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The Technology of Financial Services

Tax practitioners such as CPAs and EAs have begun to take a more active role in offering financial services to tax clients from personal financial planning to retirement plans to insurance.

From the September 2006 Issue

Tax practitioners such as CPAs and EAs have begun to take a more active role
in offering financial services to tax clients from personal financial planning
to retirement plans to insurance. These service offerings are a natural extension
to the “trusted advisor” brand accorded to practitioners, and they
can provide a year-round income stream during non-peak times. As with most opportunities,
poorly implemented or managed financial services offerings can result in lost
clients and, worse yet, malpractice claims. Most advisors use a wide array of
technology tools to effectively manage the additional risk and provide clients
with information on their assets.

Article: Just the Apps, Ma’am

While tax preparers may be comfortable answering the standard questions associated
with personal financial planning, accountants will need to prepared to answer
a whole new series of questions if they plan to offer financial services. Such
questions (which may be more familiar to those who have served as fortunetellers)
include the following:

  • When will I die (actuarially)?
  • Which assets best match my risk tolerances with my desire to maximize investment
  • Should I purchase insurance coverage for this risk or would it be better
    for me to self-insure?
  • How much will my returns be for each of the next 20 years?
  • How can I transition my business to my children without being forced to
    sell to pay the taxes on the transition?
  • When should I sell my stocks?
  • What do you think about investing in 100 shares of Company A’s stock?
    How about their bonds?
  • How much will college cost for my kids?
  • What will the estate tax rate be when I die (again, actuarially)?
  • What is the answer to life, the universe and everything? (This isn’t
    really required, but many clients will want you to answer this one, as well.)

Technology tools can assist with additional risks associated with investment
and risk management, and many leading financial advisory firms have Help desks
to support CPA advisors on complex topics such as the following:

  • Valuation and balancing portfolios;
  • Technical assistance with the underwriting and sale of insurance products;
  • Assistance with implementing complex tax and estate planning strategies;
  • Analytical review of returns and periodic evaluation of assets for underperforming
  • Licensing requirements to sell products in various jurisdictions;
  • Compliance with federal and state securities laws; and
  • Ethical issues, including compliance with professional standards.

Software vendors like SunGard, CCH and Thomson have embedded features such
as automatic data transfer into many planning products to form application suites.
These suites are designed to transfer information from financial plans to portfolios
management to trade accounting, and finally into an export file or paper report
for use in preparing tax returns. Other stand-alone applications have extended
their import and export capabilities to help tax preparers, as well. For example,
TradeAccountant (
is an independent application that allows practitioners to electronically import,
reconcile and export securities transactions into Form 1040’s Schedule
D in professional tax preparation applications TaxWise and UltraTax CS. Application
integration and data exchange makes it easier for CPAs and EAs to spread time-consuming
tasks like entering capital gains information across the entire year. They also
makes it easier to calculate estimated tax liabilities since the information
has already been accumulated to help track and manage open investment positions.

H.D. Vest, a Wells Fargo subsidiary focused on helping CPAs and other tax
practitioners provide financial planning services to clients, is revising its
suite of tools for advisors into a single web portal. According to Dawn Willis,
Manager, Advisor Practice Development at H.D. Vest (and one of The CPA Technology
40 Under 40 honorees): “The
web has fundamentally changed how we can work with our advisors to meet the
financial planning and wealth management needs of high net worth clients. We
are constantly revising and enhancing the tools we provide to our advisors through
our proprietary portal, HDVLink.” Through web portals like HDVLink, broker/dealers
provide trade accounting; online access to statements, planning and analysis
tools; product information; and other services to both our advisors and their

Another group that helps CPAs expand their practices to include financial
services is 1st Global, which boasts affiliation with over 600 firms across
the United States. Like H.D. Vest, 1st Global is also affiliated with law firms
and other financial professionals in addition to tax practitioners. According
to 1st Global President Tony Batman, “Consumers trust their CPA or EA,
and think these individuals are best equipped to provide them with tax-oriented
risk management and investment advice.” And like H.D. Vest, 1st Global
provides its advisors with information primarily through a web portal making
numerous resources available to accountants as they begin their foray into the
world of investments and insurance. “Our organization has consistently
invested in the support structure for our advisors, with a ratio of one employee
for each five registered advisors,” 1st Global’s Batman noted. “And
we provide training and infrastructure to support the technical needs of tax
and accounting professionals.”

