OUTLOOK & ANALYSIS

Seven Personal Finance Strategies That Can’t Wait

With an economy skittering out of control and investors facing once-in-a-generation losses, CPAs are talking increasingly about their special duty and capacity to help investors find calm in the storm.

by Rick Telberg/At Large

I’ve been talking to dozens of CPAs and financial experts lately. But it doesn’t take long to gather at least seven essential take-aways:

1. CPAs are the voice of reason.

“We’re independent, objective and contrarian thinkers,” says Susan Bruno, CPA, PFS at Beacon Wealth Consulting LLC in Rowayton, Conn. “And isn’t that what’s needed today? I think that investors need that CPA perspective more than ever before.”

2. Do the math.

“The market is going to come back. But when? That’s the question,” Jim Shambo, CPA, PFS at Lifetime Planning Concepts Inc. in Colorado Springs, Colo. “Two years? Three years? Or five years? We don’t know and we can’t guess. We just need to do the math. And what that means today is looking at the loss in equities and sometimes seeing that it’s out of balance with your client’s other assets, like bonds, cash or even real estate. So it’s time to be rebalancing. With equities off so much it’s really important that we add some cash back into stocks. As a CPA, you have to follow the math and the math says rebalance.”

3. Let clients know you’ve prepared them well.

“We need to make sure that clients understand that bear markets have happened before and they’ll happen again,” says Lyle Benson, CPA, PFS at L.K. Benson & Co. in Baltimore. “These are the times we’ve been preparing for. That’s why, if you’ve been really following the financial process, you’re ready. You have a diversified portfolio that’s liquid in the right places to take advantage of some of the opportunities that are opening up here.”

4. Focus on the personal and specific.

The stock market averages may be down, but those are only averages, your clients’ needs are very personal and completely specific. CPAs need to be talking to clients about the details of their situations. For starters, Benson adds, tell clients to turn off CNBC TV and stop hitting the “refresh” button at Yahoo! Finance. “That’ll drive you crazy.”

5. Seize the opportunities.

“As bad as this is,” Benson continues, “and I really hate to put it this way, but it’s a marketing opportunity. This is a time when CPAs, who tend to be fiduciary type of advisors, can gather in clients and assets. We use a proven, well-thought-out process.” Ask Jimmy J. Williams, CPA, PFS at Jimmy J. Williams & Co. in McAlester, Okla. The market has been off about 40 percent, but his financial planning business is also up 40 percent. With a modest $52 million under management, Williams’ team of five is earning fees at a run-rate of $840,000 annually.

6. Keep it real.

Williams has something more to add: In reviewing goals and objectives with clients, CPAs have a knack for the No B.S. approach. “We know the facts. We stick to the facts. Clients want that and expect it from us,” he says. Unlike any other class of financial advisor, we can give our clients the information that they need to hear. And that gives it a credibility that others can’t give it. We keep it real.”

7. Start today.

With only days to go before year-end, CPAs need to move fast to help clients grab some last-minute opportunities. Robert Keebler, CPA/MST at Virchow Krause in Green Bay, Wisc., offers at least two quick ideas to put to work today:

— Harvest losses. It’s painful, but a lot of mutual funds, believe it or not, will be distributing capital gains from investments purchased years ago and this isn’t a year when anyone needs to be paying gains taxes.

— Think Roth. Depreciated assets make it a good time to look at converting regular IRAs into Roth IRAs.

Tax season starts in only a few weeks. But Dec. 31 is coming in a matter of days. Clients need their CPAs now more than ever.

JOIN THE CONVERSATION: What’s your view on the personal financial planning situation today? How worried are you? How worried are your clients? What should CPAs be doing? Tell me and I’ll post and share the best comments. E-mail Rick Telberg.

Copyright © 2008 CPA Trendlines/BSG LLC. All Rights Reserved. Used by Permission. First published by the AICPA.

One Response to “Seven Personal Finance Strategies That Can’t Wait”

  1. Big 4 Life

    Rick —

    This upcoming tax season will prove to be an interesting one indeed. I just wanted to add a couple of notes to your listing.

    1. There is still a month to go to lock in losses for purposes of tax loss harvesting. Evaluate your holdings and see where it makes sense to lock in, while still picking up the lost exposure on the sale in another one of your accounts (see points 2 and 3).

    2. This is a great time for people to be looking at their risk profile and making adjustments. People always gauge their theoretical risk tolerance levels – but until they experience the risk head on; it is but a guess in my opinion. Take this opportunity to leverage the chance to tax loss harvest with the opportunity to reevaluate your risk tolerance and make changes to your investment mix.

    3. Going along with one and two, use the end of the year to evaluate how you are making use of your tax sheltered accounts. Are you holding a bond index fund in your taxable account and a low turnover index fund in your 401k? — make the switch; you keep the same investment risk in your overall portfolio yet you get to capitalize on tax savings.

    4. We should also make sure to talk to our clients about the new rules that have gone into play during the last year – and what may be upcoming. More people than ever are watching the news, and sadly misunderstanding the various programs that are available for them to take. It is our responsibility to help them gain this understanding – and another great opportunity for us to do some planning for our clients on a go forward basis.