The financial plan roadmap typically covers strategies for income planning, wealth management, tax minimization, legacy planning, and more. Leveraging all these capabilities requires a “big-picture perspective.” For many CPA firms, particularly smaller firms, integrating the services of other professionals will enhance and support this holistic approach.
For example, advisers often recommend that their clients seek an attorney for estate documentation. While a financial planner may provide some estate planning strategies, they recognize the need for an attorney. Much like that relationship, wealth advisers might also consider broadening that same outreach to additional professional expertise.
CPAs and wealth advisers who opt for coordinated efforts provide their clients with benefits that include the tax consequences of portfolio construction, distribution, and accumulation, as well as a view of the resources required to fund retirement and life goals. This outreach approach also provides the professionals with benefits, such as reducing the stress of trying to do it all and helping to build trusted business relationships. The right combination of advisers working together helps avoid a large commitment of resources or the need to expand payroll or infrastructure for any of the advisers’ businesses. For the client, each professional provides objective information on how to reach the client’s goals.
To demonstrate this, Domani Wealth, a wealth management firm in central Pennsylvania, and the accounting and advisory firm Herbein + Company Inc. developed a professional relationship. Each firm uses interactive tools to encourage more collaborative conversations, and both count on shared experience delivering results to guide client service.
The examples below illustrate how two firms like ours work together on a client’s behalf, highlighting areas that may not be addressed fully if not coordinated for either the tax consequences or portfolio considerations.
• Stock markets are periodically volatile, so a financial planner who wants to apply tax-efficient strategies to manage investments will work in collaboration with a CPA and look at market drops as an opportunity to do tax-loss harvesting in client accounts. From there, the adviser will either buy back the same position in 31 days or buy a similar holding to avoid the wash sale rules that would disallow the loss. This enables the clients to stay invested in a similar manner while benefitting from a capital loss on income taxes.
• As a client approaches retirement, items to consider include what their income tax situation will look like and if they will be subject to a new tax rate. In addition, retirees need to cover the withholding of the appropriate taxes. A wealth adviser can determine the resources needed with the CPA who calculates the retiree’s tax situation. Cash flow needs can be identified to make sure the client has the appropriate cash for tax payments or requests can be made on the proper withholding on retirement accounts.
• If a client is planning to move into a retirement community, how will they cover the entrance fees and ongoing monthly expenses? Considering if there will be tax benefits will help inform the cash flow, and options such as short-term lines of credit can help until a home is sold. Depending on the facility, a client’s entrance fees and medical deductions might be larger than a client’s income, which can create an opportunity to take some IRA distributions or create other portfolio gains to avoid losing the deduction for medical expenses.
Clients appreciate a multidisciplinary approach to finding solutions that meet their financial and personal goals. There is opportunity for CPAs and independent financial planners to expand upon the services they offer with an approach that incorporates the best of each expertise, thereby benefitting the client in reaching their financial goals.
Elizabeth F. Hassler, CPA, is a partner at Herbein + Company Inc. in Reading. She can be reached at firstname.lastname@example.org.
Angela M. Stephenson, CPA, PFS, CFP, is partner, chief operating officer, and senior wealth adviser for Domani Wealth in Lancaster. She can be reached at email@example.com.