Morningstar Magazine - February/March 2018 - 70

Investors

The Tax Man Cometh
Michael Goodman built a wealth
management practice by leveraging
his CPA background.

USER PROFILE

Ilana Polyak

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.

70

Morningstar February/March 2018

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.

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

"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

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,



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