Read The Transcript Below:

Steven:

Hello everyone and welcome to the next episode of the Retirement Tax Services podcast, financial Professionals edition. I’m your host, Steven Jarvis, CPA, and joining me on this show today is a fellow CPA amongst other things, Mike Payne. Mike, welcome to the show. 

Mike:

Thanks Steven. Appreciate you having me. This is awesome. 

Steven:

Yeah, super excited for this conversation because you approach this whole world that we’re in a bit differently than anyone else I’ve met, which I love people who think creatively who are looking for ways to expand that service to their clients. So maybe give us just the high level overview of your background and how you ended up where you are today. 

Mike:

Yeah, so I would say I’m similar to your approach with trying to marry the accounting and financial advisory worlds. I’ve done the same thing on the accounting and law side. So my background is I’m A CPA went to law school after I got my CPA license and then I kind of bounced around between big four accounting firms and regional law firms here in Phoenix, Arizona.

And eventually after about seven years of working at both firms, I decided I wanted to launch my own practice, but the kicker was I wanted to do both legal and accounting and specifically within accounting I do tax. I’m not an auditor or anything like that. And so I went to the state bar, I went to the state board of Accountancy. I also talked to multiple JD CPAs and the advice I got was it’s possible, but there’s going to be some tight restrictions in how you do it. And so after getting the thumbs up, I launched a law firm and a CPA firm side by side and ran those for about four years side by side. And I had to have separate calendars, separate document storage systems, separate billing down the line. They had to be completely separate entities. And then in 2021, the state bar of Arizona and the Supreme Court of Arizona decided to be pretty progressive, the first state and only state to permanently waive the restriction on lawyers from sharing fees with non-lawyers, which means now we can enter into referral agreements.

We can actually have, if you’re structured as a specific type of law firm called an alternative business structure in Arizona, you can actually have non-lawyers own an interest in an Arizona law firm. And so I had a business partner at the time, he was an enrolled agent, he was able to buy into the law firm and we were able to run that as a 50-50 partnership for a few years and then he ended up leaving last year. And so I’m now the sole owner again. 

Steven:

I appreciate all that background and one of the things I love that there probably aren’t a lot of people listening to this podcast who are both attorneys and CPAs looking to set up exactly what you’re doing in Arizona, but if there are, call Mike learn about it. The bigger point to me here is the thinking creatively that exploring ways to not just accept the status quo but look for how do I make sure I’m giving my clients the best service possible because just one example that immediately comes to mind for me of the potential benefits of this is when we talk about the legal side versus the tax side of just picking entity structure, whether that’s for your own business or for your clients.

I get people that come to me all the time and lead with entity structure as if it were a tax question. And I think you and I both agree that entity structure has tax implications, but that is not where you should start. 

Mike:

Yeah, a hundred percent and I think to your point, joining of these two professions has benefited the clients the most out of anybody. We have that conversation all the time. That’s 101 is and the very first step is how should this entity be structured when I’m presented with a startup or a merger or a partnership, however, whatever the circumstances may be, the nice part is within our firm we have lawyers and accountants, we do legal transactions, so M and A work, we do contract law, we do employment law, we do estate planning on the legal side, no litigation. We don’t touch that stuff.

And then on the accounting side we do tax prep, tax advisory and bookkeeping and CFO services. So we’re not trying to do everything by any means, but I like to say we live at the intersection of where tax and law meet and we’ve established some real estate there and try to really live in that environment where we’re considering both the legal and tax implications. And we do have tax lawyers who can speak to both, but we also have accountants who are more, not necessarily up to speed on the legal side, but they kind of stay in their lane and provide tax advice and then we bring in, if they have a legal question that pops up, they don’t have to go bring in a third party attorney and engage them. We can just literally, we’re a hybrid firm now, so whether it’s down the hall or over teams, they can bring in an attorney to give a quick opinion and decide if there’s a legal issue that needs to be addressed separately.

