Impact of the fiduciary rule on personal investment accounts

Wealthmanagement.us offers non-conflicted advisory services to the participants in non-profit organzation retirement plans.

The financial services industry is speculating that the newly issued ‘fiduciary rule’ issued by the Department of Labor will have wider implication than originally expected. The fiduciary rule, simply stated, is that the investment firm has a duty to manage the account in the client’s best interest. Previously the standard was simply that the firm could not do anything improper. Regulators believed that the impact was that fees on retirement plan participants were higher than otherwise would be the case. The financial services industry disputes that assumption.

Technically, the new fiduciary rule does not apply to regular personal, trust or taxable investment accounts. But we wonder whether investment companies wish to offer two levels of service to retail clients: using one set of disclosure documents and internal training for retirement accounts and another less stringent standard for all other accounts? We suspect not. The fiduciary standard rule may soon be the standard for all investment accounts.

I think the net effect is that more investors will utilize services that are disconnected from the investment firm. For example, a tax preparer might assist with the setup of a Simplified Employee Pension plan or an IRA account deposit transaction that goes into an existing index mutual fund. These transactions that generate little or no revenue for investment firms are of little interest and retail clients are already complaining about the lack of providers available to handle these transactions.

This past tax season I read complaints on social media from several tax preparers that they did not know who to turn to to handle these simple investment transactions. Accountants often fear running afoul of investment advisory regulations if they charge clients for these services. They may not be aware of the de minimis and other exceptions available under most states’ laws that would appear to apply to most of these situations.

Choosing a financial adviser

It seems that most people choose professional service providers based on the recommendation of a friend or other professional. This is a “tried and true” method to help ensure similar results as the referrer and minimize the risk of choosing a bad provider. A personal recommendation, for example, works well when choosing a dentist. A friend who had a pleasant experience with a tooth cleaning and checkup is a good source of information about your choice of provider. It is reasonable to assume that your needs (i.e. cleaning and checkup) and outcome may be similar. In this case a personal referral makes sense.

But does this same logic apply to choosing a financial adviser? Today’s  financial service industry, the range of services that are offered by various providers and the results obtained by their clients are so widely varied that a comparison from one person’s experience to another rarely makes sense. It’s clearly not like choosing a dentist. More important, setting a goal of achieving the status quo of financial advice is simply not good enough anymore. Shooting for the same level of service as attained by a friend could be seriously selling yourself short. The fact is that average experience with financial advisers falls far short of the level of service that is possible. While most advisers are honest, hardworking and operate within the law, that is just not good enough. In these days, no one should want to hire a “typical” financial adviser.

Finally, of course, the effects of trusting a disreputable adviser can be disastrous. Most of the high profile adviser scams we read about in the news share a common thread that the adviser was highly praised and referred from client to client. Without the support of well-intentioned referrers, these scams would not have been possible.

I conclude that selecting a financial adviser should be more carefully considered than taking a personal recommendation from a friend. Personal referrals may be insufficient. Instead, I suggest that investing some time to learn about the internal workings of advisory process, the overall financial services industry and the specific details about the individual adviser will prove to be well worth the effort. These five points highlight some of the most important considerations facing financial advisory clients today.

1. Understand the basics of the financial service industry. Realize that the
majority of people who call themselves financial advisers are really not advisers but sellers. Most earn their living from commissions of fees built into the financial products you buy from them. Many advisers earn additional fees by “managing” investment assets, regardless of whether the investment performance benefits from this additional management (usually it does not) and even if the assets just sit there with no impact from the adviser. (For example, this is called a “12(b)(1) fee” in mutual funds). The more the advisers sell, the more they earn. That is not advising, that is selling – no matter what title is placed on the business card.

There is no connection between the adviser’s compensation and the quality of the advice given to the client. In fact, the Securities Exchange Commission has recently undertaken a publicity campaign to inform the public on an issue known as “the Merrill Lynch rule” of the difference between an adviser who is a fiduciary (a person who is held legally accountable to act in your best interest) and an adviser who is a registered representative for a broker (whose primary legal responsibility is to the employer) who is only required to avoid
unsuitable recommendations to clients.

