5 Reasons Why Some Accountants Don’t Give Advice

Jack and Jill feel let down. They recently changed accountants and have just found out they’ve been paying more tax than they should have. They don’t understand why their last accountant never said anything.

Both are in their mid-fifties and the owner operators of a water cooler business called “Fetch’n’Fill”. Last year the business made a profit of $300,000. They drew down $200,000 in wages and left $100,000 in the business as retained earnings.

Consequently, they paid personal tax on their wages of $200,000 plus company tax on the retained earnings of $100,000.

Without a doubt, their previous accountant could have made a number of suggestions to reduce their tax liabilities so why didn’t he?

The Reasons Why
It is assumed that accountants are like dentists, they will offer to remedy a problem without the client having to ask. Here are five reasons why some accountants don’t give advice.

I. Increased liabilities – as soon as an accountant gives advice, it immediately changes the risk profile of their business. I.e they become liable to potential law suits from clients, especially when investments are involved.

II. Insurance – Professional Indemnity (insurance) premiums go up significantly and can make giving advice cost prohibitive. Alternatively, insurers may restrict the sort of advice accountants can give. The same applies to financial planners.

III. Qualifications – some accountants simply aren’t qualified to give advice, and quite frankly, would prefer to keep it that way. They don’t want the headaches of trying to work out what the markets will do, if an asset is cheap or expensive, etc.

IV. Statements of Advice – writing plans for clients is a very tedious, litigious, time consuming process and unless part of the process can be delegated, it’s akin to getting root canal therapy.

V. Implementing Advice – implementing advice recommendations requires a very efficient back-office which in turn automatically increases business overheads. Worse, a poorly run back-office can leave the business vulnerable to mistakes and more liabilities.

Would You Like Fries With That?
Something else worth remembering is many accountants initially chose their career because they didn’t want to sell anything. The idea of living on a diet of rejection and disappointment is not for them. Counting beans is much more exciting than asking for a sale, which is how some see advice.

Back to the Future
In very simple terms, accountants account for the past and financial planners plan for the future. As obvious as this distinction is, it’s a very important one to understand, especially if you’re happy with your existing accountant.

If you are not getting the advice you think you need and your accountant cannot help, just ask for a referral if one hasn’t been offered. It’s no different to visiting your GP. You can still maintain your existing relationship, however there will be times when you need specialist advice. Just ask.

The Bottom Line (not punny)
Don’t make any assumptions. Assumptions can be very expensive and can be easily avoided with just a simple conversation. Just ask Jack and Jill…who didn’t ask.

Have a great week!

Adam

Back Paddock – See how many movies you can name in ten seconds that don’t have the letter ‘T’ in it.

(Source: some poor soul on Facebook who is either retired, unemployed or has a cart load of time on their hands…but still smart enough to suck me in!)