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The big debate: Advisory vs compliance

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Do accountants have to offer advisory services in order to thrive? Is compliance dead? Four leading experts in accountancy debate advisory's place in the profession.

30th Sep 2021
Community Assistant AccountingWEB
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Many firms have spent the last 18 months spinning as many plates as possible in their practice to support struggling clients through the pandemic.

As a profession, and certainly throughout the last year, it's tricky to know what to include within your practice - do you offer up advisory services to your clients? And with increasing relience on software and tech, what place does compliance have in your firm? Are the rumours true - is this the end of compliance?

We spoke to four leading experts in accountancy to debate the question: do accountants have to offer advisory services in order to thrive? What side are you rooting for?

The argument for offering advisory services in order to thrive

Kirsty McGregor,

Accountant-in-residence for Capitalise.com and founder of the Corporate Finance Network

Kirsty McGregor

I’ve spent my career encouraging more firms to consider offering corporate finance and capital advice to their clients.

Our clients need us to share our skills with them to grow their companies, ensure resilience, and ultimately exit with a capital sum – otherwise what’s the point in running a business with all the stress that can bring? If you want to retain your clients for the lifecycle of their whole business, you need to be able to advise them with all their commercial needs along the way.

Plus, as a profession, we need to! As highly skilled advisers we are more than capable, and if we don’t someone else will fill that gap. Plenty of others in your business community will say that they are able to give business advice and will promote themselves well so that they appear highly credible.

As a profession I think we have been really weak in recent years in promoting our full value to the business community. If we don’t bring back that trust so we are the first point of contact for entrepreneurs, what will become of our industry?

We cannot rely only on offering compliance work, reviewing historical accounts and preparing tax returns. The business world is changing. Digital natives will turn to online advice - even YouTube - first. They will prepare their own accounts and tax returns and seek out business and systems advice elsewhere - unless we can really stand out as the experts of choice in our local economies.

I’d finish with this: advisory work is far more profitable because it’s more highly valued than compliance work. So if you only intend to offer compliance services, you have to ensure you are efficient, your systems and processes ar super effective, and your firm is completely streamlined. How many firms can say that they truly operate like that?

Advisory gives you the opportunities to diversify your income streams and make your firm stand out.

* * *

Aynsley Damery

CEO and founder of Clarity

Aynsley DameryIt all depends on what your definition of ‘thrive’ is. If you mean to thrive financially and make more of an impact, then in short the answer is resounding ‘yes’.

From all the conversations I had with fellow accountants (when I was in practice) and from all the data that we now have from accounting firms around the world, revenue per employee, average fee per client, and gross and net profit margins are all significantly higher in those firms that offer advisory services.

It is worth pointing out, however, that many firms who already offer advisory services are doing so to their top 10/20% of clients. This is mainly due to the fact that their advisory services are bespoke and are delivered by the partners/senior managers within the firm. The fees associated are necessarily high and, as a result, only the top clients are able to afford the services.  

In recent years, we are seeing a drive to introduce repeatable and scalable advisory services. These leverage technology and engage more of the team with appropriate structures and processes to offer this service line to a greater number of clients. It’s more affordable too and therefore accessible to even the smaller business clients.

Interestingly, in a recent survey by Xero, firms that offered repeatable advisory services (as opposed to bespoke niche and high level advisory), not only generated higher average fees per clients, they also generated higher profits too.

But it’s not just the firms offering advisory services that are thriving, it’s the clients too! And often holistically, from a personal, business and tax perspective.

* * *

The argument against: 'Compliance is not dead'

Ben Steele 

Managing Director of Steele Financial  

Ben SteeleI think many in the industry seem to be missing a very large point and making incorrect arguments.

It shouldn’t be advisory against compliance – it should be advisory alongside compliance. Both are important and have their place.

My issue with firms like mine being told that compliance is dead and advisory is the “new way” is nonsense and could end up causing much more harm than good. The danger here is that if the accounting industry starts to push the idea of compliance services becoming redundant, clients and business owners will pick up on this. It creates an issue that doesn’t need to and shouldn't be there.

Think about bookkeeping. Due to cloud software and other tech, many more business owners believe they can 'do it themselves'. However, how many accountants have picked up a Xero account done by the business owner and found it to be a mess? We all have, I'm sure!

Compliance is very much still alive and will continue to be. Look at MTD ITSA, for example. This is increased compliance, not less!

MTD for VAT didn’t mean clients could suddenly do it themselves. Why not? Because the complexity of VAT still existed! It is just the format and filing that changed.

This is the same with compliance. Statutory accounts and tax returns are just as complex as they ever were. This hasn’t changed.

I understand (more than many accountants) the joys of cloud accounting and apps/integrations. However, this is to systemise and improve finance functions, not to replace us.

AI is WAY off with regards to making decisions on clients' figures in terms of tax savings and applying FRS treatments in the correct way etc.

Compliance might not be as useful or 'sexy' like advisory – but many stakeholders still rely on this info, including banks, mortgage providers, funding providers, and even HMRC!

So then why keep pushing this thought? Who knows…but it will just create more reasons for clients to “try it themselves” – and then who wins?

