment services. At the end of the engagement, the client has always asked, `What do I do with my money?' The CPA's response has evolved from `We can find someone to help you' to `I can help you.' CPAs who want to offer investment advisory services must deal with a number of issues, including changes to their fee structure, licensing and regulatory concerns, ethical issues and, for some, a complete redefinition of what it means to be a CPA. CPAs who compete with other financial planning or investment professionals may need to charge for their services in a different way. Instead of billing by the hour, most investment managers are compensated based on a percentage of the assets under management. Bernstein says some state boards consider that a fee. If a CPA firm has an attest client-one for which it provides audit, review or compilation services -- state law forbids the firm from receiving a contingent fee from that client. (See the sidebar on page 37 for information on how CPAs are compensated for providing investment services.) Some states allow CPAs to accept commissions. Under AICPA ethics rules, CPAs can accept commissions and contingent fees from nonattest clients as long as the compensation is disclosed to the client. But, Bernstein cautions, some grey areas remain. For example, if a CPA provides attest services to a corporation and offers investment services to its owner on a contingent fee or commission basis, is this the same client -- effectively prohibiting the arrangement? The PFP division and the AICPA professional ethics division are working on issues involving contingent fees and commissions. The current position is that an individual can receive a commission or contingent fee from an officer, director or shareholder of a client company. Individual state laws allow or prohibit a CPA from receiving a contingent fee or commission. An up-to-date list of state regulations is available on the AICPA fax retrieval service (dial 201-938-3787 from a fax machine, document #604). According to Bernstein, now that the AICPA and the National Association of State Boards of Accountancy have adopted the uniform accountancy act model, more states are adopting rules that permit fees and commissions. Why should CPAs who manage client assets abandon the traditional hourly rate structure? Bernstein says, With everyone else's charges based on assets under management, it's important for CPAs to be competitive. If we want to be on a level playing field, we should change our compensation structure. …
Publication Year: 1998
Publication Date: 1998-01-01
Language: en
Type: article
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Cited By Count: 1
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