How to Manage Your Firm's Bookkeeping as a Financial Advisor

As a busy advisor, you have a lot on your plate. Between client meetings and fine-tuning your marketing strategy, it can be challenging to find time for back-office tasks. There’s no downplaying the importance of accurate bookkeeping for financial advisors. Balanced books help promote a healthy bottom line. Here’s how to manage your firm’s bookkeeping tasks with less stress.

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Bookkeeping for Financial Advisors: Tips for Success

Good bookkeeping for financial advisors is important because it affects virtually every area of your business, from ensuring compliance with federal and state regulations to managing your tax liability to funding opportunities for growth.

When you neglect bookkeeping, you risk creating unnecessary obstacles for your firm. Which is easy to do when you view it as a burdensome or tedious task. Changing your mindset to view it as something that benefits your business can help you feel more enthusiastic about bookkeeping.

With that in mind, here are some tips for how to manage bookkeeping more effectively.

Choose the Right System

Thanks to technology, we have a range of bookkeeping tools and software programs to choose from. Some of the top bookkeeping solutions for advisors include:

QuickBooks
FreshBooks
Wave Accounting
Zoho
Xero

Using a software program offers the advantage of being able to link business bank and credit card accounts so you can easily track where money is spent. When comparing bookkeeping software, consider what’s likely to most easily integrate with your existing tech stack.

For instance, if you use Expensify to track expenses or a billing software like AdvicePay to send invoices to clients, you might be interested in how you can connect them to QuickBooks or a similar tool. Keep in mind that if you’d like to link your bookkeeping program to your customer relationship management (CRM) platform, you may need another application like Zapier to tie them all together.

Do advisors need pricey bookkeeping software? Not necessarily. Some advisors may prefer to use a spreadsheet system instead. What matters is selecting a bookkeeping system that delivers the features and accessibility most valuable for your firm.

Implement Bookkeeping Policies

Clear policies and procedures can prevent bookkeeping mistakes and ensure that all members of your team are on the same page. It’s helpful to create policies for:

Receipt tracking. A receipt policy can ensure that you have a physical or digital paper trail documenting deductible expenses. Your policy should outline which receipts should be retained, in what form and how long they should be kept on record.
Expense reporting. If you require employees to submit expense reports, they need to understand what must be reported, when and what documentation is required. You may also specify a set spending allowance per employee per month.
Petty cash. If you keep petty cash on hand for small expenses, consider how those transactions will be tracked and reconciled within your bookkeeping framework.

These policies do more than help you stay on top of the books; they also matter for compliance.

Registered investment advisors are required to maintain comprehensive records of all financial transactions for at least five years. The most recent two years’ worth of records must be located somewhere that’s readily accessible. The types of records you must keep include:

A journal of cash receipts
Ledgers reflecting your firm’s assets and liabilities, as well as capital, income and expense accounts
Checkbooks and bank statements
Bills or statements, both paid and unpaid, that are directly related to your business
Financial statements and internal audit documents

The SEC’s Books and Records Rule goes into greater detail about what records are required from financial advisors.

Categorize Transactions Accurately

A group of advisors reviewing and categorizing transactions for their firm.

If you’re using bookkeeping software, you likely have the option to categorize transactions for easier organization. This is a highly useful feature for planning your budget and tracking deductible expenses for tax filing.

You may use predetermined categories or create custom categories. Example categories include:

Advertising and marketing
Software and technology
Business development
Office expenses
Insurance
Rent and utilities
Client gifts
Charitable donations

Your categories may be labeled differently. The key takeaway is to choose categories that reflect how your firm spends and be consistent about applying category tags for each transaction that hits the books.

Reconcile and Review

Reconciliation is the process of comparing transactions from your bank and credit card statements to the transactions listed in your bookkeeping system to ensure they match. Doing so is an opportunity to catch any missed transactions you may need to enter into the books and check for errors or other discrepancies.

Some bookkeeping software programs include automatic reconciliation as a feature, so you don’t have to manage it yourself. If your system does not include this, however, you’ll need to do it manually. You can speed up the process by:

Creating a standardized system or approach
Following a set schedule for reconciliation (e.g., weekly, monthly, etc.)
Assigning transactions to the appropriate category
Prioritizing your most important accounts or expense categories when

Once you’ve reconciled the books, consider a broader review of your business finances. This typically means generating an up-to-date profit and loss statement and cash flow statement so you can see all of your financial details at a glance.

Outsourcing Bookkeeping for Financial Advisors

Bookkeeping is often time-consuming and tedious, and you may want to hand it off to someone else. Outsourcing to a professional bookkeeping service can give you precious hours back that you could devote to marketing or advising clients. But it’s important to choose the right platform to work with.

Consider a bookkeeping service that specializes in working exclusively with financial advisors. LPL Financial is one example. XYPN is another. These types of companies tend to have a deeper understanding of bookkeeping in an advisory setting versus a company that works with a broad range of clients.

If you have some potential candidates in mind for bookkeeping services, take the time to ask questions, and consider the following:

What type of advisors do you work with?
Will you communicate and work with my certified public accountant (CPA) to coordinate my firm’s tax filing?
What kind of tech tools or resources do you offer?
How often will we communicate?
What will you need from me to execute bookkeeping tasks?
What degree of reporting do you offer?
How much do you charge for your services?

You might ask advisors you know for recommendations if they outsource bookkeeping to a third-party service. You could also check out client testimonials or online reviews to learn what other advisors have to say about a particular service.

Be aware that a proposed SEC rule would impose strict monitoring and due diligence requirements on RIAs who outsource services, including bookkeeping, to third parties. It’s unclear if the rule will ever be finalized, but it’s important to understand what its implementation could mean for your firm down the line.

Bottom Line

A bookkeeper managing the books for a financial advisor firm.

Bookkeeping may not be a back-office function you look forward to, but it must be managed to maintain your firm’s financial health. If you don’t have the time or interest to handle it yourself, consider the benefits of working with a professional bookkeeper instead.

Tips for Growing Your Advisory Business

Marketing is a key expense to track when managing the books. It’s important to know how much you’re spending on promotions for your firm, and what kind of return you’re getting back on that investment. You might consider partnering with an advisor marketing platform if you’re ready to explore new opportunities to acquire clients. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
Security is a significant consideration in your bookkeeping strategy. Any records you keep must be securely stored, either digitally or physically. If you’re opting for online storage, it’s important to ensure that all data is properly encrypted, that any data transmissions occurring take place over secure networks, and that you retain control over who has access to your firm’s financial records.