How do you begin to sort through the many professional service providers who are competing for your business? Here are a few thoughts.
Investment Advisors
Investment advisors are paid for their services in several different ways:
- commissions
- fees and commissions
- fees-only
Commission-based advisors are essentially salespeople who earn money every time there is a buy or sell transaction in your portfolio. While they are bound to a certain degree by the Financial Industry Regulatory Authority (FINRA), there is still a great degree of leeway in how they render their services. In 2016, the Department of Labor proposed the Fiduciary Rule, requiring investment managers to put their clients’ interests ahead of their own. Lobbyists for commission-based advisory firms continue to protest the Fiduciary Rule, and its implementation has been delayed repeatedly.
I believe the client’s interests should always take precedence over the interests of the advisor.
The fee-and-commission advisor may charge fees based on a percentage of asset value under management, but they are also eligible to be paid commissions.
The fee-only financial advisor is just that. They may base their fees on investment performance (a relatively new concept), a percentage of assets under management, a flat annual financial planning fee, or even hourly consultations.
Recommendation
Because I believe in acting in the client’s best interests, I limit my client referrals to fee-only advisors. Look for credentials such as CFP (Certified Financial Planner) and CPA/PFS (Certified Public Accountant/Personal Financial Specialist, a designation awarded by the AICPA), as well as CFA (Chartered Financial Analyst).
Estate Planning and Asset Protection
When seeking estate planning and asset protection legal services, you will find a broad variety of practices. The attorney who puts your best interests first will ask a lot of questions in order to truly understand your family’s needs before making any recommendations. There is no one-size-fits-all strategy.
I know attorneys who specialize in asset protection trusts specifically for Medicaid purposes, which are appropriate in some circumstances but less so in others. Elder care attorneys fill a certain niche, and those specializing in planning for dependents with special needs another. Estate and trust attorneys are specialists, and not every attorney possesses those skills
You should have a current will in the state where you reside. If you want to avoid the probate process, you may wish to create a trust. You should have durable financial and healthcare powers of attorney, wherein you name someone you know and trust as your proxy. Married couples generally name one another; a single individual may wish to name an adult child or other family member.
Recommendation
Seek out the appropriate expertise; you may not find it all within any given firm.
Life Insurance
Life insurance is appropriate in many but not all scenarios. Replacing a primary breadwinner upon whom the household is highly dependent, dealing with inheritances, and funding shareholder agreements with key-person or cross-purchase agreements within a business are all legitimate reasons to own life insurance. Then the question becomes, what type of coverage is most appropriate? Among your options are Term, Whole-Life, Universal Life, Variable-Universal Life and other types of life insurance.
Recommendation
Keep your real needs in mind when considering life insurance. Read-up on the many companies that offer it, and then find an agent who represents more than one.
Tax & Accounting Providers
And now, on to my favorite subject: tax and accounting services. These come in several flavors. Tax preparation itself is a compliance service, meaning that the law requires tax returns to be filed every year. That can be accomplished in several ways:
- prepare the forms yourself by hand
- use a free online service
- buy an off-the-shelf software product
- engage a professional tax preparer
Any of these can perform the compliance requirement.
Professional tax preparers fall into several categories:
- seasonal tax preparation franchise stores
- non-accredited tax preparers
- accredited tax preparers
Currently there are no rules regulating tax preparers, so anyone can perform tax preparation services, including those with no credentials. Credentials to look for are CPA (Certified Public Accountant) and EA (Enrolled Agent). Both are authorized to represent clients before the IRS, meaning they can obtain power of attorney to deal with the IRS on tax-related matters. Enrolled agents are not required to have accounting training, they only have to pass a rigorous tax law exam. CPAs on the other hand must have an undergraduate accounting degree with 150 hours of training and pass an equally rigorous exam. They are licensed by the state(s) where they practice. They must complete at least 120 hours of approved continuing professional education (CPE) every three years; many of us exceed the required minimum because we are dedicated to learning and improving our skills as the tax laws constantly change.
Additionally, because CPAs have studied accounting, they are qualified to prepare financial statements, including audits, unlike EAs. A CPA might be reactive, meaning they take numbers and put them on tax returns, or proactive, meaning they are actively engaged in tax planning on behalf of their clients.
Recommendation
Work with an accredited preparer who is knowledgeable and proactive, and who listens to you and puts your interests first.
A Final Word
I’ve attempted here to provide an informed perspective for exploring your options for various financial services. We welcome your feedback, and stand ready to refer you to the types of professionals whom we trust to put your interests first. It takes a team of experts, not just one, to adequately serve your unique needs.
~ Kathy Lyle, CPA, CVA