It may come as a surprise that most people classified as advisers are not even legally required to act in your best interest. Of course,
that certainly does not mean that all of the advice is bad, but rather it means that the financial adviser is motivated by something other than providing you the best information available. For example, you will rarely if ever hear a financial adviser mention that a competing firm’s services are less expensive than those of the adviser’s firm. If you want to avoid this conflict of interest Jon Clements, them personal finance columnist for The Wall Street Journal wrote on 5/31/06, “your best bet is to use fee-only advisers who charge an hourly fee”. Since your financial future is likely to be affected on your selection, it makes sense to spend the time to find an adviser who is not compensated for anything other than providing you advice.

If you decide to go this route, this means filtering out more than nine out of every ten people who call themselves financial advisers. It is not always easy to find an hourly-fee adviser who does not accept commissions or asset-based fees.

Once you locate a candidate, ask to see a copy of the advisers “Form ADV Part 2” to be sure that the information reported to you is the same as what is reported to the government.

2. Aim high. Of course you have to make sure that the adviser is credible and knowledgeable. Some people look for a CFP designation or a CPA with a CFS credential. But if you really want your money’s worth, knowledge and designations are not enough. When making in this important decision, it makes sense to set your sites higher. How about finding an adviser who is recognized as a leader or an expert within the financial industry? How about an adviser with a long list of endorsers? How about someone who is well-connected in the business community and in the financial services industry? How about someone who has made a mark as a well known teacher, writer or lecturer in the financial planning topic? In other words, why not look for an adviser who makes an impression that “knocks your socks off”? Put another way, if you choose an “average” financial adviser, then you should expect average results.

In the end, you can expect exceptional results only after you have taken the time to seek out an exceptional adviser.

3. See the big picture. Consider that there is far more to managing finances today than picking stocks and mutual funds. You might also want help with lowering your mortgage costs, handling college costs, improving your accounting system, online transactions, banking, evaluating insurance, tax strategies and return preparation, trust accounts, wills and estate planning. A positive contribution in any of these areas will far outweigh the contribution made by choosing investments. In fact, economists would argue that the task of picking specific investments play an insignificant role – perhaps is the least important factor – in your overall long term financial success. Make sure that your adviser is experienced and willing to help you with the broad range of financial planning issues.

Also, consider this issue in relation to the two points in #1 and #2 above. Most advisers do not have a broad-based knowledge and experience in the important topics outside of investing. An adviser who is primarily paid to sell or manage your investments has no incentive to help with taxes, loans, college tuition bills or other concerns that are equally important to you. And even if the adviser was motivated to help, few would be qualified to offer broad-based services.

4. Consider the impact of the Internet. The Internet has changed the way all of us do business and has dramatically impacted the products, services and fees in the financial services industry. It is now possible to conduct financial transactions faster and far lower price than almost anyone would have previously dreamed to be possible. This has generally been good news for consumers, at last for those who are able to filter through the many offerings and separate the good from the bad that cohabitate on the Web.

Unfortunately, it seems that for every great deal or service on the Web there are also a handful of scams. Just keeping up with this changing field of online services has become an area of specialization in the financial service community. Most financial advisers avoid online services simply because they do not pay commissions – that is one of the ways they save consumers money. Financial advisers are just beginning to embrace the Internet. Few have invested the time to become well-educated on the benefits, and few firms are willing to adapt technologies that allow clients to benefit from the latest technology. Many cite concerns over regulatory issues. The few advisers that do offer this full internet-based service add significant value for their clients.

The other impact of the Internet is the breakdown of geographic barriers. In the old days, we chose professionals in our own town. Now people are more likely to have a financial adviser across the country. Today’s Internet-savvy adviser is able to utilize video conference technology, document sharing capabilities that improve the efficiency and lower the costs of providing personal services. Even the simple technology of sequential telephone call routing now allows an adviser to answer more calls from clients on the first dial, rather than relying on voicemail
tag. This allows clients to select a financial adviser with whom they feel a connection – based on the things that are really important like communication, expertise and a matching of personalities – rather than choose among the advisers located within the same physical address.

