If your client has gotten into the habit of forwarding a monthly investment account statement to you along with all of their tax-related documents and bookkeeping tasks, you run the risk of being accused of providing them with bad or misleading investment advice, even if they have not asked (or you have not answered) a specific question. Failure to recognize the risks surrounding client misunderstandings of your role as a CPA can lead to disastrous results.
Lack of communication is the root of many problems, and that is as true for CPA/client relationships as with any other, and especially as it applies to the topics of investments.
Clients often think of their CPA as an advisor for all things business and financially related, and implicitly or explicitly seek advice regarding specific investments or their portfolio in general. The AICPA (American Institute of CPAs) Professional Liability Insurance Program points to this assumption as a risk factor for professional liability claims. They advise CPAs whose expertise is limited to tax services against providing any investment advice at all, and urge them to take the following specific actions to protect themselves.
- Just say no to providing investment advice. Unless you have gone through appropriate training and have the qualifications outlined in the AICPA Personal Financial Planning Section, including the Statement on Standards in Personal Financial Planning Services, you should simply decline any requests to provide clients with investment advice.
- Make sure your engagement letter makes your role clear. When you send out an engagement letter, include explicit language detailing exactly what services are and are not included. If you are contracting to provide tax compliance services, you need to spell out that tax and investment planning are not included. If you offer those services, ensure that they are available separately, and engagement letters for those services should delineate exactly what their scope is. Letters referencing investment advice should make clear that those services are only meant to explain or optimize tax consequences rather than the investment itself. Engagement letters for clients that send monthly brokerage statements or who provide the CPA with online access to their investment accounts must contain terms that explain that those views will only be used for tax return preparation.
- Don’t include investment advice in your marketing. Your CPA firm marketing should only center around the services you explicitly offer, whether that be on the individual or business side.
- Restrict brokerage account activities. Receiving investment account statements or having access to online investment account information is a slippery slope with lots of downside potential. When clients send this information along, it’s a good idea for CPAs to question whether it is needed or not, and even to take actions that restrict their own abilities to do more than review the information necessary for them to do the tax-related tasks they’ve agreed to do.
- Avoid talking with third parties such as clients’ investment advisors. The more interaction you have with investment experts working on behalf of your client, the more exposure you have. Try to limit your communications to your client except where it is absolutely necessary to obtain information from their broker or investment adviser.
- If asked for a referral, provide a few. In order to minimize the sense that you are providing any kind of investment advice, provide clients asking for a professional adviser referral with a minimum of three names, first checking to ensure that those you are listing are licensed and in good standing. Those referrals should be in writing and should be accompanied by a disclaimer indicating that they should not rely solely on your list, that they need to conduct their own research and that you will play no role in either the selection or the supervision of any of these professionals or of the results that they deliver.
It is tempting to want to answer all of your clients’ questions, and even to speak casually about topics that are outside your area of expertise. But an innocent conversation or comment can be interpreted as advice that is beyond your area of expertise. Make sure that you restrict your guidance to the services you are providing and make clear what you are and are not offering. It may also be a good idea to document your conversations with your clients so that you can be well prepared in the face of misunderstandings or accusations.