What You Need to Know
- Amid the pandemic and tax changes, it's more important than ever for advisors to partner with CPAs.
- Forging a relationship with a CPA is not always simple.
- Ed Slott, Jeffrey Levine and other experts have provided some best practices for advisors to follow.
It has always made sense for financial advisors to partner with certified public accountants to help clients.
But with the COVID-19 pandemic, the tax implications of relief packages and potential tax changes with the new presidential administration, it makes more sense than ever for advisors and CPAs to team up, according to experts in both fields interviewed by ThinkAdvisor.
They also provided some critical do’s and don’ts for advisors working with CPAs.
Why CPAs and FAs Should Be Partners
“The pandemic has led to unique planning opportunities that have both tax and financial planning applications,” according to Jeffrey Levine, chief planning officer at Buckingham Wealth Partners and a CPA. One example is the waiver of required minimum distributions in 2020 and the ability for individuals to roll back distributions previously taken to satisfy that requirement, he noted.
“Everyone is overwhelmed and stressed,” Levine said. “And those two things make it more likely for mistakes to occur. Working together, as a team, collectively for a client’s benefit, makes it less likely that such mistakes will occur.”
While advisors should strive to become educated on tax issues, they don’t always know as much about tax law as a good accountant. Conversely, “CPAs tend to be history teachers: We tell you what already happened on a tax return,” Ed Slott, CEO and founder of Ed Slott and Co. and a CPA, pointed out.
“Right now, I would bring in attorneys, too,” to talk about estate planning with advisory clients, Slott said, noting the increased demand for estate planning due to the pandemic.
Recent legislation “added new opportunities that will only be available for a few years,” noted David Stolz, chair of the American Institute of CPAs’ Personal Financial Specialist Credential Committee.
For example, it is now possible to make a deductible charitable contribution for up to 100% of adjusted gross income, Stolz said. “Maybe the advisor would like to suggest a large Roth conversion, and the CPA could suggest a large charitable contribution from other funds to offset some of all of the income from the conversion,” he noted. “You need to communicate to take advantage of opportunities like this.”
Other Good Reasons to Team Up
“If advisors are looking to grow their practice and move up market and work with higher-net-worth and more complex clients, in our opinion, there’s no better way to do that than with partnering with a CPA because the CPA has access to those clients,” according to Andree Peterson, chief implementation officer at the financial planning firm Integrated Partners.
Meanwhile, “from a CPA perspective, especially with what happened last year, everybody’s looking for advice and CPAs are starting to recognize that they need to offer more advice and services within their practice,” she noted.
Another key reason for an CPA-FA partnership, according to Stolz: “The last thing an advisor wants is for their client’s CPA to tell them that your investments have caused a big tax bill. And the last thing a CPA wants” is to say “why didn’t you call me before you made this decision?”
Here are some best practices for advisors looking to partner with CPAs:
1. “Have — at a minimum — a working knowledge of the tax rules,” Levine said.
2. “Look for somebody [you] can connect with because you’re building a relationship with the CPA and it’s just like building a relationship with your client,” according to Peterson.
3. Make sure to “work with a CPA that is a good communicator, and also can discuss investment topics with a good level of understanding,” Stolz said.