Fee debate: Should accountants lower their prices?

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“It’s not lowballing fees,” wrote accountant and digital practice owner Elaine Clark on Twitter. “It’s charging the right price in the technology-led 21st century”.

This side of the accountant’s fee debate surfaced in response to a recent AccountingWEB article on whether a lowballing trend is hitting the profession.

One example Clark used to undermine the undercutting argument was the demise of the once-dominant Blockbusters video rental store. Now a boarded-up tombstone on the high street, the store’s slow response to technological revolution acts as a reminder to all businesses, including accounting firms.

Just as the rental store’s customers turned to cheaper and more convenient solutions like Netflix and Amazon Prime, does the same fate await firms who don’t address their fees?

There are always going to be ‘bottom of the barrel’ clients looking to drive down prices, but has the rise of technology displaced the accountant's expected fee structure? Has automation pulled back the wizard’s curtain? To address the fundamental question: are accountants charging too much?

The rise of cloud accounting

When Making Tax Digital for VAT-registered companies comes into play, Clark believes the fee bubble will burst for the compliance-based marketplace. Speaking to AccountingWEB, Clark said: “When companies start seeing that HMRC is sucking up their data on a quarterly basis via a system that integrates directly to them with little manual intervention… then we get into the era when people are opening up to the question: what value is my accountant actually adding?”

As an example, Clark was recently approached by a business owner who complained that they pay their accountant the best part of £2,000 a year and doesn’t know what they do.

“I write up all the bookkeeping. I analyse all the costs. When they query something it's because they've overlooked it on the spreadsheet and the information that I am providing,” Clark recounted the business owner saying, “and in her words she said, 'it's like the accountant is redoing the work I've already done'.”

Another example involved Twitter user ataaccounting. To the shock of a number of respondents, he revealed that he knows a firm that charges £300 to claim employment allowance each year.  

Clark’s viewpoint was echoed by AccountingWEB members such as Reado, who has seen examples of accountants overcharging.

“Whilst some firms do deliberately low ball to ensure they get a potential new client, there is definitely a lot of firms that grossly overcharge their loyal clients. I have picked up clients over the years and after completing their accounts I have no idea how the previous accountants justified the fees charged,” said Reado.

The AccountingWEB member has seen client retention levels soar thanks to charging what they describe as “fair fees”.

‘Fee mill’

The counter argument is the added value accountants can provide to their clients. For example, in the comments section to the original article AccountingWEB member Ian McTernan reasoned his value over price positioning.

“If you provide a personal service and get to know your client's business and understand them, they will pay what you ask,” he said. “If you operate a 'fee mill' then expect high turnover of clients as they discover what you promised in the one time they ever spoke to you before being passed off to some fresh faced junior isn't at all what they deliver.”

Underpinning that thought, author and coach James Ashford warned accountants from getting into the game of undercutting and charging less. “You have to stop competing and start dominating, and the only way you can do that is by looking at the value you can bring to your clients, clearly communicating that value and then finding the clients who are prepared to pay more.”

However, the added-value model is not always black and white. For every proactive accountant who genuinely offers a personal service and offers value, another hijacks the phrase.

Clark argued that some additional services such as tax planning or contract reviews should not be crowbarred into the services to justify high fees.

“If something new is introduced to the budget like the dividends tax you can communicate that to the client but realistically that should be part and parcel of what you are doing,” she said.

Otherwise, these services should be offered as a separate entity when things have changed in someone's life or business. 

“The days have gone (for some people they still need to go) when the fee charge is wrapping up these things that clients no longer need.”

What is a trusted adviser, anyway?

As for being a ‘trusted adviser’, Clark believes that if the service is delivered by an accountant who's a member of a professional body and therefore governed by the code of ethics and standards, then it makes “no difference” whether you pay £5 for it or £50 for it.

The fact the Yellow Pages will cease printing the chunky directory after 52 years is a stark reminder that business models change. For the accountants who do not evolve, whether that’s by price or through quality of service, they’re likely to lose clients.

According to Clark, the problem is that fee push down is already happening, and if firms do not adapt and go digital they will die.

