The Difference Between Your Accountant and Your Financial Planner

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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Many business owners surmise that their accountant can do the job of both accounting and financial planning (or vice versa) when in fact, the two roles complement each other. Neither professional can do the entire job of the other.

When I was a Certified Financial Planner (CFP), I prided myself on the designation which took me years of both study and professional experience to earn. I boasted a broad base of knowledge that included some pretty intricate tax planning idioms and strategies. When it came time for me to file my taxes, I obviously knew more than enough to get the job done well.

However, in developing a repertoire of accountants who I could recommend to my clients, I figured the best way to recommend a professional is to attest to their service from experience. I took my (already drafted) taxes to the accountant for filing and in 20 short minutes, he worked his magic to save me an additional $3,500 in taxes. I'm not sure what I missed or what he did, but it sold me on the concept that accountants and financial planners offer complementary roles to business owners.

What Your Accountant Can Do For You

Quite obviously, the buzz word for accountants is "taxes" and everything to do with taxes. From strategizing to sheltering to budgeting and tax preparation, this is their main focus. This is also quite a broad category that encompasses so much more than what appears on the surface.

If your business is still small, or if you are a whiz with numbers, you may wonder why you need to spend money on an accountant. Your tax preparation software is intuitive, and your situation is fairly simple, right? (Hey, I thought so too.)

What your accountant can also do is identify big picture opportunities and strategies that will help you get — or stay — ahead. Are you depreciating all the right assets in the most productive way? Is your business structure good for you now and in the long run? How does the fine print in the most recent changes to tax laws affect you, and are there any opportunities therein? Your accountant should have a deep knowledge of these issues.

Here are some of the issues an accountant can help you with:

• Tax preparation
• Financial statements
• Depreciation
• Breakdown of expenses
• Appropriate tax shelter recommendations
• Tax laws and how they affect you
• Business structure recommendations and advice
• Business growth and succession strategy in relation to taxes
• Audit representation

Accountants generally charge an hourly fee for their advice, and thus are quite task-oriented. You will usually need to be specific about how you want your accountant to help you, but their breadth of knowledge can be deep.

What Your Financial Planner Can Do For You

If accounting is all about taxes, then financial planning is all about investments — but just as accountants can offer so much more than filing your taxes, so too can financial planners do more than invest your money.

Financial planners are also (ideally) focused on the big picture, but the picture in question is a little different from the one accountants look at. Financial planners are very goal-oriented and holistic, with an eye to building wealth in the most effective manner while taking into account the life goals and needs of clients as individuals. For business owners, financial planners often provide a more comprehensive look at how your business fits into your life overall — both from a logistical perspective as well as an emotional one.

Similar to accountants, financial planners are experts in their field and will identify opportunities that you might not know about even if you're well-read and financially savvy. Have you thought about how the dynamics of your family would affect your business in the event of an emergency or unforeseen circumstance? What is your business succession plan, and are you maximizing succession opportunities? Are you truly invested within your comfort zone while maximizing your opportunities for growth? Can you take the (sometimes irrational) emotion out of investing to make the best decisions for you and your family in the long run?

Here are some of the things your financial planner will focus on:

• Budgeting
• Investing (short, medium, and long-term, in a variety of vehicles)
• Asset allocation
• Estate planning
• Insurance planning (disability, life, investment, shareholder protection)
• Changes in the industry that affect you
• Business structure and strategy tips
• Wealth accumulation and protection

In contrast to accountants, financial planners can be paid in a variety of different ways. The three main forms of payment are commission-based, fee-based, and asset-based. Commission-based planners earn a percentage commission on money you invest with them or insurance policies you buy. This unfortunately means that not all commission-based planners may have your interests at heart, but not all commission-earners are to be judged as pushy salespeople. Fee-based planners will charge a flat fee for a set service, and asset-based planners charge a percentage of your overall assets invested with them. In choosing the best advisor for your needs, asking how they are paid is important but not solely pivotal.

Gray Areas

You may find a financial planner or accountant who seems to provide the whole enchilada. For example, increasing numbers of accountants are broadening their expertise to include additional designations in financial planning so they can do just that; separate advisers, financial planners and accountants have many overlapping areas of knowledge and advice.

While it may be appealing to have an adviser who can provide one-stop-shopping for you, your business, and your family, I still support the idea of creating a financial team to support you — specifically your accountant, financial planner, and lawyer. Each of these experts has a broad base of knowledge and will bring a viable perspective to the table that can also keep the other advisers in check. Each of these fields is an entire degree unto itself and should be respected as such. No one advisor can truly do the job of all three (or even two) without letting something slip through the cracks.

What to Look for in a Financial Planner and Accountant

When looking for a financial planner or accountant, the best way to find somebody you will trust is to get a referral. Ask family, friends, and colleagues who they use and schedule a meeting with that adviser.

They should provide the initial meeting free of charge and should take an active interest in getting to know your comprehensive situation — both personal and professional. Ask how accessible they will be when you need advice and what their proposed service strategy is.

Look for a professional with a designation or degree, such as the internationally recognized Certified Financial Planner designation. Ask how they're paid; if it is an hourly wage (as is often the case with accountants), get an annual estimate given their knowledge of your situation.

Also, make sure the professional in question is familiar with specific legislation that might be applicable to your situation. For example, if you have an international or location independent business, your accountant should be an expert on international tax law and your financial planner should know how best to structure your assets to be internationally accessible.

By building a team of experts who support you and your business, you stand the greatest chance of achieving everything you want, professionally as well as personally. You work hard on — and in — your business. Aren't you worth it?