Steven:

Mike, you mentioned that the biggest winner here is your clients, which I love. I would love to hear some specific examples of how you’re seeing the clients win because I’ve worked with a lot of different shapes and sizes of companies where multiple service lines exist under the same name, but as I’m sure you’ve experienced, that doesn’t just automatically mean the client actually gets a different experience. I’ve worked with so many companies where sure they’ve got two different services, but it’s almost as if they weren’t part of the same company. So how are your clients winning from this and what have you done to be intentional about how your processes work, that this is really a collaboration and not just a shared roof? 

Mike:

Yeah, no, that’s a great question and it starts onboarding before we start working with the client, we have them fill out a questionnaire, it’s about 10 minutes.

It addresses both legal and tax and accounting issues. And so we know off the bat before we even meet with the client, and we may have a quick introductory meeting in 5 or 10 minutes just to say, this is who we are, this is our process to get started, and then they’ll fill out this questionnaire and that will give us a really good background of what their profile is and what their needs are. Then we can customize who we put on that initial phone call. Maybe it’s just a tax attorney who can speak to legal issues as well as tax issues. Maybe they also need a CPA on the call because they have some really specific accounting and bookkeeping issues. And so in that regard, from the get-go, we can provide assurance to the client that they’re getting the help they need without having to bring in a third party and engage a separate firm.

And then when it comes to actual client service, once they’ve gone through the onboarding process, once they’re engaged, most of our clients pay us on a subscription basis, and so that’s for bookkeeping, that’s pretty typical cloud accounting. They’ll pay us on a monthly fee for doing their QuickBooks and doing their bookkeeping, but then we also have tax subscribers and about 60% of our tax revenue is from subscriptions. Now these are typically business owners or real estate professionals who have ongoing needs, and so that might be typically what we do is we meet with their clients every quarter. We time it to where we meet before the estimated tax deadlines are coming up, and then we give them service throughout the year. In addition to the four quarterly meetings, any on-call advice is included in that subscription. So if they need to meet three times in a month because they have some specific situation going on, that’s all going to be included.

What we’ve done to integrate the two services is if we have a tax subscriber who has never needed legal services, but the tax advisor identifies a legal issue that pops up, we’ll have a lawyer come in free of charge to the client and just talk to them about their situation, do a free consult for them, and then from there we can determine if they need additional legal issues and that may be issues that we address at our firm or we send out to another firm because it’s outside of our practice areas. And then finally what we’ve done with our tax subscribers is we have a forced once a year, one of those quarterly meetings, we actually invite one of our lawyers to attend the meeting and do what we call a legal checkup. So it’s a quick legal review of their contracts, their entity structure, any other things that pop up when we’ve looked at their tax returns and their legal documents and just kind of an issue spotting exercise.

And it may take our attorney 20 to 30 minutes to do that and usually, I’d say maybe not usually, but half the time the conclusion is you guys are set up properly, your contracts look good, there’s nothing that needs to be done. And so that provides assurance to the client when there are issues that we identify, then we’ve issue spotted something that highlights a risk to them or exposes them in some way, and so then we’re able to serve them in that way. 

Steven:

Yeah, I love that approach of not getting hung up on, hey, we have to find something for this event been a value. Even when the answer is you’re all set this year, that’s still a tremendous value add to the client. Mike, what are examples that come to mind of things that maybe just wouldn’t have gotten identified or would’ve had to have just been completely outsourced before that now you can take care of in-house because you’ve got these integrated services?

Mike:

So if we flip the script and we talk about legal services we’re providing where we insert a tax professional, one common one is a sale of a business or purchase of a business, and so we’re representing buyers and sellers that are buying businesses. Maybe they have a business broker, maybe they may or may not have legal counsel. Typically when we’re serving as a legal counsel, we’ll do a flat fee for the purchase or the sale, but then we will additionally invite the client to use our tax planning services. And so from a tax planning perspective, when you’re selling a business especially, there’s a lot of financial implications and tax implications from that depending on how it’s structured, what the payoff schedule is, whether you’re doing any sort of seller financing, what the nature of the assets in the business are. Maybe they’re capital gain assets, maybe there’s depreciation recapture.

