RIA Leaders Fear CPA Retirements Could Complicate Planning Efforts

Practicing financial advisory professionals often say they are being called upon to provide more "holistic" services for their clients than ever before.

As Mike Leverty, the founder and CEO of Leverty Financial Group in Wisconsin, recently told ThinkAdvisor, the work of serving clients in 2023 is about so much more than picking stocks and bonds. A big reason why, Leverty says, is the fact that individuals' financial lives have themselves become so much more complicated, especially when it comes to planning for retirement.

"The days of the corporate executive retiree just walking out the door at 62 with retiree medical coverage, a sizable pension and a supplemental 401(k) plan for discretionary expenses are long gone," Leverty says. "Clients today require a relationship with a truly holistic advisor who can help them accumulate and distribute their wealth in a stable and tax efficient manner."

Many advisors agree with that take, including Jesse Coffee and Scott Sanders of True Private Wealth in Oregon.

"Retirement planning is more challenging than it has ever been," Sanders says. "It used to be that, for most professionals, the combination of Social Security and the employer pension would replace most or all of your working paycheck. Now it is so different."

As Coffee points out, clients building an income plan have to manage their own liquid savings, and the full weight of both market risk and longevity risk sits on their shoulders. While sources of guaranteed income exist, such as deferred or immediate income annuities, these options can be confusing, Coffee says, and the sheer number and variation of product options can be overwhelming for even the savviest clients."

Leverty, Coffee and Sanders all agree that the increased complication of the tax code and a significant degree of uncertainty about what changes in tax laws could be coming down the pike add even more complexity to the planning challenge.

This is why all three of these advisors (and many others) leverage partnerships with certified public accountants. This is a common practice among advisors whose firms focus on a holistic approach to wealth management.

A Growing Challenge

While collaborating with CPAs is seen as essential, it is also seen as an increasingly challenging thing to do, and for one main reason: Like the financial advisory industry itself, the CPA marketplace skews significantly older than the general U.S. population, and there is a dearth of young professionals entering the field to replace the highly skilled and experienced tax professionals who are leaving.

As of August 2022, there are approximately 665,000 actively licensed CPAs, according to the National Association of State Boards of Accountancy. This statistic is derived from the group's national database of CPAs and is made up of official accountancy board data that is currently aggregated from 54 CPA licensing jurisdictions across the U.S.

While 665,000 is a sizable number, it pales in comparison to the number of clients served by the registered investment advisor industry. While the exact figure varies depending on the source, various studies have show about one in three Americans now works with an RIA in some capacity.

Jeremiah Barlow, Mercer Advisors' head of family wealth services, says this mismatch is a serious challenge for the RIA industry to confront in the years ahead.

"Tax issues for our clients are just so challenging right now, and unfortunately, CPAs seem to be leaving the industry much faster than we are replacing them," Barlow tells ThinkAdvisor. "This is a serious challenge for the industry writ large."

Given Mercer Advisors' scale, the firm operates its own in-house CPA firm, but the resource is in constant demand, Barlow says, and it is becoming harder to turn to outside experts.

"I can tell you anecdotally that many of the leading CPA firms are turning away even high-revenue generating clients, because they just don't have the capacity to serve them," Barlow says. "Not only are there fewer CPAs, but most clients today have more advanced tax needs than in years past."

In Barlow's experience, the typical client needs help with much more than the 1099 and the W-2.

"Many of our clients come to us as they are navigating complex stock option plans, for example, with potentially a major amount of imbedded wealth," Barlow says. "There is so much tax analysis that goes into building a plan for these clients, and it's becoming a real issue for those advisers who lack adequate access to CPA expertise."

How the CPA Shortage Hits Clients

Coffee and Sanders note that other centers of expertise on which RIAs and their clients commonly rely are seeing a similar dynamic play out.

"For example, in our experience, we have seen a lot of skilled estate planning attorneys retire in the past few years," Sanders says. "Given their tenure, it is often the older attorneys who have the most experience and who are used to dealing with the most complex situations, so it's a real loss of knowledge and talent."

According to Coffee and Sanders, it is not uncommon today to refer a client to a trusted estate planning attorney, only to have the client be put on a six- or nine-month waiting list for a consultation.

"That's the kind of demand that is out there for these services right now, and as a result, the costs are going up even in cases where the client can get the support they require," Sanders warns. "As an RIA who wants to provide holistic services, you just have to keep on top of this."