Plant Seeds in Tax Season For a Bountiful Summer Harvest, with Dave Cottle
Tuesday, January 30, 2001
Visit the AccountingWEB Workshop Calendar for upcoming sessions.
Dave's session included ideas on what you can do during tax season - when you have the attention of your clients - to ensure a continued stream of engagements throughout the summer. Read Dave's article, Plant Seeds in Tax Season for a Bountiful Harvest in the Summer, which provided the foundation for this workshop.
Session Moderator: Welcome everyone, and thank you for joining us today! We are happy to welcome David Cottle, presenting information on how you can plant seeds in tax season to produce a "bountiful harvest" in the summer.
David Cottle is an internationally recognized Certified Management Consultant and Certified Public Accountant who works primarily with professional firms to improve their profitability, growth, and management. Author of four books and dozens of articles for professional journals, he has produced numerous audiocassette learning systems, videocassette learning systems, and seminars on management, marketing, and profitability.
For over 20 years Dave has studied which management and marketing techniques were successful and which were not. Dave has found definite features common to most super-successful firms which are missing from firms that are not so successful.
Welcome, Dave - the floor is yours!
David Cottle: Hello, everyone. Welcome. When I was new to the consulting business, many years ago, an elder statesman gave me some good advice. Advice. He asked me the difference between a good pool player and a great pool player.
I did not know.
He said, "Dave, the good pool player makes the shot. But the great pool player not only makes the shot, He rolls into position to make the NEXT shot.
What did he mean?
He meant that many CPAs will make the "shot" by giving their client some good advice -- It might be tax advice, financial planning, or business advice. But they just give the advice. Then they sit back and leave it up to the client to implement that advice. And nothing happens.
Have any of our participants had that experience?
David Cottle: Anything you want to share?
Harry D. Howe: The clients that have "a gun to their heads" are the ones that implement.
Bryan: That is a good reason why I insist on an engagement agreement.
David Cottle: Good point: Our challenge is to motivate them to follow through on our advice. Most people only act when they seek to avoid pain or experience pleasure. Basic human motivation. We must apply those basic emotions in getting our clients to act.
If any of you want to insert a question or comment at any time, please feel free.
I assume you have all read the article?
Bryan: No I just discovered it.
David Cottle: It's also in this month's Practicing CPA, just mailed out. I was saying our challenge is to work with clients when they are motivated. Unfortunately, that's when we are busiest. So the trick is to keep them interested and motivated until we can work with them after busy season. We do that in many ways, but one effective way is to ask the right questions. Questions that will make them think about the future and perhaps get a little uncomfortable.
Do any members of your family have significant health problems? If so, what would happen to them if you or your spouse died? Became disabled?
That is a question from the Individual Client Meeting Agenda I referred to in the article. Notice I didn't say "you need to do something." I want the CLIENT to say "I need to do something." As Socrates said, "If I say it you may doubt it, but if you say it, it's the truth." Ask the right question and then remain silent until the client answers.
Paul Dunn: Socrates is the man Dave!
David Cottle: I am honored by the man who taught me the significance of the Socratic method as motivation for clients.
Paul Dunn: Good to 'see' you on line. where is that article you were talking about?
Session Moderator: Here's the link: http://www.accountingweb.com/cgi-bin/item.cgi?id=37293&d=101
Paul Dunn: I LOVE the ? "What keeps you awake at night?"
David Cottle: What standard questions do any of you pose to clients to get them to think about the future?
Leisa: Sometimes it isn't just about motivating the clients; it is also about motivating the accountant to talk with the client about possible concerns.
David Cottle: Yes, sometimes accountants are hesitant to probe about very personal items. Every client has different problems. We seem to see the similarities but clients see the differences. Here are some other questions to get clients to think.
What is your net worth? How much of your net worth produces income? How much life insurance do you have? How much does your spouse have?
These are the tough questions that SOMEONE should ask the client, but no one does. I think we have a professional responsibility to ask the tough questions.
Leisa: Dave, do you suggest firms put some type of checklist in place to basically alert them of concerns?
David Cottle: Absolutely. There are several in my book. But it's more important for the CLIENT to be aware of the concerns.
Leisa: Is that 60 Clues....
David Cottle: Yes, it is the clues. But you'll be glad to know that there are now 85 clues.
Bryan: As a CFP I was trained to ask these questions and on during my tax work it just comes rolling off my tongue. Folks have almost no resistance to answering these type questions. After all, you have their most personal information in front of you.
David Cottle: When do you plan to retire? How much will you need to support your standard of living? Where will the money come from? How much have you saved so far?
Alioune Badara: Can you elaborate a little regarding "how much your net worth produces income?"
David Cottle: Yes, if their net worth is mostly in raw land, there is no income. If they own stock in a closely held business that pays no dividend. Actually, if they own growth stocks with no dividends, what will they live on when they retire? Large houses for a residence produce no income. All of these are net worth, but no income. See what I mean. These are opportunities for asset management services. Or at least financial planning.
What sources of income are you counting on during retirement? How recently have you compared your Earnings and Benefit Estimate Statement from the Social Security Administration with your records? Your spouse's statement? Some people have little idea how much Soc Sec will pay.
How will inflation affect your savings and investing plan? (Inflation does not have to be high to affect your retirement. A dollar today will be worth only 75 cents in 10 years even at 3 percent inflation annually.)
The whole idea is to get the client sensitized to these issues. We owe them that. If we don't ask, who will?