5. Keep a lid on total costs. All of the adviser’s fees plus all other costs
including commissions, built-in charges, account fees, “hidden” expenses and other financial charges play a role in your long term overall financial well-being.

If this amount grows much past 1% of your invested assets, the rate of growth becomes impaired. Within 401(k) plans alone, some investors pay $25,000 more than others in mutual fund charges alone over their working careers. This means that there is $25,000 less in the investment account on the date of retirement that would otherwise be available to the client. Of course, it is equally important to evaluate non-investment-related costs. An adviser who is experienced with helping to reduce overall financial expenses can be far more valuable than an adviser who helps boost your investment returns. An adviser who shows you how to cut out mortgage points, for example, can reduce your cost of borrowing
by thousands of dollars.

A client should expect to see a direct tangible net result from the adviser’s efforts and should evaluate the adviser’s return on investment in the same way as any other investment. The “investment” in this case, is the adviser’s fee. An adviser who charges a $2,000 fee, for example, but immediately saves you $3,000 in taxes and another $2,500 in mortgage loan expenses has clearly proven to be a good return on your investment; far more so than an adviser who is able to boost investment results on a client’s typical-sized portfolio from, say, 7% to 9%.

In summary, choosing a financial adviser should be a bit like choosing a spouse. We should be cautious and go slow at first, do our homework, test the relationship, and not make a hasty decision about any long term commitment. It takes some work to seek out the right financial adviser, but the long term benefits are worth the extra effort.

About the Author
Tony Novak is a consumer finance writer, speaker and adviser based in the
Philadelphia area. He can be reached at www.wealthmanagement.us.com.

Code of conduct for a Certified Public Accountant acting as personal financial adviser

This short article of explanation followed by the reproduced guidance from the AICPA are most likely to directly affect relationships between a client and financial adviser when the adviser is a Certified Public Accountant.

The rules are designed to reduce the risk of potential conflict of interest and usually relevant under four common scenarios:

1) The adviser prepares financial statements that may be used by a bank or other third party. For example, a bank asks for a financial statement as part of a loan application. The purpose of the rule is to ensure that the third party is aware of any potential conflict of interest.

2) The adviser receives compensation from a third party like a commission or referral fee. For example, the adviser handles an insurance transaction. The intent is to provide disclosure about the compensation.

3) The adviser uses a third party service to help with work. For example, an online tax preparation service. The intent is to protect private information.

4) The adviser participates with third parties in compiling information that does not identify the client. For example, the adviser publishes “case studies” as educational material without identifying the client. The purpose is to ensure that the client gives permission to disclose any non-public information.


 

ET Section 302 – Contingent Fees

.01 Rule 302—Contingent fees.

A member in public practice shall not

  1. Perform for a contingent fee any professional services for, or receive such a fee from a client for whom the member or the member’s firm performs,
    1. an audit or review of a financial statement; or
    2. a compilation of a financial statement when the member expects, or reasonably might expect, that a third party will use the financial statement and the member’s compilation report does not disclose a lack of independence; or
    3. an examination of prospective financial information;or
  1. Prepare an original or amended tax return or claim for a tax refund for a contingent fee for any client.

The prohibition in (1) above applies during the period in which the member or the member’s firm is engaged to perform any of the services listed above and the period covered by any historical financial statements involved in any such listed services.

Except as stated in the next sentence, a contingent fee is a fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specified finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service. Solely for purposes of this rule, fees are not regarded as being contingent if fixed by courts or other public authorities, or, in tax matters, if determined based on the results of judicial proceedings or the findings of governmental agencies.

A member’s fees may vary depending, for example, on the complexity of services rendered.

[As adopted May 20, 1991.]

Interpretation under Rule 302

—Contingent Fees

.02 302-1—Contingent fees in tax matters.

This interpretation defines certain terms in rule 302 [ ET section 302.01] and provides examples of the application of the rule. When practicing before the IRS or other taxing authorities, members should ensure compliance with any requirements that are more restrictive.

