Snowflake IPO: Which Financial Professional Should You Hire?

Happy New Year! Finances are a common new year’s resolution. And the complexity and magnitude of your Snowflake stock compensation is a lot to handle alone. I previously wrote about how your friends and family likely won’t understand or sympathize.

Financial professionals can serve as an objective resource. I provide an overview of the services, cost, and common designations for tax professionals (CPA or EA) and financial advisors (CFP®). At the end, I’ll briefly discuss how the free service at Fidelity fits into the picture.

Tax Professionals

Services Provided

I use the general term “tax professionals” rather than “CPA” since there’s another respected designation called the “EA” (discussed below).

Tax professionals provide two services:

1. Tax return preparation
2. Forward-looking tax projections

Tax return preparation

This service is widely available. Every spring, tax professionals are diligently gathering clients’ documents (W-2s, 1099s, etc), and preparing tax returns before the April 15^th deadline. Because they’re looking in the rear view mirror, there isn’t much a tax professional can do to reduce last year’s taxes.

Forward-looking tax projections

This service is far more valuable, but less commonly offered. Let’s say it’s February 1st. You have eleven months left in the year to plan. For example, you can learn the tax cost before you exercise stock options. This forward-looking planning helps you make an informed decision about whether you should exercise, how much to set aside for taxes like AMT, and when to pay taxes (via quarterly estimated payments, or waiting until next April 15th).

How Much Will it Cost?

• Tax return prep: buy TurboTax for about $50, or pay $700-$1,500 to a CPA/EA. Services like H&R Block cost around $300; while their training program is excellent, their employees won’t have the CPA or EA designation.
• Tax projections (sometimes advertised as “tax consulting”): hire a CPA or EA for $400+ per hour.

Designations

Focus on these two designations:

1. CPA: Certified Public Accountant. CPAs must pass four exams, amongst other rigorous requirements. You need a CPA who focuses on taxes. Most people think CPA = taxes. In reality, of the CPA’s four exams, only one covers taxes. The other three exams apply to businesses: financial accounting, business law and economics, and financial statement auditing.
2. EA: Enrolled Agent. This license is administered by the IRS. It consists of three rigorous exams. All three exams focus on taxes only.

Both CPAs and EAs can represent you to the IRS on any matters including audits, payment/collection issues, and appeals.

IRS and California Requirements for Tax Preparers

The IRS doesn’t require tax preparers to have either the CPA or EA. Instead, the IRS only requires the “IRS Preparer Tax Identification Number” (PTIN). This is a short application that verifies you weren’t convicted of prior felonies, and that you’re up to date on your personal tax returns. That’s it. There are no education, experience, or exam requirements.

If you’re a California resident, state law requires tax preparers who meet the following two criteria to have the CRTP designation (CTEC Registered Tax Preparer):

1. Prepares (or assists with) tax returns for a fee.
2. They aren’t an attorney, CPA, or EA.

CTEC stands for California Tax Education Council.

Financial Advisors

Services Provided

If you’re looking for an ongoing partner to help manage your finances in a comprehensive and holistic manner, a financial advisor is the way to go. For example, I help clients with tax projections (“tax strategy”), as well as broader questions about their finances:

Clients often need additional help with topics not listed in the illustration above, such as:

• Buying a house
• Mortgage/refinance strategy
• Supporting aging parents
• Saving for their children’s education
• Negotiating compensation at new job

How Much Will a Financial Advisor Cost?

Most advisors charge either:

• Complexity-based retainer (typically based on a percentage of income and net worth), or
• Percentage-based: typically 1% of managed portfolio

A third fee model is commissions. Financial advisors from insurance companies like Northwestern Mutual, or broker-dealers like Morgan Stanley and Edward Jones, sell insurance or investment products and collect a commission at the time of purchase (such as “Class A” mutual funds). There are some investment products where you’re charged the commission at the time of sale (“Class C” mutual funds).

Designations

When friends ask me how to vet financial advisors, I suggest that they look for the CFP® designation. I earned the designation several years ago, and there are rigorous education and experience requirements, plus you have to pass a difficult exam.

The PFS (Personal Financial Specialist) is another respected designation. Only CPAs are allowed to pursue this.

FAQs: Financial Advisor vs. Tax Professional

Can a Tax Professional Help With My Investments or Financial Planning Questions?

Probably not, unless they also have the CFP® (Certified Financial Planner) or PFS (Personal Financial Specialist) designation.

Can a Financial Planner or Investment Adviser Help With Taxes?

Probably not, unless they also have the CPA (Certified Public Accountant) or EA (Enrolled Agent) license, or they offer tax planning as a core service (see the next question).

One-Stop Shop: Taxes, Investments, and Comprehensive Financial Planning

The traditional tax professional will prepare your tax return. But they will not answer broader questions such as, “What should I do with the cash if I sell my company stock?”

The traditional financial advisor can help you figure out an investment strategy balancing risk and reward, but they can’t or won’t give tax advice.

The best-case scenario (which unfortunately is rare) is to find a professional advisor who is competent in taxes, investments, AND comprehensive financial planning. I believe this ideal person has the:

1. Certified Financial Planner (CFP®) designation
2. CPA or EA license (see the next section), has deep experience with tax planning as a core service, and/or they partner with a CPA/EA to complement their investment and financial planning skills

This person can address questions from all angles:

• Am I on track to meet my goals?
• Should I sell some/all of my company stock? I’m worried about a giant tax bill, but I’m also worried about concentration risk.
• If I sell my company stock, what should I do with the cash?
• If I invest the cash, what’s the best way to do so?
• What’s the tax impact of my company going public?
• Should I exercise my stock options this year?
• What should I do with future RSUs and stock options as they vest?
• What else can I do to save on taxes besides contribute to my 401(k)?

Fidelity’s Free Service for Snowflake Employees

Snowflake has provided its employees with free financial help via Fidelity. While this is a good start, be aware that the Fidelity representatives will only be able to answer tactical questions like how to exercise ISOs on the Fidelity website. If you have questions about AMT, for example, they’ll tell you, “Consult your tax advisor.” If you want strategic advice about when to exercise, the Fidelity representative will not be able to help you.

Which Professional is Right for Me?

If you just want short-term help with taxes, a CPA or EA can answer questions about the tax impact of your ISOs and RSUs. Minnie Lau, CPA of San Francisco is an example of a tax professional who specializes in stock option tax consulting for tech professionals.

If you want someone who will be an ongoing partner, and help you with your finances in a comprehensive manner, a financial planner is the way to go.

To learn more about the Snowflake IPO, here are all of the posts in this series:

1. Blessings (and Burdens) of a Financial Windfall
2. Donating Snowflake Stock: Help Charities, and Benefit Financially
3. Snowflake Incentive Stock Options
4. Snowflake’s Lock-up is Ending: Prepare for an Emotional Roller Coaster
5. Restricted Stock Units (RSUs)
6. Which Financial Professional Should You Hire?
7. Prepare for the Full Release in March 2021

DO YOU WANT ONE-ON-ONE GUIDANCE ON YOUR SNOWFLAKE EQUITY? SCHEDULE A CONSULTATION IF YOU’D LIKE TO WORK WITH A TAX-FOCUSED FINANCIAL ADVISOR WHO SPECIALIZES IN EQUITY COMPENSATION.