Alioune Badara: What about life insurance?
David Cottle: Do you or your spouse expect to receive any inheritances? How much do you expect? How do you know? Some families seldom have discussions about inter-generational issues. Have any of you held planning sessions with two or more generations?
Leisa: Yes, they are very intense and time consuming, but most beneficial for all involved
David Cottle: It's a good way to extend your practice from parents to children.
Neil Sullivan: Once they speak of potential inheritance, then they qualify to be sensitized about potential tax issues... once they are concerned, then they should ask what can be done about it? Voila, there's the entrance cue for additional planning services.
David Cottle: Many parents don't want their adult children to know how much they are worth. That may make sense when the kids are young, but when they are adult they need to know. One way to motivate the parents is to remind them that if they don't plan their estate wisely, the last memory their kids will have of them is that they were stupid. And they don't want to be remembered that way.
Does anyone else have a way to motivate elderly parents to plan their estates?
You could also ask: What role do you realistically expect your children or spouse to play in the business? This might motivate for succession planning or other transitions.
William Frazer: Yes I tell them this on estate planning
David Cottle: What do you mean?
William Frazer: I say if you don't plan you feel that the IRS can spend your money more wisely than your children
David Cottle: Both are good ideas. Who do you love more? Your Uncle (Sam) or your children? Ed Slott interviewed a multi-millionaire client who refused to give money to his children.
William Frazer: Then the response comes...but I need my money in case I end up in a nursing home.
David Cottle: What do you tell them
William Frazer: Well I say the choice is yours... Uncle Sam or your children ...who do you want?
David Cottle: $675,000 annuitizes pretty well to cover nursing homes, I think.
William Frazer: I think so too.
David Cottle: How about" Who would you rather trust to take care of you, Uncle Sam or your own children?
William Frazer: Good thought.
David Cottle: Actually, my parents did the AB trust thing. Dad died in 1992 and his trust was funded. Mother lived until 1999 and the income from the two trusts covered her nursing home just fine. When she dies there was exactly zero tax to pay. Ed Slott's guys were afraid their kids would "piss it away." So Ed told them the government would piss it way too. At least they got to pick the "pisser." They had $8,000,000, yet they still refused to do it. Ed says: remember the rule of SW3. The rule is: Some will, some won't, so what?
Neil, how do you tell people what they can do about the tax issues?
Neil Sullivan: Similar to what you described, dollarize the tax reduction impact (ballpark) on their estate, and add that if you do nothing, then it is as if you wrote out a check to the IRS for that amount. Essentially it is a choice: do you want the funds to remain in the family or to go to the government?
David Cottle: That's right
Session Moderator: Does anyone have any similar experiences to share?
Neil Sullivan: Suppose the client responds that my "broker's firm" is handling that for me ...at no charge. How might you respond?
David Cottle: So, how long did your broker study estate taxes?
Neil Sullivan: She is part of the team; you see their ads on TV. They are supposed to be good at it.
David Cottle: Do you want to risk something as important as your money on someone who gives you something for free? No one does anything free. Ask yourself, what exactly are they getting out of this?
Neil Sullivan: Plant the seed, help the client see the hidden cost involved.
David Cottle: The broker is important for what they do, Mr. or Ms. client, but they are not in business to plan your estate. We are. Also, remember the old joke about four things not to buy from the low bidder? 1. Parachutes, 2. Heart surgery, 3. Fire extinguishers 4. Tax advice.
Neil Sullivan: This gets back to "trusted advisor" issue. Either the client does or doesn't.
David Cottle: Yes, trusted advisor. I am reading David Maister's new book by that name. I bought 10 copies for selected clients and gave them away. You can say, "One reason you CAN trust me is that I am charging you." "I have no hidden agenda." Folks, do you think that might work?
Neil Sullivan: In terms of getting the client thinking, I added another section of questions to the client tax organizer to elicit certain info to then ask additional questions later.
David Cottle: The key thing is to make the client think. That is our job. After that, they can choose not to act, but at least our conscience is clear. I would hate to have a client die that I did NOT ask these questions when they might have helped. If you don't ask them, some life insurance agent who may or may not have the client's best interests at heart may ask them.
Session Moderator: We have only a few minutes left - are there any additional questions?
David Cottle: While you are thinking of that, I want to thank you all for attending.
Neil Sullivan: The manner in which you frame the questions, asking client's permission, keeping client "in control" (in your article) is helpful.
David Cottle: Thanks, feel free to call me any time to discuss it. That goes for all of you.
Neil Sullivan: Thanks for your insight.
Session Moderator: Dave's phone number and e-mail address are listed in the story on our site.
Leisa: Thanks Dave - signing off.
Nancy See: Thanks, Dave. A very thought-provoking seminar.
David Cottle: Goodbye, all.
Session Moderator: Thank you so much, Dave, for such an informative workshop!
David Cottle is an internationally-recognized Certified Management Consultant and Certified Public Accountant who works primarily with professional firms to improve their profitability, growth, and management. Author of four books and dozens of articles for professional journals, he has produced numerous audio cassette learning systems, video cassette learning systems, and seminars on management, marketing, and profitability. For over 20 years Dave has studied which management and marketing techniques were successful — and which were not. Dave has found definite features common to most super-successful firms which are missing from firms that are not so successful. Visit the Cottle Consulting Web site if you are interested in exploring available audio and visual materials.