Getting

in the
Financial
Planning

By David S. Murphy, CPA, CFP®, Ph.D.,

and Philip H. Umansky, CPA, Ph.D.

8 Financial Planning • Disclosures • July/August

 W ith the current economic downturn
signaled by a major drop in the stock
market in 2008, declining home values,
high unemployment, rising health care costs, com-
plex individual income tax law changes and Madoff-
type frauds, individuals are increasingly looking for
financial planning resources.
And CPAs can help.
On the national and local level, the American
Institute of CPAs (AICPA) and VSCPA respectively
have done much to provide free financial literacy
resources and programs to consumers. The AICPA
has its “360 Degrees of Financial Literacy” and “Feed
the Pig” initiatives. The VSCPA has its Financial Fit-
ness initiative, which includes free financial planning
seminars and webinars, Speakers Bureau, “Ask-a-
CPA” E-mail Program, tax call-ins in Richmond
and Roanoke, television interviews, e-newsletters
and more.
The VSCPA has also been very involved with
promoting financial literacy in the Virginia second-
ary education system and general public awareness
of the importance of financial fitness through the
governor’s declaration each year of Virginia Financial
Literacy Month.
The more focused issue, however, is that while
the CPA profession and the current economic en-
vironment have created both exposure and impetus
for financial literacy and planning, how is the pro-
fession developing this market in terms of business
opportunities?

What is driving the market?

There are several macro trends that show the
market is expanding and that CPAs are well posi-
tioned to take advantage.
In a 2010 Consumer Financial Literacy Survey of
2,028 adults in the United States, conducted by Har-
ris Interactive, 34 percent of American adults gave
themselves a grade of C, D or F on their knowledge
of personal finance. This extrapolates to about 77
million persons in the United States. In the same
survey, 78 percent of adults agreed or strongly
agreed that they would benefit from the services of
a financial professional.
Though many questions in the survey indicated
that Americans are underprepared in terms of finan-
cial planning, perhaps most concerning was that 56
percent of respondents said they do not have a budget
and 33 percent save 0 percent of their household
income for retirement.
While persons who indicated such would not be
prospective clients of CPA financial planners, there
is some evidence that even those with some degree
of financial sophistication may need help.
In a survey of 206 MBA students (Murphy and
Yetmar, 2009), participants were asked: 1.) if they
thought preparing a personal financial plan was im-
portant; 2.) if they were interested in preparing w

