Cautions and liability: minimizing risk in personal financial planning services.

• Author: Werner, Randy R.
• Position: Professionalissues

When considering ways to minimize areas of risk in personal financial planning services, keep in mind that CPAs are subject to a number of professional liability concepts that will impact the way clients and others perceive you and your services. This is true no matter what service you, as a CPA, provide. Examples of those concepts include:

* You are not judged by professional standards in the liability world. The way you are judged depends upon the perceptions of jurors--who are usually average, hard-working individuals who may not understand the CPA profession. You may also be judged by other professionals, such as judges or arbitrators, who may be hampered by the same lark of knowledge.

* The length of your relationship with the client, multiplied by the breadth of services, equals your amount of risk exposure. This formula, also known as the -geometry of duty," means that, at a certain point, you become a trusted financial adviser with fiduciary responsibilities to monitor the client's financial resources.

* Clients expect you to advise them of opportunities and warn them of risks. If a claim involves any type of fraud, clients generally believe that the CPA should have known that it was occurring and jurors generally believe that a CPA's job is to catch fraud--or at least to warn the client of the risks.

Special services, such as personal financial planning and financial services, produce higher losses than standard services because of the high level of judgment and advice required. If clients suffer a kiss, they are more likely to call into question your judgment and advice than they would with standard services, such as a tax return.

As a trusted financial adviser, your risk comes primarily from the types of services performed as well as client characteristics and the involvement of other professionals. The two general types of financial planning services are the planning function and the implementation of the plan.

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Planning

The planning function addresses:

1) What are the facts, circumstances and situation concerning the client?

2) What are the client's objectives?

3) What is the plan you are to provide to the client? For example, a synopsis or summary of the client's financial situation? The client's objectives? A plan to get the client from their current situation to their objectives--based on information the client has given you?

Incidentally avoid telling clients what their objectives should be, as this...