Are We Investment Advisors?

August 2007

In other words—should you offer your clients investment and insurance services directly or through a third party—and earn a commission?

While offering financial service is perfectly legal, this question remains one of the most sensitive and controversial topics around. I’m always surprised that some extremely small firms offer these services…and other firms that I consider to be very progressive and successful do not offer these services. The responses generally fall into one of two camps.

“Providing financial services is one of the best decisions we have ever made,” “I wish we had started much sooner,” “We have been providing this advice for years and only getting paid our normal rate at best,” “My only regret is not having enough time to do this,” “I like this better than the rest of my practice,” “How great is it having a guaranteed income as soon as the doors open on January 1st,” “Who has more overall knowledge of the client and can be more objective than I can?”

“CPAs should do what they do best and leave investments and other specialties to those specialists,” “I do not want to be directly or indirectly involved in investment-related decisions,” “When the market goes down, I don’t want to get the call from an upset client,” “While okay to do so now, I still don’t think CPAs should accept commissions or referral fees.”

I’m in favor of firms offering financial services. I think the longtime CPA truly is a trusted advisor and will do only what’s best for the client. Providing advice —directly or indirectly—on financial services is no different than advising a client on how to structure a transaction, or providing complex tax and estate planning or a myriad of other crucial business and personal issues. Is there a risk that you can be blamed if things don’t go well? You bet there is— but only if you give bad or erroneous advice that gets a client in trouble.

On the other hand, suppose you recommend two investment advisors to a client. The client picks one and the advisor designs an age-appropriate, diversified investment portfolio that you regularly review. You receive commissions from the advisor which is disclosed up front to your client. If there is a broad market turndown, did you do something wrong to be blamed for? I would say no, you should not be blamed—and your “good” clients will clearly understand that.

Readers, where do you stand? What pros and cons do you see?

Robert Fligel

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