So instead of just representing them from a legal side and drafting it the contracts and getting it inked, we’re actually taking it a step further and saying, we’re going to force some tax planning in here so that you don’t get to the end of the year and then tell your CPA, oh yeah, by the way, I sold my business. And then at that point it’s too late to do anything about it. You can’t do any tax planning typically after the fact except for maybe some retirement contributions and things like that. 

Steven:

Taxpayer behavior is kind of fascinating, I guess any kind of consumer behavior because it seems like when people are creating entities, they start with the tax question probably because they’ve heard all this nonsense on TikTok about how they never have to pay taxes again, but they start with the tax side and say, oh, I want whichever entity they’re hung up on, oh, it’s got to be this entity for these tax benefits that they probably misunderstand to begin with and they’ve skipped over any legal considerations, but it seems the exact opposite.

When people go to sell a business more often I hear people talking about the legal side of selling a business and only thinking about the taxes after the fact, which to your point is usually far too late to really do meaningful planning about it. And so being able to marry the two up would be tremendous. Again, for the end client to have someone on your team have somebody on your side as you’re going through the transaction to say, here’s the things you need to be thinking about from a finance and tax standpoint. 

Mike:

And the third leg of that, because that’s not enough tax and legal are two implications of a sale of a business. But the third one is your financial plan. And so the most successful deals that we’ve helped close, they have whether or not we’re serving one or both roles, they have a good tax advisor, they got good legal counsel and they have a financial advisor who’s working with them before the sale so that they know exactly where their assets are going and they have an idea of what the return is going to be and how much they’re going to put away in a tax-deferred account versus how much is going to be available to them to spend versus how much is actually going to go towards taxes.

And so one time I was working on a deal, we were wearing the legal and tax hats, and so as a tax advisor and as a CPA, we tend to hyperfocus on tax savings. A lot of times that’s the primary goal clients is I want to pay as little as possible to the government. But we had a great financial advisor come in and he was already working with this client and he kind of put the brakes on and called me out a little bit on this hyperfocus on taxes and he’s like, Hey, look, is the client’s goal actually to reduce their taxes as much as possible or is it to keep as much as possible regardless of how much tax they pay, they want to put as much in their pockets as possible. And so that’s the actual goal. And so we were able to manipulate the situation to where they actually did pay some taxes, but because of the way we had it structured, it made more sense for them to not defer all of their taxes, which we can do in a lot of ways.

We can do a tax-deferred trust or installment sale trust can do charitable remainder trust, things like that that are higher level. We can do installment sales where they receive the money over time. We can do qualified opportunity zones. There’s a lot of strategies to defer taxes, hyper fund your retirement including a pension plan, things like that. But in this case, it actually made sense. The client was really young, they were in their twenties and it made sense to pay the tax and then hyper-fund a retirement account that would grow and then as well as a brokerage account that would grow significantly and essentially outperform the tax savings on that deal. 

Steven:

I love the ability to step back there and take a look at the bigger picture, which it seems like it is hard to find tax professionals who will do that really because of the way that we’re trained as you’re getting your accounting degree as you’re getting sitting for the CPA exam and the focus to your point is really it’s on compliance and it’s on tax savings now because that’s what a lot of consumers ask for.

And so it’s hard to find CPAs who talk as positively about financial advisors as you do. So was there a particular time or a particular experience that kind of shifted your way of thinking or have you always been pretty open to that idea? 

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Mike:

I think in the same way that there’s a stigma against lawyers, among business owners and individuals, and maybe rightfully so, maybe it’s because how lawyers are portrayed on tv. Maybe it’s because, and maybe on billboards for example, or maybe it’s just because people think about hiring a lawyer only when there’s some tragic disruptive event in their lives. A lot of people don’t think about lawyers as in a proactive way, proactive way to structure your business to keep you safe and save money, which is what a lot planning lawyers like we do. That’s what we do. And so in the same way there’s a stigma against lawyers generally. I think there tends to be one against financial advisors and not for the same reasons, but I think I was victim to this early in my career. I quickly started working with financial advisors as soon as I started my practice, but financial advisors come across as pushy and salesy, and that’s not everybody by any means.

