Ensuring your accountant collaborates with your financial advisor is important, as they will be able to discuss and workshop ideas to improve your financial position. However, in my 20+ years of experience, this collaboration almost never occurs, unless they work in the same firm.
Theoretically, there shouldn’t be any impediments to these two professionals working together. Practically, it doesn’t happen and depending on the complexity of your situation, it could be costing you.
Accountants and financial planners are different beasts
It is a common misconception that accounting and financial planning roles are similar. They are not. The roles are about as similar as dentist and doctors (general practitioners).
Apart from knowledge and experience which can be vastly different, the next biggest difference is that accountants spend most of their time focusing on what happened over the past 12 months and sometimes on what might happen over the next 12 months. However, financial advisors are more focused on what will happen over the next 10+ years i.e., the medium to long term.
This distinction is very important because the focus is habitual. That is, it’s not a natural tendency for accountants to think about what a client’s financial position might be 5 years from now. The truth is both approaches are complimentary. People would greatly benefit from both an accountants and financial advisors’ perspective.
Be careful asking your accountant for financial advice
It is natural to ask your accountant for financial advice. But there are a few important limitations to consider.
Firstly, their advice will be shaped by their own experiences, which are likely to be limited, as they are not financial advisors. Accountants will often advise their clients to do what they have done for themselves such as simplistic advice like “if you are going to invest in shares, buy the big banks and miners”. But what might be appropriate for them won’t necessarily be appropriate for all their clients.
Secondly, to give financial advice, you must be authorised under an Australian Financial Services license. Most accountants are not. Similarly, to provide tax advice you must be a Registered Tax Agent which most financial advisors are not.
Why don’t financial advisors and accountants typically work well together?
Of course, the reasons may be different in every situation, but I discuss some of the common reasons that I have observed over the past two decades that impede these two professionals from working together efficiently and effectively.
Different ways of doing things
We recently prepared some advice for a financial planning client that uses an external accountant. We recommended they structure their investment in a simple discretionary trust. The client took this advice to their accountant who recommended that they draft a customised trust at a much greater cost. We felt that this recommendation overcomplicated matters and gave rise to unnecessary costs. Consequently, the client structured the investment in personal names to avoid this complexity. The problem is that this structure provides less taxation flexibility and will probably result in a higher taxation liability in years to come.
Unfortunately, the client is the meat in the sandwich. But of course, the clients not going to completely disregard their accountant’s advice.
If this client was also a tax client (i.e., ProSolution acted as their financial planning and taxation advisors), what would have happened is that both our financial advisor and accountant would have vicariously debated which structure was best for the client having regard to all financial planning and taxation matters. I’m confident that the family trust recommendation would have been deemed optimal.
I respect that different professionals have different ways of doing things and I’m not arrogant enough to believe that my way is the only way. However, these variations in approach can often destroy value, as I believe it did in this recent example.
Different skill levels and experience
Not all accountants and financial advisors are great at their job. Like in all industries, there are good operators and not so good. As such, it can become problematic when working with a client’s accountant (or financial advisor) if they do not offer the same quality of advice that we do. In this situation, you end up doing their work for them and training them in the process, which is not what we enjoy doing.
The skillsets and experience of both advisors need to be comparable for there to be a productive working relationship.
Egos can get in the way
As you can imagine, if I share a tax planning idea with you and suggest you discuss it with your accountant, your first thought might be “why didn’t my accountant pick this up years ago”. That will be the accountants first thought too, which often puts them on the back foot. They might get defensive. A lot of people get their back up if they feel like another professional is auditing their work. The accountant might even ‘invent’ obstacles or reasons why they didn’t previously advise you to make this improvement, rather than admitting fault.
Suffice to say that this is not a healthy experience to begin a new working relationship.
Reluctance to work with external advisors
For all the stated reasons above, our firm is reluctant to work with external financial service advisors, if possible. I can count on my hand how many productive relationships we have with external advisors – it’s rare. We feel providing holistic advice to clients avoids all the above potential issues and gives us all the scope we need to deliver the best outcomes for clients, as evidenced in these case studies.