Financial Planning • Disclosures • July/August 9

such a plan; 3.) if they had time to do so;
and 4.) whether they felt that they had the
necessary skills and knowledge to prepare a
personal financial plan.
While 76 percent of respondents indi-
cated that they thought preparing a financial
plan was important and 67 percent were
interested in preparing a financial plan, only
40 percent felt they had the time to prepare a
plan. Most surprisingly, only 33 percent felt
they had the financial expertise to prepare
a plan. Given that the participants’ average
age was 29, they had 6 1/2 years of work
experience and had an average income of
$47,500 — and obviously had a degree of
“Younger persons tend to have challenges with
cash flow and credit management, while the older
persons are more focused on retirement and
many have been sold inappropriate investments.”
financial sophistication, as MBA students
— the latter statistic in terms of expertise
is surprising.
Charles Overbey, a Richmond-based
CPA/Personal Financial Specialist (PFS)
and Certified Financial Planner (CFP®),
sees some generational differences in terms
of the need.
“Younger persons tend to have challenges
with cash flow and credit management,
while the older persons are more focused
on retirement and many have been sold
inappropriate investments,” Overbey said.
He agrees that “skills, knowledge and time”
are factors that send clients to him.
There is growing body of evidence that
the typical American may not have the
technical knowledge to perform financial
planning. When 1,984 Baby Boomers were
presented with a problem to compute the
balance of a $200 investment that earns
interest of 10 percent compounded annu-
ally ($242) after two years, only 18 percent
of respondents could do it (Lusardi and
Mitchell, 2008).
CPAs who perform financial planning are
seeing a degree of pessimism in their clients,
which may make the CPA services even
more important. In a 2010 AICPA survey of
its Personal Financial Planning membership,
72.2 percent of the 421 CPA respondents
indicated that their typical client has become
10 Financial Planning • Disclosures • July/August
more risk averse over the last year, and 54
percent said the typical client “is not very
confident in the stock market.”
Seizing the market
Trust
Charles Coker, a sole practitioner CPA
who operates in Northern Virginia, has seen
a 20 to 25 percent increase in his number of
personal financial planning clients over the
last two years, many of whom come from
his traditional base of personal income tax
clients.
“A big part of my job is educating clients,”
Coker said. “They do not have the time,
— Charles Overbey
and the CPA designation provides the trust
factor.”
The trust factor is important. In 2006,
Amplitude Research conducted a survey of
1,007 investors to determine who rated the
highest as the “most trusted financial advi-
sor.” CPAs were rated the highest, followed
in order by CFPs® and attorneys. Those
financial advisors who sell financial products
or services, such as stock brokers, insurance
agents and real estate brokers, were further
down the list.
The trust associated with a CPA obviously
stems from the independence and objectivity
that are at the foundation of the core CPA
functions of accounting, auditing, taxes and
management consulting. However, the trust
factor can easily be leveraged to personal
financial planning and to the existing client
base of medium- to high-net worth business
owners, managers and tax clients.
Compounded with the fact that most
CPAs work on a fee-only basis and are not
involved in selling financial products, the
CPA has a natural competitive advantage in
many respects.
Expertise
In terms of expertise, currently the
AICPA has a specialty designation, the
Personal Financial Specialist (PFS), which
is designed for CPAs who work in personal
financial planning. Among the requirements
to be a PFS, CPAs must work in the personal
financial planning field for two years, and
beginning after December 31, 2010, pass the
PFS, CFP® or Chartered Financial Consul-
tant exam. Per the AICPA’s PFS list, there
are currently 110 PFSs in Virginia.
CFP®, the other major specialty desig-
nation related to financial planning, can be
held by both CPAs and non-CPAs, and to
some extent it is a competitor to the CPA/
PFS. There are far more CFPs® than CPA/
PFSs, and CFPs® can work in a number of
different types of firms, from banks to wealth
management firms.
Proper planning
In 2007, Moss Adams, LLP, CPAs, in co-
sponsorship with the AICPA, surveyed CPA
firms involved in personal financial planning
to determine best practices. The study
showed that at that time, the typical CPA’s
personal financial planning services were
growing faster than the broader financial
planning market and had higher operating
margins than non-CPA peer financial advi-
sors of the same size. The study identified
four successful operating models:
•• Solo practitioner: The CPA performs
a number of traditional CPA services
for clients including personal financial
planning.
•• Single entity: The CPA firm has a
separate division within the firm that
performs just personal financial planning.
•• Stand-alone business: The CPA firm
either partially or fully owns a subsid-
iary that does personal financial plan-
ning, to which referrals are made.
•• Preferred referral partner: The
partner can be an independent busi-
ness to which the CPA refers potential
financial planning clients, with the CPA
either receiving or not receiving refer-
ral revenue.
There are many nuances in each of the
models identified, and they all can be suc-
cessful — though they have common and
unique challenges. No matter the model
used, the study identified four best practices:
1.) develop plans and goals; 2.) develop a
process for monitoring performance of the
financial planning business; 3.) formalize the
compensation system; and 4.) devote time
and resources to marketing. clients who do not already have an existing
The most common challenge is deter- relationship with a CPA. In the study of MBA
mining the type of client the CPA would students, 75 percent of respondents said they David Murphy, CPA, CFP®, CFS, Ph.D.,
accept in terms of either net assets, income would seek the services of a CFP, with 16 is professor of accounting at Lynchburg
or some other client acceptance criteria. percent seeking a CPA/PFS and 4 percent College, where he also serves as the
James Shepherd, CPA/PFS, CFA, of Kuehl seeking a non-PFS CPA. Obviously, CPAs chair of the Accounting Department
Shepherd, Kozlowski and Associates, has can also hold the CFP® certification and and as director of the financial planning
been doing personal financial planning for many in the financial planning field do. track in the college’s MBA program.
28 years. He says, “Developing a philosophy Before earning his doctorate in
of which personal financial planning clients Conclusion accounting and finance at Washington
to take is important.” The current economic environment may State University, he was in private
This is reflected in the philosophy of many provide an excellent opportunity for CPAs practice in Seattle, Wash. Contact him
CPA firms, where they strive to serve those to provide personal financial planning servic- at Murphy.D@lynchburg.edu.
clients to which they can provide real value- es for their clients. Because CPAs are rated
added services. very highly in the trust factor, and because of Phil Umansky, CPA, Ph.D., is associate
For example, Cherry Bekaert & Holland clients’ excellent results in other traditional professor of business at the Sydney
indicates on its website that it works exclu- CPA services, CPAs who hold a PFS or CFP® Lewis School of Business at Virginia
sively with a limited number of prominent have excellent opportunities. Union University and chairman of the
families for whom it is able to “add significant Transitioning into this service is not Accounting and Finance Department.
value and make a difference in their financial without risks and challenges, but many He is a CPA Ambassador, a regular
lives.” Wesley Watkins, CPA/PFS, partner CPA firms have made the transition and are contributor to the WTVR Virginia
with the firm, says that “while there is a lot successful.  This Morning TV Show on money
of financial awareness, someone needs to Lusardi, A., and O.S. Mitchell. (2008) How Much Do management topics, and a member of
People Know about Economics and Finance? Ann Arbor, MI: the VSCPA Editorial Task Force. Contact
bring it all together in a plan.”
University of Michigan Retirement Research Center Policy
Other common challenges include the him at pumansky@vuu.edu.
Brief.
compliance part of the business in terms of Murphy, D. and S. Yetmar. (2009) Personal Financial
being registered investment advisors. The Planning Attitudes — A Study. Forthcoming in Management
unique challenges associated with the solo Research News, issue to be selected.
practitioner mode were how to not become
overworked, and the greater propensity for
the client base to have lower income and less
investable assets than other models.
Challenges for the single-entity and stand-
alone business models include ensuring that
non-financial planning professionals market
and refer potential clients to the financial
planning side of the business, and that audit
or tax clients who are referred receive the
same high level of service they receive with
traditional CPA services.
The challenge with the preferred partner
referral model is ensuring that the inde-
pendent business did not “steal” the client
by offering services such as tax compliance
and planning, which the CPA had initially
provided.
John Napolitano, CPA/PFS, CFP ®,
chairman and CEO of U.S. Wealth Man-
agement, based in Braintree, Mass., helps
transition CPA firms into personal financial
planning over a three- to five-year period.
His clients see personal financial planning
as a mechanism to move away from billable
hours and charge based upon value, so firms
can actually work fewer hours and make
more profit.
As mentioned previously, CFPs® are the
major competition for CPAs who want to get
into financial planning, at least for potential

Financial Planning • Disclosures • July/August 11