Some business people see their CPA as a most trusted advisor. And empowered by recently enacted legislation, CPAs may soon take on an even broader role in business finances.

A new California law, SB-1289, allows CPAs to collect fees involving financial services or products such as securities or insurance. That expanded role can have a positive impact on your business and personal finances, if you know what questions to ask.

There are four important specifications in this new law that you should be aware of:

– CPAs must undergo a strict licensing process in order to offer any product or service beyond their current scope of accounting services.

– CPAs may not simply refer a client to a financial services provider in return for a referral fee. Instead, the CPA must be an active participant in the process, working directly with their clients in conjunction with their accounting practice.

– Perhaps most importantly, CPAs must disclose to clients that they are receiving a fee for the sales of financial services or products. Furthermore, clients are required to sign a document stating that they are aware of the amount of compensation the CPA will be receiving as a result of the transaction.

– CPAs who perform attest work for a client (such as audits, compilations and reviews of financial statements) are strictly prohibited from receiving fees or commission from the sale of financial products or services from that client.

Many of the ramifications of this new law are yet to be realized. However, one thing is clear: there will be very few “lone wolves” taking on this new financial services business line. Most CPAs will either associate themselves with other financial service companies or form CPA alliances to share the burden of staying current with all the details of the financial services industry.

Investment advantages

Anticipating this new trend, most brokerage and insurance companies have been courting CPA firms and individuals over the past year. Thus far, the courtship has been a rocky one, as CPAs tend to be somewhat leery of the true intentions of their powerful suitors. As a result, alliances between CPAs and financial services companies have had a slow start.

So what’s in it for you as a business owner? There are two very significant potential benefits to using your CPA as your liaison for investment.

First, since your CPA will be receiving a fee or commission on his or her services, you might be able to negotiate a reduction of your normal accounting fees, known in the industry as fee offset. You will know this amount from the disclosure statement you sign. Many CPAs have expressed a willingness to “credit” their clients for these amounts.

Second, you may realize a benefit from the integration of the tax impact of your business with your personal investments. With a foot in both of these arenas, your CPA will be more equipped to help you maximize the amount of money you make and keep through these channels. He or she will likely know your total financial picture better than any other advisor you have, and will therefore be able to provide you with more comprehensive financial service.

However, before you run right out and sign up with your CPA to provide financial services, there are several extremely important questions you should ask. First inquire about the financial services company or companies your CPA is associated with, and make sure the company has an established track record and deep enough pockets to cover any problems that may occur in the future.

Keep options open

In addition, you should ask your CPA what kind of independence he or she has in selecting financial products. Is he or she limited to those offered by only one company or can the CPA select from a wide range of financial products or services? The more unlimited their selection, the more they can choose the one that’s right for you.

These questions will help you avoid problems such as those occurring with CPA firms purchased by large financial service firms, a growing trend in California. These firms recognize the potential value a CPA’s practice can bring as a one-stop shopping mart for investments and insurance products.

However, these CPAs can only offer their clients those products carried by their financial service owner. Legally, there is not a conflict of interest, but the ethical issues involved are obvious and potentially problematic for clients.

You should also ask about the people who will be advising your CPA on financial products or services. How long have they been in the business? Have they received a professional certification or degree?

It could be financial suicide to put your trust in your CPA for financial services, only to find out too late that the people down the line, with whom you have little or no contact, are not competent.

From an overall standpoint, small business owners can rejoice along with their CPAs over the freedom this new law imparts. It can truly be a win-win situation for both you and your CPA.

However, just as with any important business relationship, you should not walk blindly into this new venture.

Doing your homework and asking the right questions can start you off on the right foot in a great new partnership that can result in significant financial gain for you and your business.

Alan Shorr and Morrie Reiff are president and vice president, respectively, of Accountants Financial Alliance, which works with CPAs to determine the optimum financial service product for clients.

Entrepreneur’s Notebook is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California. Contact James Klein at (213) 743-1759 with feedback and topic suggestions.