I’ve certainly met some that are that way. I’ve also met CPAs and lawyers that are that way. It kind of started with me when I hired my first financial advisor. I was actually in law school and my goal was to try to get out of debt as soon as possible, so that was my specific goal. Then I didn’t really have anything to invest, but I wanted to make sure I had enough insurance, life insurance and disability and that I was able to come up with a debt repayment plan. And so I saw early on, even before I was officially in practice, the value of a good financial advisor that can consider holistically your circumstances. The ones I really like working with now are business-minded financial advisors that are also open to things like real estate investments and not just so focused on the markets that they forget that there’s non-market alternatives that might be actually good for clients and including putting money back into an operating business, which is likely to generate depending on the circumstances, the best returns, even outpace the markets.

Steven:

It is really interesting how quickly any of us, I’m guilty of this at times too, that we talk about our own approach to serving clients as if it was the only approach when really what we mean is the particular set of clients that I serve are well-served with the approach that I use and if you work exclusively with business owners, that approach is going to look very different or if you work largely with business owners as opposed to retirees, as opposed to students who are trying to get out of debt, these things can all look different, but we all sit there and talk as if we have the one true way of doing business and it can be very off-putting to other professionals that might otherwise be great partners for us. 

Mike:

Yeah, absolutely agree with that. 

Steven:

So Mike, as you’ve kind of expanded what you do with your clients, I know that you’ve really embraced this partnering with financial advisor piece of this, so maybe talk a little bit more about what the future of your firm looks like or what you hope that it looks like as you continue to offer this broad spectrum of services to your clients.

Mike:

Yeah, thus far we’ve worked with financial advisors in a somewhat limited capacity, been mostly of referral relationship. I’ve done education webinars and seminars and things like that with other financial advisors. We’ve worked together on mutual clients and it’s been really helpful. Certainly we’ve sent a lot of work out to them and they’ve sent work to us and that’s great. What we’re working on right now, and it is still in process, so I won’t go into any details, but we’re working on formally adding a relationship with a financial advisor firm that would essentially broaden what we do to include not only tax and legal services but financial advisory services. And so the way that we want to structure there would be a holding company that my firm would be invested in and this overall holding company would also be invested in my firm and we would basically approach this with a very formal structure that we are a conglomerate or a firm that provides this whole family office of services, provide estate planning, financial advisory, tax and legal services.

So lots of red tape and restrictions and lots of things we’re working through with SEC and the state bar and CPA board, but we think it’s going to come together in a way that we can provide these services in a very holistic combined approach to clients. And even further, the ability to look at a situation broadly, consider multiple aspects and not just be pigeonholed into, I’m going to only look at the tax planning opportunities here. We’re going to try to look at this holistically. So lots of integrations, there’s lots of work ahead for this to work, but we think it’s a model that will work for us. 

Steven:

That sounds really exciting, Mike. I’m going to be really interested to follow along and see how that goes. Maybe have you back on the podcast in a year and hear about all your successes. I do appreciate though that you highlight in there that you even know going in, Hey, there’s going to be work here. We’ve got to work with the regulators, we’ve got to get these things integrated. It can be really easy to get exciting ideas and then think, oh, this is going to be a piece of, we solved it, we figured it out, it’s going to be a piece of cake. But I do appreciate that you recognize going in, Hey, we’re going to do the hard work to get the outcome that we want for our clients. 

Mike:

It’ll be disruptive both for my personal schedule as well as I think in the industry. I think this is a model that’s going to eventually, and I’ve had this opinion with regarding tax and legal services. I think those two are destined to integrate. Eventually. Arizona was the first state to do it, but other states have proposed legislation. If you look outside the US there are lots of examples of tax or accounting and legal services provided under one roof.