Diversification into financial services can also help firms that want to implement
document management processes for all engagements. Since client records must
be accessible to the broker-dealer, many broker-dealers have procedures in place
for tracking documents needed for compliance with laws and regulations. In many
cases, these workflow and management procedures just need to be modified and
enabled for the firm’s other engagements. H.D. Vest President Roger Ochs
reports that his firm is working on systems to manage all documents and workflows
with his CPA advisors. “Document management is a logical extension of
the paper files CPAs and investment advisors have kept for years, and we are
working on systems to manage all of the documents associated with clients paperlessly,”
Ochs noted.

This enables virtual representatives in companies like H.D. Vest and 1st Global
to operate virtual branches in tax and accounting firms everywhere, yet it allows
them to retain access to these documents from anywhere. “The financial
services industry is automating many functions like document management and
CRM onto web-based portals. The response to the web-hosted applications has
been so good that some of our advisors have requested that we manage the documents
from their tax and accounting practice in addition to those related to their
financial services work,” said 1st Global’s Tony Batman.

H.D. Vest’s Ochs adds, “Web portals make it possible to leverage
the combined knowledge of people across the world and make it possible for the
smallest firm to utilize the resources of a global financial services company
for their clients.” H.D. Vest has also expanded its operations to enable
advisors to offer banking products such as loans to clients through its parent
company, Wells Fargo & Company.

The Thomas Financial Group has supplemented the resources provided by its
broker/dealer with tax research from CCH, Sungard’s Planning Solutions,
and other applications. President David Thomas estimates that he spends over
$50,000 on annual subscriptions for research and analysis tools to enable his
team to monitor and manage client assets. “My web subscriptions let me
have just as much information in my Birmingham office as most brokerage firm
salespersons,” he said. “I can meet the needs of my clients more
efficiently from my office in Birmingham than they could ever be served from
a boiler room in New York or Boston.”

While many investment advisors choose to accept compensation from customers
based on commissions from product sales, others prefer to work with clients
without accepting commissions. John Smartt, a Knoxville, Tennessee CPA and investment
advisor, is an active member of the National Association of Professional Financial
Advisors (NAPFA), a professional organization for financial advisors who charge
fees for services in lieu of commission or product-based compensation. “Since
I am compensated through fees only, I am compelled to pick the investment vehicles
and products for my clients that meet their objectives instead of the products
that maximize my commissions,” Smartt noted. Many state laws define CPAs
as fiduciaries who are legally required to act in the best interest of their

According to Tony Batman: “Conflicts of interest are inherent in any
business. Wal-Mart has an incentive to maximize the price of its merchandise,
and consumers have a similar incentive to purchase goods and services as inexpensively
as possible. Consumers should have the ability to choose from fully disclosed
compensation alternatives.”

While firms can choose to retain more of their income if directly registered
as a broker/dealer with the SEC, almost all firms with fewer than 10 advisors
partner with a larger organization to help them reduce the costs of regulatory
compliance. “The compliance is simply too much for the average small practitioner”,
says H.D. Vest’s Roger Ochs. According to Ochs and other industry experts,
the legal and personnel costs associated with routine compliance examinations
and SEC inquiries can easily surpass financial services earnings in all but
the largest firms.

David Thomas of the Thomas Financial Group echoes the need for small firms
to affiliate with a larger organization: “Our small firm simply couldn’t
exist if we had to deal with all of the compliance issues by ourselves. We’re
in the business first and foremost to help our clients reduce taxes and increase
their personal net worth, and that’s hard enough without trying to create
our own systems and procedures to comply with literally thousands of federal
and state regulations.” Thomas is very happy working as a registered investment
advisors affiliated with a third-party broker-dealer. “This relationship
lets me focus on client service instead of getting bogged down in policies and
procedures to comply with securities laws and regulations,” he said. 

Article: Just the Apps, Ma’am


Brian Tankersley, CPA.CITP is an associate with K2 Enterprises, the leading
technology CPE provider for accountants in North America, and an independent
consultant. Brian and his family make their home in Knoxville, Tennessee.