“It's going to happen,” said Clark. “If you want your business to be around then they need to do something sooner rather than later and realise that these are no longer lowball fees, these are fees.”

 

What do you think? With the prevalent use of automation are accountants now charging too much?

About Richard Hattersley

Richard is AccountingWEB's practice correspondent. If you have any comments or suggestions for us get in touch.

Replies

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11th Sep 2017 15:32

we are at the more reasonable end of the fee scale, but the expectation of some potential clients is quite frankly bonkers

Whilst some may have pretty good records, they fail to understand that we are putting our name to their accounts and tax returns, and to that end, we are not just going to accept that their records are correct - how many sole traders think that they have great bookkeeping but include their own drawings as wages, or include a new van within motoring costs in the P & L

some also refuse to accept that there is actually work involved from getting from their bookkeeping to a final set of accounts, making sure the accounts are right

how many 'budget firms' properly check these things out

There will always be clients willing to pay for a professional service and the peace of mind that comes with it

The biggest thing driving fees down is not technology (clients can and will mess that up), but the level of competition, its very easy now to start up a practice from home with only social media for advertising, with little overheads, they can undercut and still make a decent profit

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to ohgoodgodno
11th Sep 2017 15:46

ohgoodgodno wrote:

The biggest thing driving fees down is not technology (clients can and will mess that up), but the level of competition, its very easy now to start up a practice from home with only social media for advertising, with little overheads, they can undercut and still make a decent profit

Thanks ohgoodgodno, that's a good point of discussion. I think it would be interesting to find out how new firms approach fees. Are more firms in the mindset of starting low to gain clients?

ohgoodgodno wrote:

There will always be clients willing to pay for a professional service and the peace of mind that comes with it

In Elaine's example, the prospective client wanted to see the value of their accountant. I think this is where the peace of mind and professional service comes in.

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By Tickers
to ohgoodgodno
13th Sep 2017 10:19

Respectfully, the clients that want peace of mind are not going to small firms, they're going to mid tier or up...

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11th Sep 2017 16:19

We choose to use tech to add more services rather than cut fees. If businesses don't need these extra services we refer elsewhere. Some of these businesses do move to us later when they are big enough to get value from our full service

It's primarily about what's right for them, not us.

I agree that client bookkeeping can be 'interesting' so we include Xero workshops and telephone support as well as logging in at month 1 to help clients resolve problems early rather than at month 12+.

It's a lot easier and more satisfying than trying to unpick and redo their whole year's work plus they have decent records to run their business throughout the year. We can also proactively spot any opportunities to help them further.

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11th Sep 2017 16:10

I think the example of the client unhappy with the fees and not knowing what their accountants does is a tad weak

have they asked their former accountant as to the nature of the fees or if their bookkeeping was OK or not? probably not, and probably just part of a justification for moving without finding out the full story

I guess the accountant may be to blame for a lack of communication and direction as well, but overall I think the lower the fees the less likely you are to get service with any real value attached to it - there has to be a point where the service provider says I cant do anymore for the time and fee I'm committing to this client

Things like tax planning, isn't an excuse to hike up fees, its doing the job properly, communicate that correctly to the client and they'll see the value that's included

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11th Sep 2017 17:42

It can be hard to justify the value of what is held in our heads. If an accountant works from good data, it might seem that little work is done in terms of hours, but if they have helped train the client to improve the data for their own management purposes and have already structured the business as tax efficiently as possible, there may be little extra that can be added. Does this mean the fee at the start should always be higher and then reduced as the (new) tax savings are lower.
Our time isn't just spent working on that particular client, we spend hours doing CPD, reading accountingweb etc to keep up to date, each client needs to contribute to that time cost.
I think a lot of technology is increasing our workload, I am certainly carrying out more in year reviews and training than the "olden days"

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to accountantccole
12th Sep 2017 10:19

I agree with you - 'technology is increasing our workload':

HMRC online submissions
Cloud accounting software
Bank feeds linking to software
Auto enrolment pension schemes

These recent developments require highly trained and competent accountants, particularly when things go wrong or don't work properly.

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12th Sep 2017 10:24

If your charges are based on a fraction of the value your client knows/tells you they will derive from your work, then any way you find to work smarter should mean increased profit for you. The client is only interested in the result, not in how you create it.

