Better together: CPAs and CFP® practitioners in collaboration
October 05, 2022
By Andy Darkins, CFP®, Lead Advisor, and Vanessa DeHaan, CFP®, CPA, Senior Advisor, Vista Capital Partners, Presenters, 2022 OSCPA Financial and Retirement Planning Conference
Lennon and McCartney composed “I Want to Hold Your Hand.” John Stockton and Karl Malone trademarked the pick-and-roll. History has taught us these duos produced accomplishments far greater than the sum of their parts.
This is much like CPAs and CFP® practitioners who, when working in collaboration, can generate extraordinary financial results for their clients’ lives.
These professionals are often viewed as operating in silos—CPAs for taxes and CFP® practitioners for investments. However, the decisions of each can have a domino effect on the whole of a client’s balance sheet.
Bear markets, for example, can provide opportunities to book losses and reduce a client’s marginal tax rate. Close coordination between a CPA and a CFP® practitioner ensures opportunities like this—and many more—don’t fall through the cracks.
On November 11, we’ll speak at the OSCPA Financial and Retirement Planning Conference about opportunities for collaboration between CPAs and CFP® practitioners—and share what it takes to foster a coordinated partnership that pays off for clients and their advisory teams.
The last five years have brought significant regulatory and legal changes with the 2017 Tax Cuts and Job Act, the SECURE Act of 2019, COVID, and the 2020 CARES Act. To top it off, the SECURE Act 2.0 is making its way through Congress.
Plunging stock markets have also wrought panic and concern as many investors have watched their nest eggs dwindle. This year’s market volatility has compelled many to evaluate their long-term goals and whether their overall financial plan even remains realistic.
The financial press, too, is never short on offering up a daily stream of conflicting information: economic news, world events, technological breakthroughs, and natural disasters. It’s enough to tune out the television entirely and put down your newspaper.
And our increasingly frenetic pace of life—kids’ school, long workdays, family obligations—can often put personal finances on the back burner.
Amid this landscape a high-functioning team of CPAs and CFP® practitioners can filter out the noise, identify what is essential, and deliver clients simple, convicted, and coordinated advice for their long-term success.
We’ll share a client success story and how we teamed up with their CPA to leave no stone unturned. The ultimate results: goals fulfilled and weight off the clients’ shoulders.
During our first meeting together, Lucy summed up their financial situation quite simply: “We don’t want all of our eggs held in one basket.” It was an apt metaphor for their portfolio. With almost half of their net worth held in Nike stock, their personal wealth and future prospects were heavily dependent upon the performance of Swoosh. Diversifying their assets could provide less risk and fewer fluctuations, along with some peace of mind.
Their attitude fit squarely with Vista’s philosophy: broad stock ownership across multiple asset classes—domestic stocks, international stocks, small and large growth, and value stocks. We value evidence over ego and don’t “time markets”—in other words, no entering and exiting from stocks based on speculation or short-term thinking.
Making a plan to diversify
First on the docket: enlisting the help of a qualified and responsive CPA. For years, Henry had filed their returns with Turbo Tax; however, the increasing complexity of Lucy’s compensation and its implications made that no longer tenable.
Fortunately, we had a long-standing relationship with Clare Smith, a CPA who was experienced with corporate professionals and well versed in the challenges of their compensation plans. We connected Lucy and Henry with Clare and soon got to work.
Together with Clare, we rolled up our sleeves and developed a plan to diversify the couple’s Nike holdings, aiming to reduce their exposure to 20% of their net worth within 5 years’ time. We developed a comprehensive plan with Clare that used multiple levers: spreading their tax liability over several years, leveraging deferred compensation, and incorporating charitable gifting.
Spreading their tax liability. Simply “ripping the band aid” off their Nike stock and liquidating it within one year was unrealistic. Fifteen years of service to Nike had translated into meaningful gains that, if realized in a single year, were sure to bump Henry and Lucy into the top marginal tax bracket.
Nike provides certain employees the right to purchase its shares at a discounted, fixed price for 10 years. Known as “options,” you could think of them like grocery store coupons that allow holders to purchase an item for less than it’s listed.
Lucy held over $1M in Nike options and Clare pegged their annual taxable income at $440,000. This put them squarely in the 35% marginal federal tax bracket and meant we could reasonably exercise $200,000 worth of stock grants each year without raising their marginal tax bracket.
Before settling on a plan for exactly how many options to sell though, we examined other available financial levers.
