Compliance and Regulation

PAA Helps CPA Firms with Financial Services Compliance and Regulation

The PAA program is built on a solid understanding of the CPA profession. It takes into account that CPAs hold a unique position as “trusted advisors,” and it therefore recognizes the importance of helping CPA firms comply with insurance and security regulations when they expand their financial services.

Our program encourages CPAs and their Alliance Partners to communicate frequently and share knowledge broadly. Our goal is not only to help you increase your knowledge, skills, and confidence in financial services, but also to ensure that your new offerings have the coverage they need and are compliant with all necessary rules and regulations.

Overview of Compliance and Regulation
Help with Establishing Separate LLC
Help with Professional Liability Insurance
Help with Licensing, Registration, and Compliance

Overview of Compliance and Regulation

The following is a general overview of compliance and regulation concepts that CPAs should be familiar with when considering expansion in financial services. You can also contact PAA for more information.

Self Regulation

The American Institute of Certified Public Accountants (AICPA) is a national professional organization for all CPAs. Its mission is to provide members with resources, information, and leadership that will enable them to offer valuable services to the public as well as employers and clients.

Code of Professional Conduct

The Code of Professional Conduct has been adopted by the membership; it provides guidance and rules to all members in the performance of their professional responsibilities and consists of two sections:

  • The Principles—these provide the framework for the rules:
    • Principles of Professional Conduct – Due Care
    • Applicability and Definitions
    • Independence, Integrity, and Objectivity
    • General Standards, Accounting Principles
    • Responsibilities to Clients
    • Responsibilities to Colleagues
    • Other Responsibilities and Practices

  • The Rules—these govern the performance of professional services by members. For example:
    • Rule 302—Contingent Fees
    • Rule 503—Commissions and Referral Fees

State Regulation

The State Board for Public Accountancy is the primary government regulator for CPAs and is responsible for:

  • granting, suspending, and revoking licenses
  • determining CPE requirements

It is important to note that each state varies to some degree in its interpretation of the Code of Conduct.

Federal Regulation

The National Association of State Boards of Accountancy (NASBA) is an association of state regulators. Its focus is on:

  • regulatory uniformity
  • the approval of CPE programs

Life Insurance Industry Elements

Licensed life insurance companies and agents are regulated by each state, and each state has different requirements; additionally, this includes the rules that cover payments made to unlicensed entities that provide referrals. In some states:

  • referrals may be made to unlicensed entities if the referral does not include a discussion of specific insurance policies and terms, and if compensation is not contingent on the sale of an insurance product
  • referral payments may be made up to a nominal amount

Investment Industry Elements

In order for licensed CPAs to be compensated for sales of securities (including variable insurance products), a registered representative license and broker-dealer affiliation is required. With PAA, Hornor Townsend and Kent (HTK) is the broker-dealer, and CPAs must pass the Series 6 or Series 7 exam and in most states, the Series 63.

Many states allow CPAs to participate in investment advisory fees by becoming Investment Adviser Representatives (IARs) affiliated with Registered Investment Advisers (RIAs). To become an IAR in most states, CPAs must pass the Series 65 or Series 66 exam. Most states do not require IARs to take the Series 6 or 7 exams. To become an IARs, HTK requires CPAs must be a registered representative of HTK.

Selling Away

“Selling away” is a major compliance concern. Registered representatives are not permitted to offer investment products or services that have not been specifically reviewed and approved by their broker-dealer. The relationship with HTK is an exclusive relationship, as it pertains to the receipt of compensation by registered representatives of HTK for the sale or servicing of financial products and services.

This exclusivity is based on an industry standard, and more specifically HTK’s policy prohibiting “dual registration” of its registered representatives with other broker-dealers. Further, this exclusivity prevents any appearance of “selling away,” which is a violation of securities law and the rules of FINRA (Financial Industry Regulatory Authority).

Help with Establishing Separate LLC

PAA, along with the AICPA, advocate establishing an entity separate from the CPA accounting practice to offer financial services. This ensures that only the financial services side of the business is subject to compliance oversight, not the entire accounting practice. PAA will work with the CPA firm to name and establish the LLC. Our program includes consultation with the CPA firm to configure the office space and develop and train staff in procedures to ensure that the accounting practice and financial services practice are distinct.

Help with Professional Liability Insurance

Although CPAs are likely to have professional liability insurance through the AICPA group program or a commercial carrier, this coverage may offer limited protection against errors and omissions that can occur while providing financial services.

Certain services—such as recommending specific investments—may require additional, separate coverage.

PAA will assist you in obtaining appropriate Errors and Omissions coverage to ensure that you are protected when offering financial services.

Help with Licensing, Registration, and Oversight (HTK CPAs Only)

Once you have chosen the best model for offering financial services to your clients, PAA can facilitate your acquisition of required licenses or registrations.

PAA will assist with licensing requirements including:

  • application paperwork
  • study material
  • course registration (if elected)
  • test date coordination

In the event that you want to provide fee-based programs, PAA will provide appropriate contractual elements and assist with these registration and licensing requirements as well.

PAA will also provide compliance oversight for sales and marketing efforts and financial planning activities; in fact, compliance training is offered for as long as you remain appropriately licensed and registered.

Find out about compensation options with PAA