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Financial Planning > Tax Planning

CPAs, Enrolled Agents, Accountants…What’s the Difference?

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In last week’s column, we looked from a high-level perspective at some of the pros and cons of forming alliances with different types of professionals. As promised, this week we’re going to focus specifically on the different types of tax professionals you may be considering forming alliances with.

Advisors often ask me: “Just what is the difference between CPAs, enrolled agents and accountants anyway? And should it affect who I decide to form alliances with?” Great questions.

In short, the differences between the three come down to the scope of work they perform. A CPA generally is trained in many different areas of planning, including everything from preparing individual tax returns, performing business valuations, handling audits and other corporate tax issues along with some additional duties. In order to pass the CPA exam (administered and earned on the state level), only about 25 percent of the information covered on the exam actually pertains specifically to taxes and tax law. Interesting, isn’t it?

Next, enrolled agents (EA) earn their designations directly from the IRS and are exclusively tested on their knowledge of taxes and tax laws. Therefore, the majority of an enrolled agent’s business will typically involve tax preparation services. In many cases, an annuity producer might find an enrolled agent to be one of the best fits for an alliance.

Finally, accountants or bookkeepers may perform many of the same functions as a CPA or enrolled agent, but they do not have to meet the same level of education requirements to be certified as a CPA or EA. The main difference is that accountants and bookkeepers cannot represent their clients before the IRS. However, they can still legally be paid for tax preparation services as long as they pass a basic competency exam and file for a Preparer Tax Identification Number.

What Does it Mean to You?

Why should you care about the differences between the three? On one hand, I think it helps in making sure that you form relationships with the right types of professionals who are more likely to be working with your ideal clients and prospects. On the other hand, let me say that in my opinion, the designation doesn’t matter.

Let’s be honest, to draw a parallel example from our world, has a client ever chosen to work with you because of your designation? Most clients couldn’t tell you the differences between all of the designations that an advisor can earn. Beyond the recognition of CFP, most clients are clueless. The same goes for the tax planning world. Many clients of mine often refer to their bookkeepers, accountants and enrolled agents all as their CPA. Don’t get me wrong, I believe in designations, but for educational purposes, not for use in leveraging them in your marketing activities.

Relationships Matter

So, if the designation doesn’t really matter, then how do you choose between the three when deciding who to work with? In my experience, the most important component in any successful alliance is the type and level of relationship these tax planners have with their clients. I tell all of the annuity producers I coach that the most vital component of a successful alliance with other professionals is how well they do in building trust with their clients.

I’ve met plenty of CPAs, enrolled agents and accountants who almost brag about how efficient their businesses are. They sit back during tax season while their clients file through one after another, passing the work on to lower level preparers, who then hand it back to them to sign off on and give back to the client after completing the work. My thought has always been with these types of people, “Where’s the relationship?” There’s no way I’m going to spend any time or money investing in a relationship with these types of tax professionals regardless of the letters after their name. Because when they tell their clients they can help with other areas of planning, the clients aren’t going to give them the time of day. Why should they? There’s no real relationship being built.

Contrast this approach with the CPAs, enrolled agents and accountants that I personally work with (I work with all three). Each of them knows their clients on a first-name basis and personally reviews and plans with their clients every year face to face. They take the time to answer all of their clients’ questions and help them navigate all the complexities of the tax planning world. 

These are the types of professionals you want to form alliances with. When my tax partners tell their clients about the value-added planning services available through the relationship they have with my firm, their clients are all ears because they have a great relationship of trust in that professional.

Do an Interview

So how do you know ahead of time what kinds of relationships other professionals have with their clients? One of the best ways I know is to actually interview them, asking them yourself. This must be done carefully, of course, so they don’t just tell you what they think you want to hear. Instead, casually ask questions like, “How do you uniquely serve your clients, and what does an ideal client relationship look like?” Depending on the answers I get, many times I’ll take it to the next level by asking for five to 10 of their current clients that  can interview over the phone. I do this because the tax planner’s view of the relationship and the client’s perspective can often be very different.

Without fail though, I know I will hear tax planners tell me about how much they care for their clients, and how they go out of their way to service them and meet their evolving needs. Then when I hear the client echo this in how they describe the level of care they receive, I know it’s true. These relationships have always proven to be the most successful alliances. 

While some of this may seem like common sense, I’ve coached a number of advisors who have tried forming relationships with tax planners without much success. And when I ask them what their initial interview process was like when they were forming the relationship, I usually get a blank stare. 

Successfully forming alliances with other professionals takes careful thought, planning and strategy, all of which I look forward to sharing with you over the course of the year. 

Next week, we’ll discuss some of the pros and cons of working with attorneys. Again, we’ll look at the relationship model most have with their clients and how to factor this into your approach and overall strategy. In the meantime, if you’d like a copy of my first interview questionnaire I use with each new potential alliance I’m considering, send me an email at [email protected] and I’ll be happy to send it to you. You can also visit our website at for more information.


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