Deferred compensation. At Nike, eligible employees can defer up to 100% of three different sources of compensation: next year’s base salary, performance sharing bonus, and long-term incentive plan compensation. Essentially, employees can postpone today’s tax liability and potentially benefit from tax-deferred growth by delaying income recognition into years with lower taxes.
We strive for simplicity. And it was in that spirit we recommended Lucy defer $200,000 of her base salary into deferred compensation and simultaneously exercise $200,000 of her Nike options as well. The effect: Lucy and Henry paid no additional taxes by exercising her options and meaningfully reduced their exposure to Nike stock—a win-win by all measures.
The decision to participate in deferred compensation wasn’t undertaken lightly. It was the result of lively conversations between the Vista team and Clare. Together, we evaluated income and lifestyle needs, risk tolerance, time frame, expected career path, and their other assets. It was truly a team effort.
Icing on the cake. After our December meeting, Lucy mentioned she was driving to Meals on Wheels to drop off their $10,000 donation check for the holidays. Our jaws nearly hit the floor!
“You mean a check written from your checking account?” we stammered.
“How else could I donate to charity?” Lucy replied.
This presented another opportunity to diversify their Nike exposure: donations of appreciated Nike stock. Shares purchased through her employee stock purchase plan carried the highest embedded liability and were the top candidates for charitable giving. Their embedded gain is twofold: the 15% discount on their initial purchase and the subsequent long-term capital gains on their growth.
Giving these shares away to Meals on Wheels achieved everyone’s goals: support for a good cause and a “more balanced balance sheet.”
What that looked like: updates for Clare when Nike shares sold, sharing portfolio income estimates, analysis from Clare about taxable income and deductions, Zoom meetings, providing tax returns, and a great happy hour together downtown.
In other words, we developed a strong working relationship and rapport with another financial professional that generated open lines of communication for us to engage in thoughtful conversations and planning. Result: an extraordinary experience for our mutual client and their trust in the work.
Andy Darkins, CFP®, is Lead Advisor and Vanessa DeHaan, CFP®, CPA, is Senior Advisor at Vista Capital Partners, a registered investment advisory firm in Portland, OR. Vista Capital Partners is a wealth management firm in Portland, Oregon, serving clients with $3 million or more to invest. Learn more at vistacp.com.
Lennon and McCartney composed “I Want to Hold Your Hand.” John Stockton and Karl Malone trademarked the pick-and-roll. History has taught us these duos produced accomplishments far greater than the sum of their parts.
This is much like CPAs and CFP® practitioners who, when working in collaboration, can generate extraordinary financial results for their clients’ lives.
These professionals are often viewed as operating in silos—CPAs for taxes and CFP® practitioners for investments. However, the decisions of each can have a domino effect on the whole of a client’s balance sheet.
Bear markets, for example, can provide opportunities to book losses and reduce a client’s marginal tax rate. Close coordination between a CPA and a CFP® practitioner ensures opportunities like this—and many more—don’t fall through the cracks.
On November 11, we’ll speak at the OSCPA Financial and Retirement Planning Conference about opportunities for collaboration between CPAs and CFP® practitioners—and share what it takes to foster a coordinated partnership that pays off for clients and their advisory teams.
The need for coordinated financial advice
Affluent families have never faced a greater need for well-orchestrated advice.The last five years have brought significant regulatory and legal changes with the 2017 Tax Cuts and Job Act, the SECURE Act of 2019, COVID, and the 2020 CARES Act. To top it off, the SECURE Act 2.0 is making its way through Congress.
Plunging stock markets have also wrought panic and concern as many investors have watched their nest eggs dwindle. This year’s market volatility has compelled many to evaluate their long-term goals and whether their overall financial plan even remains realistic.
The financial press, too, is never short on offering up a daily stream of conflicting information: economic news, world events, technological breakthroughs, and natural disasters. It’s enough to tune out the television entirely and put down your newspaper.
And our increasingly frenetic pace of life—kids’ school, long workdays, family obligations—can often put personal finances on the back burner.
Amid this landscape a high-functioning team of CPAs and CFP® practitioners can filter out the noise, identify what is essential, and deliver clients simple, convicted, and coordinated advice for their long-term success.
We’ll share a client success story and how we teamed up with their CPA to leave no stone unturned. The ultimate results: goals fulfilled and weight off the clients’ shoulders.
Henry and Lucy
Henry and Lucy met working together at Nike, fell in love, got married, and had three children. Over the course of 15 years, Lucy moved up through the ranks at Nike, earning a spot in the C-suite. She was rewarded for her dedication and hard work with meaningful compensation—stock options and an Employee Stock Purchase Plan.During our first meeting together, Lucy summed up their financial situation quite simply: “We don’t want all of our eggs held in one basket.” It was an apt metaphor for their portfolio. With almost half of their net worth held in Nike stock, their personal wealth and future prospects were heavily dependent upon the performance of Swoosh. Diversifying their assets could provide less risk and fewer fluctuations, along with some peace of mind.