Definition of Terms

  1. Preparation of an original or amended tax return or claim for tax refund includes giving advice on events which have occurred at the time the advice is given if such advice is directly relevant to determining the existence, character, or amount of a schedule, entry, or other portion of a return or claim for refund.
  2. A fee is considered determined based on the findings of governmental agencies if the member can demonstrate a reasonable expectation, at the time of a fee arrangement, of substantive consideration by an agency with respect to the member’s client. Such an expectation is deemed not reasonable in the case of preparation of original tax returns.

ExamplesThe following are examples, not all-inclusive, of circumstances where a contingent fee would be permitted:

  1. Representing a client in an examination by a revenue agent of the client’s federal or state income tax return.
  2. Filing an amended federal or state income tax return claiming a tax refund based on a tax issue that is either the subject of a test case (involving a different taxpayer) or with respect to which the taxing authority is developing a position.
  3. Filing an amended federal or state income tax return (or refund claim) claiming a tax refund in an amount greater than the threshold for review by the Joint Committee on Internal Revenue Taxation ($1 million at March 1991) or state taxing authority.
  4. Requesting a refund of either overpayments of interest or penalties charged to a client’s account or deposits of taxes improperly accounted for by the federal or state taxing authority in circumstances where the taxing authority has established procedures for the substantive review of such refund requests.
  5. Requesting, by means of “protest” or similar document, consideration by the state or local taxing authority of a reduction in the “assessed value” of property under an established taxing authority review process for hearing all taxpayer arguments relating to assessed value.
  6. Representing a client in connection with obtaining a private letter ruling or influencing the drafting of a regulation or statute.

The following is an example of a circumstance where a contingent fee would not be permitted:

  1. Preparing an amended federal or state income tax return for a client claiming a refund of taxes because a deduction was inadvertently omitted from the return originally filed. There is no question as to the propriety of the deduction; rather the claim is filed to correct an omission.

[Revised effective May 31, 2011]

ET Section 391 – Ethics Rulings on Responsibilities to Clients

1. Use of a Third-Party Service Provider to Provide Professional Services to Clients or Administrative Support Services to the Member

.001 Question—A member in public practice uses an entity that the member, individually or collectively with his or her firm or with members of his or her firm, does not control (as defined by in Financial Accounting Standards Board Accounting Standards Codification 810, Consolidation)or an individual not employed by the member (a “third-party service provider”) to assist the member in providing professional services (for example, bookkeeping, tax return preparation, consulting, or attest services, including related clerical and data entry functions) to clients or for providing administrative support services to the member (for example, record storage, software application hosting, or authorized e-file tax transmittal services). Does Rule 301, Confidential Client Information [ET section 301.01], require the member to obtain the client’s consent before disclosing confidential client information to the third-party service provider?

.002 Answer—No. Rule 301 [ET section 301.01] is not intended to prohibit a member in public practice from disclosing confidential client information to a third-party service provider used by the member for purposes of providing professional services to clients or for administrative support purposes. However, before using such a service provider, the member should enter into a contractual agreement with the third-party service provider to maintain the confidentiality of the information and be reasonably assured that the third-party service provider has appropriate procedures in place to prevent the unauthorized release of confidential information to others. The nature and extent of procedures necessary to obtain reasonable assurance depends on the facts and circumstances, including the extent of publicly available information on the third-party service provider’s controls and procedures to safeguard confidential client information.

In the event the member does not enter into a confidentiality agreement with a third-party service provider, specific client consent should be obtained before the member discloses confidential client information to the third-party service provider.

See ethics ruling No. 112 [ET section 191.224–.225] under Rule 102, Integrity and Objectivity [ET section 102.01], and ethics ruling No. 12 [ET section 291.023–.024] under Rule 201, General Standards [ET section 201.01], and Rule 202, Compliance With Standards [ET section 202.01], for additional responsibilities of the member when using a third-party service provider.

