As the Line Blurs Between Accountants and Planners, Consumers Need to Be Careful

My first accountant, back when I was a second lieutenant in the Air Force, was H&R Block HRB. My base pay was $222 a month, so my tax return was pretty simple. The advice was also simple: Keep a budget and keep track of any interest expenses because they're all deductible. That was it -- nothing else.

For years, you could count on accountants for straightforward, simple financial advice. The stock answer from them on investments always seemed to be tax-free municipal bonds and maybe some Treasury bonds. They also felt they would not lose a client giving this low-risk advice.

Accountants always have been trusted advisers when it comes to taxes. Taxes are at the heart of everybody's financial life. That puts accountants in an ideal position to cross-sell to other services. Financial planners have long sought referrals from accountants because of the trust that comes with the referral.

But now that some accountants are getting into the financial-planning and investment-advisory business, your criteria for working them need to change. "Let the buyer beware" must now be used in selecting an accountant, just as it is when you select a planner or any financial salesperson. The "trusted adviser" status that accountants once had does not necessarily carry over to the new role some are assuming.

For instance, I know a financial planner who is both a good planner and a good investment-portfolio manager. He also does financial plans for an accounting firm, in effect, ghostwriting them for the firm's clients. If the client needs investment-management advice, the accounting firm refers the client to the planner, and that's how the planner gets paid. Both parties have grown and are very successful. There is just one problem: The relationship is not disclosed to the client. The seeds of conflict have been planted.

Some accountants are becoming planners, and some planners are becoming accountants. As a client for either, you become a prize target for both. Here's how Stephen Z. Ballen, a certified public accountant in Chicago, described the blurring of these lines in a recent article in Investment News:

How would you like it if your doctor got paid by a pharmaceutical company for prescribing its drugs to you? Inspire confidence? How about a librarian getting paid by a publisher to recommend a book? Just can't wait to read it? Well, then, what do you think if your CPA referred you to a money manager and got handsomely paid for every moment your portfolio was in the money manager's hands? I'll bet you'd be none to keen on the idea. Well, guess what? The future is now. Every major brokerage house and money manager is beating the bushes for certified public accountants willing to sell their souls for a few bucks (actually, if you listen to some, more than just a few).

There is no question that there is a significant trend in the accounting profession to provide financial-planning and investment services. I am sure most accountants uphold the ethics of their profession. I do not mean to arbitrarily broad-brush all accountants in a negative way. But this trend has created a need to ask accountants the following questions before retaining their services.

• Do you offer financial-planning services? If so, what is your training as a financial planner?

• Do you offer investment advice? If so, do you also manage money for clients? What is your investment process? What is your training?

• Who does your financial plans?

• Do you handle any investment products?

• Do you have a securities license? If so, with what securities company? Can you provide me with the form ADV (a standard disclosure document that must be filed by registered investment advisers)?

• Do you receive fees from anyone or any company other than your clients?

• Do you get paid in any way for referring me to someone else for managing my investments?

• Do you have a life and disability income license?

That should be enough to get you started -- or finished. Things really have changed a lot.

Your email continues to be awesome! Please accept my apologies for not being able to answer all of you. I always welcome your questions and read every one. Send them to [e-mail].