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Thursday, Mar 28, 2024

Accountants Divided Over Expanding Scope of Services

By LINDA COBURN Contributing Reporter Like so many professionals, accountants are constantly seeking new ways to better serve their clients and bring more revenue into their firms. For some in the world of accounting that has meant expanding the menu of financial services they offer. Increasing numbers of CPAs are becoming licensed insurance agents or securities representatives, receiving commissions for products they sell while also receiving fees for advisory services. The accounting community is divided about whether this trend is positive. Some, like CPA Steven Fishman, partner in the Encino firm of Fishman, Block + Diamond LLP, feel the potential conflict of interest in making money by selling products like insurance or securities is too great. “I don’t do any of that,” said Fishman. “The concern I have is, how do you know, on behalf of your client, that you’re giving them objective, honest advice?” That’s why he has stuck with providing what Fishman terms the “traditional services” of auditing, compiling and reviewing financial statements, and tax and wealth planning. “I like being able to play sort of cop, telling people, ‘No, this doesn’t make sense,'” he said. “And that’s hard to do if you’re also their insurance broker or their stock broker or that sort of thing.” Fishman says that he believe most entrepreneurial CPA’s are honest and ethical and can wear both hats well. “But if I lost a client’s money even if I lost money too I would feel horrible,” said Fishman. “If an investment goes bad, you get sued and you know, malpractice doesn’t cover that plus you lose a client and I can’t afford that or stomach it.” The trend toward offering more services has not led to any increase in complaints or suits according to Ron Klein, vice president-claims counsel for CAMICO Mutual Insurance Company, the liability insurer for the California Society of Certified Public Accountants, or CalCPA. “CPA malpractice is a very low frequency event,” said Klein. “We insure 7,000 firms across the country and maybe once or twice a year it happens.” Klein explained that in California a CPA must disclose to their client, in writing, any commission they would receive prior to any transaction such as purchasing an insurance or investment product. “There’s nothing unethical or inappropriate about it,” said Klein. “It’s the CPA acting as the primary business or financial advisor, which is the traditional role of a CPA who is not an auditor.” There are a myriad of rules and regulations surrounding the provision of commission-based services, including a requirement that CPAs create discrete entities that keep fee-based accounting services separate from commission-based product offerings. That’s why CPA Dennis Rose heads two practices in Sherman Oaks. The two companies, Dennis F. Rose & Associates Certified Public Accountants and Consultants, and Premier Financial Consultants, are located in different buildings. “The files are separate, the e-mails are separate,” Rose said. The accounting company only renders accounting and tax services, which the financial services company does not. Through the financial services entity, “we are able to provide to clients either securities, like stocks, bonds, mutual funds as well as third-party money managers, annuities, when appropriate, life insurance and estate planning,” Rose said. He has gone the extra mile in his licensing. While quite a few CPAs have received their Series 7 licenses, allowing them to market securities, Rose has become a fully licensed broker-dealer with a Series 24 license. He is also licensed to sell insurance products. The primary reason he branched out, he said, “is to give his clients better service.” “I want to give my clients the opportunity to meet with their CPA who knows about their finances, not just their tax returns,” Rose said. The intent, Rose said, is not to have every client become a financial services client. “In some cases they may be better served with a Morgan Stanley or a Merrill Lynch,” he said. “I’m not competing with them. I can do what a Merrill Lynch advisor cannot do I can give tax advice. They cannot.” Rose said this gives him the ability to look at each side of the financial equation for his clients. He feels strongly that the eight years that he has been involved with these non-traditional financial services have increased his value to his clients. “I know I’ve become a better tax accountant and clients are getting the benefit of a lot more knowledge which translates, hopefully, into increased financial wealth for them,” Rose said. “I would never do anything just for a fee or commission,” Rose said. “It wouldn’t make sense. It’s always what’s best for the client. Always.” But other than the financial rewards, why would Rose want to go to the trouble of setting up separate companies and getting multiple licenses? In his words, “It’s much more fun to help a client achieve their financial goals rather than just simply preparing a financial statement or tax return.” Rose believes offering financial services “puts us in a completely different light as a financial advocate.” Back on the other side of the fence is Gary Condie, former president of CalCPA’s Los Angeles chapter and a practicing CPA in the firm of Condie & Wood in Valencia. Like Fishman, he personally doesn’t ever want to sell financial products. “It would be real hard for me to be a trusted advisor and member of (my clients’) and at the same time be selling them things,” Condie said. It’s like physicians, he related. “I don’t want my doctor to be selling me products I want them to say what I should do and then go to a pharmacist and buy that product from them and hope there’s not a kickback involved in the process.”

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