Their attitude fit squarely with Vista’s philosophy: broad stock ownership across multiple asset classes—domestic stocks, international stocks, small and large growth, and value stocks. We value evidence over ego and don’t “time markets”—in other words, no entering and exiting from stocks based on speculation or short-term thinking.
Making a plan to diversify
First on the docket: enlisting the help of a qualified and responsive CPA. For years, Henry had filed their returns with Turbo Tax; however, the increasing complexity of Lucy’s compensation and its implications made that no longer tenable.
Fortunately, we had a long-standing relationship with Clare Smith, a CPA who was experienced with corporate professionals and well versed in the challenges of their compensation plans. We connected Lucy and Henry with Clare and soon got to work.
Together with Clare, we rolled up our sleeves and developed a plan to diversify the couple’s Nike holdings, aiming to reduce their exposure to 20% of their net worth within 5 years’ time. We developed a comprehensive plan with Clare that used multiple levers: spreading their tax liability over several years, leveraging deferred compensation, and incorporating charitable gifting.
Spreading their tax liability. Simply “ripping the band aid” off their Nike stock and liquidating it within one year was unrealistic. Fifteen years of service to Nike had translated into meaningful gains that, if realized in a single year, were sure to bump Henry and Lucy into the top marginal tax bracket.
Nike provides certain employees the right to purchase its shares at a discounted, fixed price for 10 years. Known as “options,” you could think of them like grocery store coupons that allow holders to purchase an item for less than it’s listed.
Lucy held over $1M in Nike options and Clare pegged their annual taxable income at $440,000. This put them squarely in the 35% marginal federal tax bracket and meant we could reasonably exercise $200,000 worth of stock grants each year without raising their marginal tax bracket.
Before settling on a plan for exactly how many options to sell though, we examined other available financial levers.
Deferred compensation. At Nike, eligible employees can defer up to 100% of three different sources of compensation: next year’s base salary, performance sharing bonus, and long-term incentive plan compensation. Essentially, employees can postpone today’s tax liability and potentially benefit from tax-deferred growth by delaying income recognition into years with lower taxes.
We strive for simplicity. And it was in that spirit we recommended Lucy defer $200,000 of her base salary into deferred compensation and simultaneously exercise $200,000 of her Nike options as well. The effect: Lucy and Henry paid no additional taxes by exercising her options and meaningfully reduced their exposure to Nike stock—a win-win by all measures.
The decision to participate in deferred compensation wasn’t undertaken lightly. It was the result of lively conversations between the Vista team and Clare. Together, we evaluated income and lifestyle needs, risk tolerance, time frame, expected career path, and their other assets. It was truly a team effort.
Icing on the cake. After our December meeting, Lucy mentioned she was driving to Meals on Wheels to drop off their $10,000 donation check for the holidays. Our jaws nearly hit the floor!
“You mean a check written from your checking account?” we stammered.
“How else could I donate to charity?” Lucy replied.
This presented another opportunity to diversify their Nike exposure: donations of appreciated Nike stock. Shares purchased through her employee stock purchase plan carried the highest embedded liability and were the top candidates for charitable giving. Their embedded gain is twofold: the 15% discount on their initial purchase and the subsequent long-term capital gains on their growth.
Giving these shares away to Meals on Wheels achieved everyone’s goals: support for a good cause and a “more balanced balance sheet.”
In collaboration
In retrospect, the story of our collaboration with Clare to diversify Lucy and Henry’s portfolio reads smooth and straightforward. But it was only made possible through ongoing, deliberate, and clear communication with one another.What that looked like: updates for Clare when Nike shares sold, sharing portfolio income estimates, analysis from Clare about taxable income and deductions, Zoom meetings, providing tax returns, and a great happy hour together downtown.
In other words, we developed a strong working relationship and rapport with another financial professional that generated open lines of communication for us to engage in thoughtful conversations and planning. Result: an extraordinary experience for our mutual client and their trust in the work.
Andy Darkins, CFP®, is Lead Advisor and Vanessa DeHaan, CFP®, CPA, is Senior Advisor at Vista Capital Partners, a registered investment advisory firm in Portland, OR. Vista Capital Partners is a wealth management firm in Portland, Oregon, serving clients with $3 million or more to invest. Learn more at vistacp.com.