[Revised, effective July 1, 2005, except for professional services performed pursuant to agreements in existence on June 30, 2005 that are completed by December 31, 2005, by the Professional Ethics Executive Committee. Revised effective May 31, 2011]

2. Disclosure of Client Information to Third Parties

.003 Question—A member has received a request from a third party (for example, a trade association, member of academia, or surveying or benchmarking organization) to disclose client information or intends to use such information for the member’s own purposes (for example, publication of benchmarking data or studies) in a manner that may result in the client’s information being disclosed to others without the client being specifically identified. May the member comply with such a request or use client information for such purposes without violating Rule 301 [sec. 301 par.01]?

.004 Answer—A member would be in violation of Rule 301 [sec. 301 par.01] if the information is considered to be confidential client information, unless the member has the clients’ specific consent, preferably in writing, for the disclosure or use of such information. The disclosure or use of the information that is available to the public is not subject to Rule 301 [sec. 301 par.01]. The member should be cautious in the disclosure or use of the information so as not to disclose client information that may go beyond what is available to the public or that the client has agreed may be disclosed.

Accordingly, before disclosing confidential client information to a third party or using such information for the member’s own purposes when the use of such information results in disclosure of confidential client information to others, the member should obtain the client’s specific consent, preferably in writing, about the nature of the information that may be disclosed, the type of third party to whom it may be disclosed, and its intended use.

A member is not prohibited from marketing his or her services or advising a third party, such as a current or prospective client, of information based on his or her expertise or knowledge obtained from prior experiences with clients (for example, the nature of services provided to other clients or common practices within a client’s industry). However, in cases when such information may be identifiable to one or more clients, specific consent, preferably in writing, would be required from such client(s). Prior to disclosing confidential client information to a third party, the member should consider whether a contractual agreement with the third party to maintain the confidentiality, or limit the use, of the information is necessary.

In addition, the member should consider whether federal, state, or local statutes, rules, or regulations concerning confidentiality of client information may be more restrictive than the requirements contained in this ethics ruling.

See Ethics Ruling No. 12 of section 291 [sec. 291 par. .023-.024] and Ethics Ruling No. 1, “Use of a Third-Party Service Provider to Provide Professional Services to Clients or Administrative Support Services to the Member,” of this section [sec. 391 par. .001-.002] for guidance when disclosing confidential client information to a third party used to assist the member in providing professional services to clients that will not result in disclosure to others.

[Revised August 2011, effective November 30, 2011]

ET Section 391 – Ethics Rulings on Responsibilities to Clients

24 Investment Advisory Services

.047 QuestionA member or member’s firm (“member”) provides investment advisory services for an attest client for a fee based on a percentage of the client’s investment portfolio. Would the member be considered to be in violation of rule 302, Contingent Fees [ET section 302.01]?

.048 Answer—Yes. However, the fee would not be contingent upon portfolio performance and, therefore, would not be in violation of rule 302 [ET section 302.01] if all of the following conditions are met:

1 The fee is determined as a specified percentage of the client’s investment portfolio.

2 The dollar amount of the portfolio on which the fee is based is determined at the beginning of each quarterly period (or longer period of time as may be agreed upon) and is adjusted only for additions or withdrawals made by the client during the period.

3 The fee arrangement is not renewed with the client more frequently than on a quarterly basis.

When performing such services, the member should also consider Rule 101, Independence [ET section 101.01], especially interpretation 101-3 [ET section 101.05].

25 Commission and Contingent Fee Arrangements With Nonattest Client

.049 Question—A member or member’s firm (member) provides for a contingent fee investment advisory services, or refers for a commission products or services of a nonclient or a nonattest client, to the owners, officers, or employees of an attest client or to a nonattest client employee benefit plan sponsored by an attest client. Would the member be considered to be in violation of either rule 302 [ET section 302.01] or rule 503 [ET section 503.01]?

.050 AnswerNo. The member would not be in violation of either rule 302 [ET section 302.01] or rule 503 [ET section 503.01] provided that, with respect to rule 503 [ET section 503.01], the member discloses the commission to the owners, officers, or employees or to the employee benefit plan. The member should also consider the applicability of interpretation 102-2, Conflicts of Interest [ET section 102.03], and his or her professional responsibility to clients under Rule 301, Confidential Client Information [ET section 301.01].