And in fact, some of the biggest law firms outside the United States are big for accounting firms because they’re able to add legal services. So I see the same integration coming and I know there are CPAs who are also wearing the second hat of being financial advisors, so that’s not necessarily new, but the way that we’re doing it I think is new and novel. I think it’s going to be successful. 

Steven:

Yeah, it certainly feels like there’s a lot of momentum building around just this general topic. It sounds like you’ve found a unique way to go about it, but the number of times I get asked by advisors about wanting to buy a tax practice or hire a tax preparer or these different variations of how do we expand our service offering, how do we integrate more of this? You’re definitely going to keep seeing innovations in what that looks like.

And like I said, it’ll be really exciting to see how this goes, how you and your group here change the way of looking at what’s possible. 

Mike:

And this is not going to be for everybody. I think there are other more subtle ways to join the professions, maybe not formally, but what I’ve seen is the most success we’ve had working with financial advisors is when we basically try to integrate our onboarding process. And if this is something your listeners are interested in doing, what I would recommend is once you’ve kind of found the right fit, if you’re a financial advisor, then you found the right CPA firm or it doesn’t have to be a CPA firm. It could be an enrolled agent or whatever tax preparer or accounting person you’re working with. Once you’ve found the right cultural fit, somebody that aligns with you, what I’d recommend is start integrating the way that you approach clients from the very get-go, letting ’em know that there’s an association there that, hey, this is an addition to our team that’s going to serve you better because we have such a close relationship with this tax firm that we can really dive in and help you with not only estate planning or excuse me, not only financial advisory, but tax planning from the get-go.

There’s also tools, like I’m doing a demo of Holistiplan right now. That’s a tool that basically is as you are Steven trying to marry the tax and financial advisor worlds. And so I think it seems impressive so far. I don’t know if we’ll use it specifically, but because we already have a tax planning tool, but I could see where that would be really helpful for financial advisors to kind of supercharge their understanding of the tax principles. And that’s one thing that we’ve found within our firm. As we’ve brought in advisors with different backgrounds, everybody’s uplifted. So I may have a CPA who’s only done tax prep this whole career. When that CPA sits on a call with a lawyer and sits on five calls with a lawyer, starts to hear the lawyer’s perspective on entity selection, they’re going to start thinking about those things.

Instead of just thinking about the tax implications of operating as an S corp or a partnership, they’re going to think about the legal considerations, even though they may not ever be, and hopefully they’re never providing legal advice. The goal is to be able to learn enough to where you can issue spot and know when you need to bring in the right person for that. And so the more you work directly with somebody in an ancillary or kind of parallel profession, the better off you’re going to serve your clients and the better off everyone’s going to be. 

Steven:

Yeah, absolutely. Life’s too complicated to take a single-faceted approach. That’s one of the things I’ve really enjoyed about how we’ve structured Retirement Tax Services and how closely we partner with advisors as we do tax work because I’m not a financial advisor. I’m not an attorney, I don’t even play what on tv, but it’s very empowering to have those relationships so that you feel better about saying to a client, Hey, that’s outside of my area of expertise, but here’s the piece that I can help with and here’s how I’m going to coordinate the rest of it.

It’s not just punting someone and telling them best of luck, but that you’re actually actively involved in making sure they get the right answer. 

Mike:

That’s the key because sometimes that means you’re not taking as much, you’re not putting as much in your pocket as possible, and getting the right answer for the client is always the right thing to do because at the end of the day, what’s more important to me than what I collect and whether they become a client that signs up for a subscription, I want to make sure they’re getting the right service. And so if one of my proposals will overserve the client, I’m not going to send them that proposal. I’m going to dial it down to exactly what they need. And similarly, when you’re working with multiple professions, we don’t want to provide meat to someone who needs milk and honey, right? Using the Bible reference there. 

