How to Position Yourself as a Fiduciary
“Fiduciary” might be 2018’s most popular word within the financial services industry. Loosely speaking, it means the client’s interests must come first. You might even imagine that industry went through three phases: avoiding it, redefining it and embracing it.
As an accounting professional, you are above the fray. You don’t sell products, you sell advice. How can this be positioned in your favor?
Fiduciary – What it Does (and Doesn’t) Mean
It’s worthwhile checking out the definition of the term. (1) A key point from this business dictionary description is: “A fiduciary must not exploit his or her position of trust and confidence for personal gain at the expense of the principal.” The role is to act in the other person’s best interests.
Back to the fiduciary standard. The financial services industry has traditionally operated under the suitability standard. In brief, the product recommended is appropriate (suitable) for the client’s situation, although it’s not necessarily the lowest-cost option.
The Huge Obstacle Facing Accountants
Free is good. There’s a great line in Crazy Rich Asians that goes something like: “No one loves free stuff as much as the rich.”
A financial plan on a fee-only basis makes lots of sense. But many insurance agents and financial advisors will also do a degree of financial planning for free because the output from the plan makes the case for buying the products they are selling. What a coincidence! Yet if the consumer thinks one plan is as good as another, why not go for the free one?
Major accounting firms with business consultancies also offer financial planning. It’s either aimed at the Ultra High Net Worth client with an enormously complicated situation or senior corporate executives, the latter receiving planning services as a cost-free benefit that comes with their job.
Your challenge is making the case that paying for planning is money well spent. Fortunately, the Financial Planning Association and the Certified Financial Planners (CFP) Board have done a good job getting this argument into the public eye.
As an accounting professional, you need to define your service and ideally deliver it at a flat fee. This will go a long way towards persuading a client objective advice has value.
You will also need credentials. Certified Financial Planner (CFP) and Personal Financial Specialist (PFS) are examples. (2) Many financial advisors hold the CFP designation.
So Where Do Accountants Have an Advantage?
You must make the case that you sell advice, not products. You don’t direct them to your financial advisor brother-in-law or your insurance agent uncle, either. Once they leave your office, plan in hand, they are on their own. However, you would probably provide some general advice about providers where they could make their investments without an intermediary.
Let’s assume you can price your services for producing a financial plan and providing specialized advice. Here are five broad areas where you could act on your client’s behalf by educating and advising them. These could be bundled or sold separately.
- The Investment Side of Financial Planning: They have retirement goals. They have their own tolerance for risk. You could recommend asset allocations, the general types of investments they should own (index funds) and the suitability of robo-advisors for rebalancing. A key factor will be how involved they want to be in the ongoing investment management process. If they want a hands-off approach, they need to hire a professional for ongoing guidance. This will cost them.
- Estate Planning: Wealthy people want to stay that way. Everyone wants to take care of family members who survive them. Often, this involves buying insurance products, but not all providers offer everything. Estate planning often involves setting up trusts, which brings an estate planning attorney into the picture. You and a lawyer could work together, because each of you is a fiduciary, acting in the client’s best interest.
- Debt Management: It’s another aspect of financial planning. Clients see ads about debt consolidation. They get offers in the mail. But, they aren’t seeing the whole picture. Costs aren’t immediately obvious. You could start by providing a roadmap to reduce their interest expense and gradually pay off their debts. This assumes they can change their behavior and stop making impulse purchases.
- Charitable Giving: There are many noble causes out there. Once a client becomes an established donor to a college, museum or hospital, they soon become a prospect for planned giving. Although there might be tax advantages, generally speaking, your client is probably better off holding onto their dollars during their lifetime. These gifts can always be included in their will and estate plan. The cause may be noble, but sometimes, a third party is needed to provide independent advice.
- Insurance: As clients age, they will want a steady stream of income for their retirement. Annuities can look attractive and have advantages, such as the ability to provide lifetime income. But there are other alternatives, especially if your client has more money than they could spend in their lifetime. Someone needs to show them the big picture.
As an accountant, you know all about your fiduciary role. The challenge is bringing it outside the tax planning area and into the wider scope of services your client needs. Objectivity has value, especially when other people are offering advice that leads to the product they happen to be selling.
You might also be interested in
Bryce Sanders is president of Perceptive Business Solutions Inc. in New Hope, Pennsylvania. He provides high-net-worth client acquisition training for the financial services industry. His book, Captivating the Wealthy Investor, can be found on Amazon.com.