In the extreme, if your smart way of working allows you to create and deliver the result much earlier, and if the value derived by the client would increase as a result of early delivery, you could offer them a choice - Delivery on the day requested at the agreed fee, or early delivery for a premium added to the agreed fee. Let the client decide.

David Winch
Sales & Marketing Consultant, Cambridge

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12th Sep 2017 10:40

Don't software houses charge a yearly fee for "updates" which includes all the R & D that has gone into it?
No technology will not change the fee structure, although it might make some business people feel that it should.

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12th Sep 2017 11:11

...."what value is my accountant actually adding", isn't this a question most client's ask themselves?

Tax compliance is to most I am sure is an inconvenience, as such I suspect most will look at how best to deal with it. Whilst I am sure some accountants will push the 'tech is the future' card, many will look to providing a service where the client can speak to the agent/call into the office/ask any questions - it is not just about knocking out a few numbers.

Suggesting that the clients perception of "'it's like the accountant is redoing the work I've already done", is in someway supporting the fact that he has been apparently overcharged is misleading at best and to some extent undermines any suggestion that the use of technology should directly result in lower fees these days.

Indeed what does technology add these days for a business owner who does their own books as compared to one who did the same 20 years ago. You get presented with all the same figures....so why should the associated fee for checking/reconciling/adjustments/queries/advice during the process be any cheaper or dearer....

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By Tickers
12th Sep 2017 13:26

Many small practices, to their merit, are doing far too much work for their clients. I worked in small practices' for 8 years before I joined a Big 4 firm and only then did I understand the concept of materiality. The small firms that recreate their clients accounts when the client is supposed to be doing the book keeping is completely self defeating. Now that I'm back in small practice we send the accounts back to the client and explain that these accounts don't look reasonable and would they like them corrected. If not, we prepared the accounts, tax returns, planning etc on their balances. Far too many accountants are effectively auditing their clients accounts when it's not required.

But the author is correct, the role of the bookkeeper has been replaced by apps like receipt-bank, xero and bank feeds. As accountants we need to re-position ourselves to either low fees high turnover subscription type services levels or niche specialist services like forensic accounting, tax planning, audit etc.

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to Tickers
12th Sep 2017 13:56

Having trained as an "audit clerk" in a small practice I tend to do an audit on all accounts I put together. I would think most people who trained that way wouldn't be able to do it any different.

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to johnjenkins
12th Sep 2017 14:09

Agreed, I would never assume a client's accounts (bookkeeping) are correct and just input the TB into stat accounts software - although I know some firms do.

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to Tickers
12th Sep 2017 16:21

Materiality is a strange concept and really only applies to auditors and whether or not published accounts show a true and fair view. I don't see that it has a part to play in preparing tax returns. A recent post raised this as the poster commented that when they worked at a big 4 they often found themselves arguing with HMRC about amounts that were way below the materiality level, and therefore may or may not have been right anyway.

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By Tickers
to Vaughan Blake1
13th Sep 2017 10:02

Vaughan Blake1 wrote:

Materiality is a strange concept and really only applies to auditors and whether or not published accounts show a true and fair view. I don't see that it has a part to play in preparing tax returns. A recent post raised this as the poster commented that when they worked at a big 4 they often found themselves arguing with HMRC about amounts that were way below the materiality level, and therefore may or may not have been right anyway.

The overarching issue is that many small firms are carrying out audits when they're not being paid to do so.

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to Vaughan Blake1
13th Sep 2017 13:13

To me "materiality" means either the client can't pay for a proper job or the practice can't be bothered to do a proper job.

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By Tickers
to johnjenkins
14th Sep 2017 07:42

johnjenkins wrote:

To me "materiality" means either the client can't pay for a proper job or the practice can't be bothered to do a proper job.

To me it means doing the job you're being paid for. The client is paying you to conduct an audit.

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13th Sep 2017 10:05

No.

I refuse to accept less than what the plumber charges me.

If that means no clients then OK I will go on benefits.

Fortunately clients still want me and with MDT judging by the [***]-ups made by clients on Cloud packages I will be overwhelmed with work. At my fees!

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