These days, firms are routinely urged to adopt advisory services. But reflecting on its history, Richard Sergeant discovers that the advisory practice is nothing new.
A recurring theme in the profession is the decline of the value of compliance and the value advisory services being promoted as far more profitable and beneficial to clients.
In itself there is nothing wrong with this. If technology is reducing manual tasks and empowering clients to do more of the work themselves, then surely this does leave a gap in time-based fee models and frees up expertise and experience in the firm that could be better deployed.
The view of some software vendors and firms is that the profession is achingly slow to realise this and change - that some are watching their businesses die on the vine. Without the necessary switch of focus, their clients will seek those that will take a more proactive role in their affairs.
The irony is of course that this assertion could be from not just 2018, but 2008, 1998, or even 1988.
This theme has a long and distinguished history, arguably dating back to the the practice management consultants who carved out their careers after grounding practice apprenticeships in the late 1970s.
They asserted strong client service ethics and processes, internal discipline and measurement models, an emphasis on business development and marketing, and of course a reevaluation of the services offered to clients and why.
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This continues through the late 1980s and 90s with the initiatives, clubs and associations formed on solid principles by the likes of Mark Lloydbottom, Paul Dunn, David Maister, Ric Payne and others. And then joined in the new century with 2020 Group, AVN and most recently cloud vendors and the next wave of practice consultants.
Interestingly, the common focus has not really been around advisory services per se, but the core principles of service evaluation and delivery - and quite often to a defined system.
The by-product, however, is the received message: compliance is dying, so you’d sure better be selling more higher-margin advisory services.
Even the ICAEW has joined in this game. The 1998 value added professionals report concluded that accountants must deliver much more beyond compliance.
But along with the emphasis on change has come the inevitable inertia. So is there anything different this time?
Advice, or advisory services
Accounting consultant Mark Lloydbottom views an accountant’s services in three categories:
- Services sold from need such as M&A
- Discretionary services
Here, advice is something which forms part of compliance delivery. “Accountants know that they deliver much value in the way they give advice, but it doesn’t follow that they charge for it,” explained Lloydbottom.
“The reality is that firms have the capability to be offering value to clients within their training and comfort zone, answering questions that emanate from the client. Going through things like margins, costs, impact on cash flow.The advice part has been about cementing and growing the relationship, and ensuring the certainty of the compliance fees.”.
Advisory services fit into that third category of discretionary services:
“When providing advisory services on business improvements the client is looking at the makeup of it’s customers, marketplace issues, models and operational dynamics. So, the numbers come at the end not the beginning - this is neither natural territory for the accountant, or within what most business would expect their accountant to provide”, he continued.
Consequently, advice becomes essential in the relationship and grows to form the trusted adviser role, but advisory remains an area where few accountants are making good fees.
What is different this time round is that this useful distinction to separate very different types of engagement seems to be blurring, at least in the ways that firms are happy to talk about themselves, and this is partly due to a confidence brought on by the availability of technology.
Technology helps with insight but may not make you a business adviser
Cloud enables more collaborative work with clients and to track insights off the back of bookkeeping data. Services which increasingly lean on software are becoming the norm for some seeking to position themselves in the advisory space.
Cameron John, global director of accountant partners at Sage, looks at these developments with a pragmatic eye. “Monthly models, and incorporating regular conversations about what the numbers are showing, aren’t for everyone, but certainly couldn’t be done twenty years ago in anywhere near the same way - the availability of technology has transformed that.”
Also, the type of advice given off the back of technology still plays to the accountant’s strength: “They make fantastic business advisers based on historical fact - dependable empirical based advice. But whether they grab the reins and help drive business forward, there’s only a limited portion who can or want to do that”, he continued.
Keen to keep the distance between advice and advisory, Lloydbottom’s view is that “technology helps in surfacing lots of useful numbers, and easier than ever before”.
“But you shouldn’t consult through numbers,” he said. “This is not business advice - this is consulting from the perspective of an accountant.”
Regardless, the unparalleled availability of technology we have now is changing the way and speed (and so relevance) of conversations that accountants are able to have with their clients.
However, a greater motivator for service change is often rooted in necessity.
Regulatory change is the biggest spur to action
“It’s only through significant regulatory changes the profession takes major steps forward, and innovation flows”, said Sage’s Cameron.
Efforts to reduce compliance or simplify tax tends to have the opposite effect for firms. With a more digital tax future in the pipeline, every firm is being compelled to operate in a way that helps clients conform.
“Compliance is certainly not going to die anytime soon. It’s still the bread and butter, and will continue to bring clients closer to the practice, building relationships and the trust in what you have to say”, said Cameron.
A point that Lloydbottom agreed with. “It’s almost inevitable that an increase in the relevance and frequency of service (quarterly) - and a robust outsource model, will save the cost of MTD to businesses, and put them in more regular contact with the firm paving the way for better and more meaningful conversations”.
Although he is doubtful that this means advisory service per se, the increased closeness of the relationship and the availability of up-to-date figures will see both the rise in the value of compliance (as businesses adjust) and in the work that will come off the back of advice that is given as a consequence.
While it’s hard to look too far into the future and draw conclusions, two significant disruptors for change are working together. The possibility of mass regulatory change enabled by collaborative real time technology will see the need for more regular reporting that will increase the value of compliance, create more possible touch points and greater opportunities (or the expectation of) related advice.
However, as Cameron reminds us: “There is a gap between what accountants are being told about advisory, and what the majority of clients will perceive as adding value”.
In part two we will explore this in more detail with input from firms delivering at the coalface.
About Richard Sergeant
Specialist insight and business development support for accountants and their vendors. Cloud advocate with a pragmatist eye.