Biography of Tony Novak, CPA, MBA, MT

Career

Since 1987 – Independent accountant/adviser to small business and self-employed clients.

1986-1987 Account Executive with Drexel Burnham Lambert in Jenkintown, PA, focusing on pension plan sales to self-employed individuals and small business owners

1985-1986 Pension Accountant with Pension Plan Services Inc. in Philadelphia, PA , preparing financial statements for IRS Form 5500 filings

Education

Academic credentials are expanded here

Masters in Taxation (MT) from Villanova Law School, 1995 with a focus of study in compensation planning

Master in Business Administration (MBA) from Temple University, 1985 with a focus of study on finance and accounting particularly related to portfolio management

Bachelor of Science Degree from Delaware Valley College, 1982. Served as resident dormitory adviser, editor of the student newspaper and an Academic All-American

Methacton High School, Fairview Village, PA 1978. National Honor Society

Licenses, Registrations, Certifications

Certified Public Accountant, Delaware license ##CC-0003632

Certified QuickBooks ProAdvisor

Former Registered Investment Adviser with the Securities Exchange Commission in 1983-1997, Commonwealth of Pennsylvania in 1985-1998, and the State of New Jersey 2002-2007. (terminated)

Licensed life, accident & health insurance agent in all states and the District of Columbia, varying start dates, all licenses are current (current)

National Association of Securities Dealers licensing certification for series 3, 6, 7, 15, 22, 26, 63, 65, encompassing licensing for securities, stocks, bonds, mutual funds, options, commodities and foreign currency options (terminated)

Completed IRS administered course on individual income tax preparation 1995

Management

Recruited and trained more than 25 independent agents as producers for Fortis Financial Group 1993-1995 building agency premium volume approaching $1 million in 1995

Operated an independent financial planning office with a staff of 2-4 from 1987 through 2001 focusing on employee benefits for building contractors

Teaching

Instructor for “Current Events in Employee Benefits” a professional continuing education course offered through a non-profit affiliate organization. The course was approved for CE credits in Pennsylvania for accountants, attorneys and financial planners, 1997-2000

Former adjunct faculty at Delaware Valley University teaching financial planning and professional continuing education programs

Host of public radio show featuring call-in questions on various financial planning topics; host or guest on various Internet Web-casts including a featured interview by “Financial Planning Online” in 2000

Publications

“Health Savings Accounts: How to Implement and Administer an HSA in Your Organization”, National Seminars Group/ Padgett-Thompson, 2006

“Employer’s Guide to Health Reimbursement Arrangements”, 2004, 2005,2006, self-published

“Small Business Owners Guide to Employee Benefit Plans” 1986, self-published

Writer and Publisher of “Novak’s Money Minute” (2006), “OnlineAdviser Topics” (2003-2006), and “State Street Journal” (1987-1996). These Web publications and e-mail subscriptions are read by financial professionals and consumers with an interest in financial planning topics

A contributor to dozens of business and tax-related publications including NY Enterprise Report, Insight into 90’s Living, Life Insurance Magazine, Financial Planning Magazine, Opticourier, Life Association News and others

Internet-based Activity

Former discussion host for AdvisorMax.com, an industry-leading service for professional financial advisers

Volunteer adviser for OnlineAdviser and Allexperts.com providing advice in tax and benefits law issues to the public, 1998-2004

Former discussion moderator at “Financial Planning Interactive” 1997-2006, the nation’s largest online resource for financial planners at www.financial-planning.com published by Securities Data Publishing Inc., NY, a division of Thompson Publishing

Founder of MedSave and OnlineNavigator Web-based health insurance exchange services

Family

Married with two children and three step-children ranging in age from 18 to 24

Advocacy and Activities

Founder of BaySave Foundation, a privately-funded environmental advocacy project based in Newport NJ

