Personal financial planning: background and methods of integrative tax practice.

• Author: Sarenski, Theodore J.

FAMILY TAX PRACTICE IS CHANGING EXPO-nentially due to the rising complexity of personal finance. The CPA profession has been slow to properly adapt to the current contextual complexity of family tax practice, delaying the adoption of a holistic approach. Meanwhile, unaddressed financial planning needs gain importance as competitive forces gather momentum. Therefore, CPAs must assess the methods, skills, and tools needed for family practice, to better integrate clients' most important personal finance concerns and reconnect with their professional roots, established before the federal income tax existed. To aid in this pursuit, the AICPA offers a vast array of resources in its Personal Financial Planning (PFP) Section and related credential, the Personal Financial Specialist (PFS).

Background

Ironically, the avalanche of personal finance complexity affecting Americans today comes from a tax law change in 1978 that received little notice at the time. Section 135 of the Revenue Act of 1978, P.L. 95-600, added a new subsection (k) to Sec. 401. In 1980, Ted Benna, a benefits consultant, noticed the provision's potential for revolutionizing employee retirement plans and today is known as the "father" of the 401(k) plan. It and other alternatives to defined benefit plans rook hold. Since 1997, defined contribution plans have held more assets than defined benefit pension plans (see Table Ell, Private Pension Plan Bulletin Historical Tables and Graphs, U.S. Department of Labor, November 2012, available at tinyurl.com/azkyh2p).

Along with other new tax-advantaged saving accounts for retirement, education, charitable, and health purposes, the 401(k) plan ushered in a new era of personal financial planning. While CPAs became well-versed in the technical tax aspects of these savings accounts, relatively few of them have explored how clients should use them strategically to attain their overall financial goals. In other words, relatively few CPAs learned to integrate tax implications with comprehensive financial planning. Today, the AICPA Personal Financial Planning (PFP) Section, composed primarily of tax advisers whose involvement in personal finance ranges from incidental to dedicated, counts only 8,000 members. This compares with total AICPA membership of nearly 386,000.

However, a truly professional group is needed to objectively help Americans with their growing financial planning needs and choices. The efforts of investment advisers to create such a professional group are recounted in The History of Financial Planning, by E. Denby Brandon Jr. and H. Oliver Welch (John Wiley & Sons 2009). Financial planning, as a stand-alone profession, has gained some stature, but financial planners still have an opportunity to successfully integrate tax services, and tax advisers can enhance their value and improve their competitiveness by systematically addressing clients' overall financial concerns.

Meanwhile, academia has begun to prepare students for the integration of personal...