eyes wide open.

• Author: NIGHTINGALE, JERRY
• Position: Fees or commissions - Statistical Data Included

CPAs Choose Carefully Between Fees & Commissions

the question used to be, and to some CPAs it still is: should CPAs be allowed to accept commissions? Since 1999, California CPAs have been allowed to charge commissions following passage of SB 1289, which revised California Business and Professions Code Sec. 5061 to allow a licensed accountant to accept commission-based compensation for defined services.

Now the question is, should CPAs charge fees or commissions-- or some combination of both--if they provide financial planning and products such as life insurance, mutual funds or stocks?

For some CPAs, the answer is clear--a fee structure is objective, commissions are not. But for others, commissions are an opportunity to provide clients with flexibility in managing their money, giving the CPA and client the best of both worlds.

"One size really doesn't fit all," says Robert Lovejoy, CPA, CFP, PFS, whose San Mateo-based firm charges both fees and commissions. Lovejoy, who has been a CPA for 40 years and a CFP for nearly 20, charges a fixed set-up fee, then offsets his commissions back to the fixed fee.

"I always give advice in the best interest of the client, whether it maximizes commissions or not. There are practitioners who are the same, and some who are not," Lovejoy says, adding that charging commissions doesn't mean the practitioner is biased, but it puts the burden of proof on the CPA. "It becomes a greater problem to determine whose interests are being met--the client or the adviser--which does not mean you can't get just as good, just as objective advice."

PAST PERCEPTIONS

Yet there still seems to be a stigma associated with commissioned brokers within the CPA community. The prevailing idea is that a person who makes a living by selling a product, such as stocks or insurance, is suspect when giving advice to buy or sell. In fact, when a CPA tells someone in the accounting community that they accept commissions, the common reaction seems to be, "How could you?"

"The major complication with being compensated with commissions is that taking commissions provides the opportunity to be less than objective. Not that a person will be, it's just that a person is no longer totally independent," says Richard Blake, managing partner at Pearson, Del Prete & Co., LLP in Palo Alto.

The nature of commissions provides an opportunity for a conflict of interest. While if one takes fees, that opportunity is significantly reduced. That is similar to "auditing keeps honest people honest." A corollary seems to be, "Fees keep objective people objective."

Rob Healy, a CPA and registered investment adviser in Walnut Creek, agrees. "If you're charging a fee, it's as unbiased as you can get," says Healy, whose firm is fee-based. He added that many people have a preconceived notion that a firm may not be objective if it's charging commissions. "I didn't want to have that preconceived notion. But, there are times when I think commission is appropriate, especially when clients are only interested in a onetime transaction instead of an ongoing relationship."

THE COMMISSION...