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Financial Advice

Advisor Profile: The Tax Man Cometh

Michael Goodman built a wealth management practice by leveraging his CPA background.

There’s an accountant joke that goes something like this: “Accountants aren’t boring people. They just get excited about boring things.”

Certified financial planner Michael Goodman of Wealthstream Advisors kind of agrees. Goodman started as a CPA and later moved into financial planning. Though he doesn’t do taxes any more, he believes his CPA training puts him in a unique position to tackle financial planning.

“I loved the tax return because it was like a puzzle,” he says. “I know it sounds so geeky.”

Given the big changes to tax laws ahead, it’s a perspective that will be especially important in coming months, he says. “CPAs are trained to be inquisitive. You’re auditing something to make sure it’s right, and that’s what we do for our clients, as opposed to a lot of people in the profession who came out of a sales background.”

In the mid-1990s, Goodman was an early convert from the world of accounting to financial advice. Today, it’s a well-worn path. According to the American Institute of Certified Public Accountants, or AICPA, the number of accountants who give financial advice has more than doubled in the past decade. In 2016, there were 29,000 members who spent more than 50% of their time on financial advice, up from 11,000 who did the same in 2007.

The Long Road to Financial Planning When Goodman finished his degree in communication at the State University of New York at Buffalo, he settled on becoming an accountant. "I liked that the CPA was a license for a job," he says. There was something else that caught his eye about the profession: "There's no other job where you get paid to go into other people's businesses and see how they make money."

He joined a CPA firm and performed audits for small and midsize businesses. Often, when he completed that work, he’d also be asked to work on the owner’s tax returns. As his career progressed, Goodman assumed he’d move on to bigger roles, and for a while, it looked that way when he landed at KPMG, a Big Four accounting firm. There, the work took him to larger businesses. But he missed his interactions with founders and small-business owners.

“I used to sit across the table from owners,” he says. “Now, I was dealing with a CFO or a controller, and it was just a job for them. I really wanted to work with people.”

In 1996, Goodman took a gamble. His wife was four months pregnant with their oldest son, but he nonetheless thought the time was right to launch his own advisory firm in midtown Manhattan. Goodman became a registered representative, though his practice was mainly fee-based, because fee-only advice wasn’t yet the dominant model. “I didn’t know what a [Registered Investment Advisor] was at the time,” he says.

He charged clients $350 for a financial plan. To make ends meet, Goodman continued to do tax returns. Sometimes, those tax clients asked for financial planning, too.

Goodman’s business took an important leap forward in the early 2000s when he abandoned the broker-dealer model. At first, it was simple math that compelled him to change. He realized that the fees he was paying his broker-dealer were more than what he would spend on creating his own infrastructure. Plus, fee-only resonated with clients, he says. And as an RIA, he was a fiduciary.

To take his business to the next level, Goodman needed to focus on the highest-value service he could, and it wasn’t tax prep. “There was just so much I could do on my own,” he says. “And I realized that there’s a difference between being an expert in tax planning and being an expert in tax preparation. I prefer to be an expert in tax planning.”

Goodman also took a hard look at his practice and embarked on the steps he needed to take it to the next level. He went to conferences where he could learn from older professionals and meet industry leaders. He became heavily involved with the AICPA’s personal financial planning section, chairing the organization’s national conference for four years. And he joined study groups, often being the youngest member. “The first eight years I was in business, I call that paying my tuition,” he says.

Hitting His Stride In many ways, Goodman's practice mirrors the evolution of the wealth-management business. Like the industry, Goodman had favored actively managed mutual funds all through the 1990s. But by the beginning of the 2000s, he began to see the value of passive investing and low fees.

Now, instead of researching funds, Goodman spends his time getting to know his clients and then lining up their asset allocation for the goals they’ve articulated. Goodman mostly uses Dimensional Funds because of the firm’s highly regarded index funds, which use the principles of factor investing.

Goodman also refined his target market over the years. Though Wealthstream is a general practice, he has been drawn to several types of clients, including executives seeking advice on compensation and benefits, divorcees, widows and widowers, and entrepreneurs.

When new clients come to him, Goodman uses Morningstar Direct to get a handle on their existing portfolio. He also watches flows into each fund his clients own to help him get a snapshot of where the market is headed.

At 51, Goodman is laying the groundwork for a multigenerational practice that will outlast him. He has brought on younger associates to work with the children of his older clients. The firm has nine financial advisors including himself. Goodman has also expanded the firm’s ownership base. “My vision is a firm that looks more like a firm than just one person,” he says.

Taxes in the Background To be sure, taxes hardly play the central role at Wealthstream they used to. But Goodman still sees finances through a tax lens. "Every financial planning decision has a tax implication," he says.

Take the new tax law. A common year-end tax strategy was to prepay property taxes to accelerate deductions. Doing so in the waning days of 2017 would have maximized the value of that deduction before the $10,000 cap went into effect. “But by accelerating the deduction, you could be triggering the [alternative minimum tax],” Goodman says. “That’s the kind of thing we try to warn our clients about.”

Goodman is careful to note that the ultimate decision about taxes is up to clients’ accountants. “We stir the pot, but the accountant has to make the final recommendation,” he says.

As much as Goodman credits taxes for helping him get his practice where it is today, he’s not relying on them for the future. He’s focused on higher-value services like investment management and holistic financial advice. “Unfortunately, tax prep has become a commoditized service,” he says. “Financial planning is by far the best way to get value for the client.”

Michael Goodman, CPA/PFS, CFP, president and principal, Wealthstream Advisors. How he caught our eye: CPA who transitioned into financial planning. Career path: Goodman began his career at Bear Stearns in operations before moving into accounting. He worked in the tax and audit department of Margolin, Winer & Evens, a midsize accounting firm, and later at KPMG. He founded his own firm in 1996. Personal: Married to Maria, also a CPA. They have two sons, Lewis and Max. Goodman is an active member of the AICPA, having served on and chaired many committees, and is a regular speaker at financial planning conferences. He founded Commerce Plaza, Inc., a nonprofit educational program. He also enjoys traveling, hiking, music, and golf. Favorite funds: The Dimensional Funds lineup.

The author is a freelance contributor to The views expressed in this article may or may not reflect the views of Morningstar.

This article originally appeared in the February/March 2018 issue of Morningstar magazine. To learn more about Morningstar magazine, please visit our corporate website.

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