Operator of Money Island Marina and Nantuxent Seafood

Affiliations

Former Member of Sustainable Business Network of Greater Philadelphia

Former Member of the National Association of Health Underwriters

Former Member of Toastmasters International

Former Member and Youth Programs Liaison for Rotary Club of Ardmore

Member, contributing writer, speaker, lecturer for the New Jersey Society of Certified Public Accountants

Former accredited business member of the Greater Philadelphia Better Business Bureau

Former Member of America’s Health Insurance Plans

Member of the Brain Injury Association of New Jersey

Former Board Member of the Somers Point Jazz Society, founding co-chairman of “Brown Bag It with the Arts” and “Bucks Fever” for the Central Bucks Chamber of Commerce and a “Producer” level sponsor for WXPN radio

Former member and discussion group facilitator for interfaith couples group for Main Line Reform Temple

Member, committee co-chair and Past President of the Bucks/Mont Chapter of the National Association of Remodeling Industry (NARI)

Former coach of the Main Line Wrestling Club, Warrington A.A.U. Wrestling Club and Upper Merion Wrestling Club. Former assistant coach at Delaware Valley College, Central Bucks High School, Archbishop Wood High School and Friends Central High School

Organizer of the Money Island Property Owners Association

Small business accounting system setup checklist

This is a list of the information that you will want to have on hand before you start setting up an electronic accounting system for your small business or non-profit organization. The list may vary depending on the type of organization and legal setup.

Company data

Company legal name and address
Federal EIN or social security number
Fiscal year dates
Name of the income tax form the client files
Accounting basis (cash or accrual)

Chart of accounts

Names, numbers, and descriptions for the chart of accounts (use the existing chart of accounts, if available)
Financial statements as of the end of the prior tax year
Trial balances as of the QuickBooks start date
List of department or location classifications (for the Class list)
Numbers and balances (from the start date through today) for the following types of accounts: bank, credit card, loan, and lines of credit
Value of assets (including original cost and accumulated depreciation for fixed assets)
Equity information including all owner’s contributions, plus retained earnings for each year the company has been operating

Customers and Jobs list

Customer numbering scheme
Information to complete the Customer list: names, addresses, contact information, taxable status, etc.
Customer payment terms
Customer shipping methods
Customer types
Open balances or outstanding invoices as of the start date

Vendor list

Vendor numbering scheme
Information to complete the Vendor list: names, addresses, other contact information
List of 1099 vendors and their tax ID numbers
Vendor payment terms
Shipping methods
Vendor types
List of outstanding bills as of the QuickBooks start date

Item list

List of all inventory, non-inventory, service, and other items to complete the Item list
Price list for all items
Inventory numbering scheme
Quantities on hand and values for inventory as of the start date
Desired reorder points for all inventory items
Taxable status for each item
List of states in which the company pays sales tax
Sales tax rates, sales tax agencies, and the sales tax liability as of the start date
Frequency of sales tax reporting (monthly, quarterly, annually)
Sales tax calculation basis (cash or accrual)
Type of sales (wholesale, retail, out of state)
Manufacturer’s part numbers for client’s vendors

Fixed Asset Item list

Asset name
Account used to track the asset
Purchase date, cost, and vendor
Description, location, and warranty information

Employee list

Employee numbering scheme
Information to complete the Employee list: names, addresses, telephone numbers, social security numbers, etc.

Determine the following items for payroll:

Form 941 Deposits:

Monthly
Each pay-period

State Withholding:

Monthly
Quarterly
Annually
Multi-state (Specify:_________________)

Local Withholding:

Monthly
Quarterly
Annually

Unemployment Tax:

FUTA
SUTA (Rate:________)

Assemble the following:

YTD information for each employee as of the start date
Accrued benefits including sick and vacation time for each employee as of the start date
Earnings, additions, and deductions for payroll processing (SEP, union benefits, 401(k), reported tips, etc.
Employer federal, state, and local tax identification numbers
YTD payroll liability payments

Entering historical transactions

Accounts receivable transactions
Accounts payable transactions
Historical payroll transactions
Bank and other transactions