Majority Leader Bragman, Chairman Sullivan, and honorable Members of the Assembly's Standing Committee on Higher Education, thank you for inviting us to submit written and oral testimony regarding proposals seeking to amend Article 149 of the Education Law governing the profession of public accounting. My name is Terra Gray and I am testifying today in my capacity as Director of Government Affairs of HD Vest Financial Services ("HD Vest"). Also present with me today are two of our New York H. D. Vest Representatives, Mr. Earl Ramero, an Enrolled Agent from the Manhattan area, and Daniel Cuddy, a CPA from Auburn, New York. Both men are practicing tax professionals and H.D. Vest Representatives who can respond practically in real financial world terms to any questions you might have to the testimony I am about to offer.

We speak today in support of one of the proposed bills, Assembly Bill A. 8600 (as well as its companion in the Senate, Senate Bill S. 4402) because they address an important issue regarding consumers and Certified Public Accountants ("CPAs") in the state of New York: whether New York consumers should have the right to choose ethical and trusted financial professionals to provide products and services to their families and small businesses and to choose how they compensate those financial professionals. More specifically, at issue is the need to make clear through Assembly Bill A. 8600 that New York CPA's are permitted, as they are in the vast majority of other states, to receive commission-based compensation for services provided to their clients.

H.D. Vest provides investment and insurance services to millions of American families and businesses through approximately 8,000 independent tax professionals nationwide, approximately one-third of which are CPAs. We have always believed that tax professionals are in a unique position to provide quality investment and insurance services to the consumer because of their superior knowledge of their clients' financial affairs and knowledge of tax and financial matters in general. As such, H.D. Vest was founded to provide licensing, training and back office support to CPAs and other tax professionals desiring to add investment and insurance services to their existing tax and accounting practices.

We have over 422 representatives in New York alone, comprised of a mix of CPAs, Enrolled Agents, attorneys, and other tax professionals. H.D. Vest Financial Services and its Representatives offer an individual and small business alternative to similar services offered by major accounting firms and major wirehouse brokerage firms to larger corporations. Through our representatives, we offer clients thousands of non-proprietary investment products including mutual funds and unit investment trusts as well as individual stocks and bonds. Additionally, we provide insurance services and fee-based professional money management services.

Our company has thrived in the wake of the growing consumer demand for financial advice. Responding to this demand, a large and growing number of CPAs have begun specializing in financial planning in order to meet the needs of their clients. Without a law clarifying the ability of CPAs to receive commissions, consumers of New York risk losing the many benefits afforded by allowing CPAs to expand the services they provide. The benefits to the public are clear:

• Consumers have increased access to income tax services, financial planning, and investment services, provided by a single trusted professional of their choice;

• Consumers have the added protection of working with a professional who has a higher legal duty to his customers since CPAs are fiduciaries to their clients and are accountable to multiple state and federal regulatory bodies; and

• Consumers have the services of knowledgeable, well-trained and educated professionals who have an in-depth understanding of their clients' financial needs and goals.

There is little debate in the regulatory community that CPAs should be permitted to receive commissions. Indeed, during the 1980's, the Federal Trade Commission ("FTA") vigorously fought a commission ban maintained at that time by the American Institute of Certified Public Accountants ("AICPA"). That rule forbid CPAs from taking commissions for services such as financial planning. The FTC brought the action because, in their view, the no-commission rule stifled competition, protected the entrenched interests of traditional CPAs, and harmed consumers. In 1988, the AICPA agreed with the FTC to eliminate the no--commission rule from the AICPA's code of ethics in circumstances where the CPA was performing non-attest engagements and fully disclosing the commission to the client. The FTC likewise successfully urged the National Association of State Boards of Accountancy ("NASBA") to eliminate from NASBA's model code of ethics a ban on commission-based compensation in the same circumstances. The Uniform Accountancy Act ("UAA"), promulgated in 1998 and revised most recently in November of 1999 by a joint committee of the AICPA and NASBA, contains language clarifying the ability of CPAs to receive commissions.

Following the lead of the AICPA and NASBA, the accounting regulations in a total of forty-one (41) states now allow CPAs to receive commissions. Only nine states and the District Columbia have yet to amend their accounting regulations to clearly permit the receipt of commissions. Of these nine, two, in addition to New York, are currently considering regulatory changes to allow CPAs to receive commissions. We have worked closely with the New York State Education Department over the past 18 months to confirm appropriate clarification of New York regulations. Every state contiguous to New York (with the exception of Connecticut) allows for CPAs to offer products and services on a commission basis. It is our understanding that Connecticut will be introducing a bill to remove its prohibition in next year's legislative session.

New York regulations do not explicitly address the issue of CPAs receiving commissions. Assembly Bill A. 8600 would allow CPAs to receive commissions through language similar to that of the UAA, the AICPA, and NASBA. Like those model rules, the bill protects the independence of CPAs by allowing the receipt of commissions from a client in circumstances where the CPA is not engaged in "the practice of public accountancy" for that same client. The practice of public accountancy is defined as any audit, review of a financial statement, or a compilation "performed in accordance with the generally accepted auditing standards or other similar standards developed by a recognized international or national accountancy organization, approved by the Department." The language goes on to protect the objectivity of the CPA by requiring the CPA to disclose the receipt of commissions to clients.

We support the language offered in A. 8600 specific to the receipt of commissions by CPAs. In the interest of uniformity, we would respectfully request that the language regarding compilations be further clarified to allow a CPA to prepare a compilation report for a client and provide commission-based products and services to the same client as long as the CPA discloses the fact that he or she might not be independent with respect to that client on the front page of the compilation report. This language is found in the rules of the AICPA, NASBA and the Uniform Accountancy Act.

We understand that a separate bill has been introduced in the Assembly, Assembly Bill A. 8789, that would amend the Education Law governing the practice of public accounting. This bill does nothing to clarify the commission issue as it relates to CPAs. Without the language in A. 8600, New York consumers risk losing the ability to choose who provides them, their families, and small businesses with financial planning services. In a marketplace that is demanding that CPAs expand the products and services they provide to their clients, it would be a disservice to New York consumers and CPAs alike not to confirm the ability of CPAs to receive commissions.

We applaud the efforts of Majority Leader Bragman, Chairman Sullivan, and the members of the Higher Education Committee in addressing this important issue in Assembly Bill A. 8600. Consumers of the state of New York deserve the right to choose who provides their families and small businesses full service financial planning. We respectfully urge you to support the language in A. 8600 regarding commissions and consider our request to amend the compilation language to be consistent with the rules of the AICPA, NASBA and the Uniform Accountancy Act.

Thank you again for the opportunity to present testimony to the Committee. I look forward to answering any questions you may have.