Steven:

Yeah, no, it’s a great analogy and it’s tough because especially as business owners, we’re obviously trying to run profitable businesses, but I couldn’t agree with you more, Mike, that at the end of the day, that primary focus has to be on service to the client. Everything else is going to sort itself out. If you can find a way to deliver massive value to your clients, I mean call it karma, call it whatever you want, that’s just good business of focus on that quality service and the rest is going to solve itself. 

Mike:

Yeah, I think our product that we’re all providing is an exceptional client service. That’s what the goal should be. That’s in the form of a tax return or financial plan or wealth management services, whatever it is. But the actual product that we’re providing is client experience, making sure that they’re happy, and that’s what’s going to send referrals.

That’s what’s going to get you Google reviews. That’s what’s going to get you a good reputation in the community, and that’s what will ultimately pay off. 

Steven:

Mike, I certainly appreciate your time and you so openly sharing the things that you’re doing and where you’re seeing success. If people listening are interested in following along with what you’re doing or learning more about you, where can they go? 

Mike:

They can find me on LinkedIn and just message me there. My name is Mike Payne, JD CPA on LinkedIn, or they can go to our website and send ’em an inquiry or give me a call. It’s bossadv.com. 

Steven:

Awesome. And Mike, appreciate the call to action there and continuing that theme. We strongly believe that the only value comes from taking action, not just fun information because as much as I love this conversation, I want people to go and be able to do something with it.

So whether it’s on the topic of exploring these partnerships or just generally serving clients on tax and legal, what are action items from our conversation today that you would recommend to financial advisors listening? 

Mike:

Yeah. What I would recommend is focusing on figuring out who in your network is the right fit for you to partner with. And I say partner with loosely. So really take some time to dig in. And it’s 2024. That doesn’t have to be someone that’s in your same community. That could be someone across the United States that has the same values and principles as you really dial in on figuring out who the right fit is, make sure there’s a mutual fit that’s going to create more dividends than anything else, is making sure you’re working with the right firm and the right practitioners. And then from there, get creative and figure out how you can work together.

Figure out how you can collect data jointly from a client that will answer all the questions a CPA or a financial advisor would have. And then you can approach them in a joint meeting and talk about all of their issues and prioritize so that they’re not just focused on one thing, but they’re focused on a holistic view and include estate planning attorneys in there as well. That’s certainly a trio of a good tax savings-minded CPA financial advisor and an estate planning attorney is going to serve a client really well if they’re all coordinated and integrated. 

Steven:

Love that recommendation. So important to find that right fit somebody you’re going to be excited to partner with both. You mentioned culture earlier, the service that are being provided, that emphasis on quality, and there are lots of ways to explore those relationships anymore, especially with the virtual world we live in.

Personally, I do still love being able to meet people in person to be able to have that touchpoint, even if we’re going to work virtually afterwards, which is part of the reason we do the Retirement Tax Services Tax Planning Summit, which will be September 25th through 27th, actually in your backyard this year, Mike. So for people listening, if you haven’t gotten signed up yet and you’re looking for places not just to learn more about how to provide great service to clients, but to meet other people doing this stuff, to meet advisors who are thinking creatively, who are thinking differently, potentially expand your network, get signed up, come see us in Phoenix this year. We’re going to have a great event. 

Mike:

I had heard of that event, but I hadn’t signed up yet, so I’m going to go sign up now. So if anybody wants to meet in person in September, I’ll be there as well.

Steven:

Awesome. Well, Mike, super looking forward to getting to meet you in person. It’s going to be a great event. Yeah, come pick Mike’s brain. I mean, if this is what he’s willing to share on a podcast, imagine what he’s willing to share in a hallway conversation when it’s not being recorded for thousands of people. So that’s what I love about in-person conferences is getting to hear what’s really going on in the real world. So Mike, thanks so much for being here. I look forward to seeing you in September. 

Steven:

Awesome. Thanks for having me, Steven. Appreciate you. 

Steven:

For everyone listening, until next time, good luck out there. And remember to tip your server, not the IRS!