Two essential professionals on just about any financial team are a financial advisor and an accountant. Some financial advisors have…
Two essential professionals on just about any financial team are a financial advisor and an accountant. Some financial advisors have in-house tax specialists, but at other times, it’s up to the client to find their own accountant.
Clients should choose wisely because selecting the right professional can be key to financial growth.
“Financial success usually does not happen by accident,” says Nina Mitchell, senior wealth advisor and principal of The Colony Group. You need to be intentional in the steps you take and work with the right team of financial professionals to maximize your chances of success.
The financial industry is rife with experts in all areas of money, from insurance and taxes to investing. Unfortunately, one expert is not interchangeable with another. Each provides a unique set of services and expertise.
Here’s how to determine whether you need a financial advisor or an accountant:
— What’s the difference between a financial advisor and an accountant?
— Working with a financial advisor versus an accountant.
— Certifications for financial advisors vs. accountants.
— When to hire an accountant.
— When to hire a financial advisor.
What’s the Difference Between a Financial Advisor and an Accountant?
While experienced financial advisors and accountants may have expertise in a variety of financial matters and situations, the licensing, credentials and focus of each professional are distinct, says Andrew Crowell, vice chairman of wealth management at D.A. Davidson & Co.
“Accountants are licensed to provide tax advice and counsel and help to prepare one’s annual tax return or estate tax returns,” Crowell says.
An accountant may suggest tax-saving strategies based on your situation, says Alan Fletcher, partner at Lift Financial. For instance, an accountant may recommend opening an individual retirement account to help lower your tax burden. But while an accountant can suggest these strategies, a financial advisor is often needed to execute the plan, as certified public accountants, or CPAs, typically are not licensed to set up accounts like IRAs, Fletcher says.
Financial advisors are licensed to give investment advice and develop comprehensive financial and wealth management plans, Crowell says. An advisor’s services can include portfolio construction as well as risk management, retirement income strategies, estate planning, philanthropy strategies and more. Since taxes play an important part in each of these elements, advisors and accountants often work together.
Working With a Financial Advisor versus an Accountant
That said, the relationship you have with a financial advisor versus an accountant can differ greatly. You can “think of a financial advisor as an architect, builder and general contractor, all in one role, and an accountant as an independent contractor or specialist,” Mitchell says.
Advisors tend to have more regular interactions with their clients about a range of topics beyond just finance, which leads to a long-term relationship, Mitchell says. They’ll help clients implement various plans, continuously monitor their progress and make adjustments when changes occur.
“Like a general contractor, financial advisors who create detailed plans see the big picture, keeping everything on schedule and making sure they have the right talent to implement each segment of their clients’ comprehensive financial plan for success,” she says.
Accountants, on the other hand, tend to provide more transactional and project-based services, she says. Some clients, however, develop long-term professional relationships with their CPA that can be just as personal as their relationship with a financial advisor.
Certifications for Financial Advisors vs. Accountants
In terms of designations, financial advisors may become certified financial planners, or CFPs, while accountants often obtain the certified public accountant, or CPA, credential. “CFPs and CPAs must complete formal education, undergo rigorous examination and licensing qualifications, (and) adhere to annual continuing education requirements and ethical standards,” Mitchell says.
You may see other professional designations for financial advisors and accountants based on areas of expertise, such as a retirement planning specialist, or RPS, for financial advisors focused on retirement planning or chartered global management accountant, or CGMA, for CPAs working in business and government.
“In recent years, some professionals have ‘crossed over’ and also become licensed in other disciplines to supplement their core profession,” Crowell says. “However, due to the complexity and evolving nature of each occupation, most professionals retain an area of primary expertise and rely on others for their specialized expertise.”
When to Hire an Accountant
Whether you should hire a financial advisor or accountant comes down to your specific situation and the goals and problems you’re trying to solve. “In practice, an accountant can assist you in preparing your financial statements and your tax returns while a financial advisor will guide you in various aspects of your financial life such as investments, estate planning, insurance planning, and tax planning,” says Lauren Lippert, a wealth advisor and Director at MAI Capital Management.
She says to turn to an accountant if you need help in the following areas:
— Recording and tracking your income and expenses
— Preparing the financial statements for your small business
— Preparing your tax return
Accountants are also typically the most knowledgeable about the rules and regulations set by the IRS. Just as the Republican tax overhaul in 2017 changed tax planning and strategy for individuals and businesses, the new tax proposals by President Joe Biden and his team may do the same. “Accountants will be invaluable resources to individuals looking to understand these new changes and optimize their tax planning to capture any credits, deductions and special opportunities that arise,” Crowell says.
People often hire accountants to ensure they’re maximizing every deduction available. Accountants are particularly beneficial for people with complex tax situations, such as business owners, large families or people with multiple income streams.
If you’re starting a business or want to analyze the tax impact of a sale, merger, buyout or acquisition, hiring an accountant would make more sense, Mitchell says. If, however, you want help developing and implementing a comprehensive savings and investment plan for any number of financial goals, from saving for your children’s college to retirement or legacy planning, a financial advisor would be more appropriate.
When to Hire a Financial Advisor
Lippert says to turn to a financial advisor for help with the following:
— Gifting assets to your children in a tax efficient manner.
— Selling your small business.
— Planning for your children’s college expenses.
— Deciding when to retire.
— Making sure your assets are adequately covered by property and casualty insurance.
— Making sure your family is adequately covered should you pass prematurely.
You may want to hire a financial advisor if you’re looking for a sounding board when the markets go haywire. An advisor can help keep your emotions at bay during market volatility.
Financial advisors can be helpful when you want someone to work with for the long term, as you’ll likely have a team of people available to help manage your assets during your life and beyond for the next generation.
Fletcher says you might be best off looking for a financial firm that provides both accounting and financial planning under one roof. “Sometimes accounting and financial planning can have conflicting opinions on an individual’s tax plan and long-term wealth management, how those plans are executed and timing of execution,” he says. This can leave you as the go-between in an area you’re not privy to.
He says he’s seeing more firms with in-house CPAs or CPA firms that are licensed to manage an individual’s wealth.
“The reality is you need both an accountant and financial advisor,” Fletcher says. “Better yet, both should be on the same team with one common goal in mind: you.”
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