* * *

Dean Shepherd

Director of product compliance at TaxCalc

Dean ShepherdDepending whose data you choose to subscribe to, there are around 40,000 providers of tax and accounting services in the UK, spanning from the smallest of sole practitioners, whom make up the vast majority, right through the ranks of the top 100 and the big four.

It is true that the largest firms in the country would not be able to survive, let alone thrive, if they only provided compliance services. This is why they have evolved to become global providers of business services spanning sectors as diverse as technology, consulting, law and research.

However, for the smaller practice, not only can they thrive without offering advisory services, but hundreds, perhaps thousands, already do - secure in the knowledge that there is an abundance of potential clients out there that really do value the support of a professional adviser in keeping the wolves from the door.

It is also important to be clear on what we mean by advisory services, because the giving of advice is an intrinsic part of any accountant’s compliance offering and cannot be treated in isolation. What I am talking about is the provision of services distinct from the tax, accounts, bookkeeping and payroll. Marketed, sold, delivered and charged for independently of the core compliance offering.

As much as I, like many others, hunted for the mythical ‘advisory’ goose that lays the golden egg, my clients at least were prepared to reward me generously for my reliable, reputable and trusted services that were largely bereft of anything that could be considered advisory by today’s standards.

You decide!

Now that you've heard both arguments, it's time to decide which side of the debate you're on. Are you for or against? You decide! Let us know in the comments below.

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Replies (18)

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By GR
30th Sep 2021 18:06

I think compliance will still be around for another 10 - 20 years. But eventually (in 10 - 20 years time) compliance will be dead in the same way that other companies die, e.g. Kodak, Blockbusters, HMV, etc. Technological advances (e.g. off-shoring, automation, AI, etc) will eventually kill off compliance.

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Replying to GR:
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By AdamMurphy
30th Sep 2021 19:43

The prediction of technological advances is often over-envisaged. AI has a LONG way to go.

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Replying to AdamMurphy:
By Hannahmc8
01st Oct 2021 09:41

Agree - AI/ML models did not work for us during R&D of Futrli Predict. Small business data is too complex/irregular. That's why we've built our own IP that looks at the data like a CIMA would. It's never going to be psychic, but we iterate over the prediction algorithms regularly in order to pick up new journal patterns, or posting types.

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Replying to GR:
Chris M
By mr. mischief
01st Oct 2021 09:34

I fear your hopes are misguided. Compliance has INCREASED substantially in the past 10 years - MTD, auto-enrolment, RTI to name just 3 areas. Cloud software has overall INCREASED the work - and cost to clients - required to get accounts right. Many cannot even manage the basics of cloud software and the software bank balance is miles away from the actual.

Nothing I hear from regulators, HMRC, or software companies makes me think that this direction of travel will change any time in the next 5 years. I would happily bet £50k at evens that it won't.

So by 2026 compliance will be an even larger part of the job and more complex. That makes the goal of eliminating it substantially by 2041 a total pipe dream I am afraid.

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By ireallyshouldknowthisbut
30th Sep 2021 18:22

Compliance work has increased hugely in the past 10 years. Just dealing with HMRC is so much harder than it once was requiring multiple contacts to do the most basic of things, such as getting rebates, or getting a UTR number.

And with MTD it will be even harder to just do the basics of paying your taxes on time if the annual tax return is shredded and made into multiple filings across the year as with CGT now which used to be simple, and now is an admin mountain.

Most people just don't have the time or the inclination to do battle with HMRC and will happily outsource it to those who know how the monster works.

It is however the advice that binds the clients to you, and keeps them coming back.

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By Winnie Wiggleroom
01st Oct 2021 07:10

Ben Steele nailed it, its not a question of either one or the other, practice accountants up and down the country already do both at the same time! The suggestion that we all "need" to change, usually by others who are not themselves in practice is highly disrespectful and arrogant

I have never really understood this push from people like Kirsty and I can only presume that they are pushing their own agenda for their own benefit masked as "accountants that don't do this are in the dark ages" - as a small practice that has worked with many of the same clients for a number of years you provide what they need - compliance and advice, some need more advice and services than others, most small businesses just need and want to comply, but others do need advice on various financial matters and are able to afford to pay you for it.

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Replying to Winnie Wiggleroom:
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By Open all hours
01st Oct 2021 07:29

Thank you Winnie. You have succinctly described the way we seek to operate which is simply the manifestation of the plans we made for our practice established at the end of the last century. We have always ‘communicated’ and given proactive ‘advice’ first with newsletters and then in 2009 we started weekly emails, (our own content, every Friday without fail and much more often in the last 18 months) seminars and more. It goes hand in hand with compliance. It’s not new, it’s not especially clever, it’s the way to bond with clients and develop a successful practice.

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Replying to Winnie Wiggleroom:
paddle steamer
By DJKL
04th Oct 2021 14:30

Spot on, some clients there is little to advise about, others there is plenty. This is of course easier for the one man band practice being the sole point of contact with the firm.

I suspect things are very different nowadays, with far fewer face to face meetings etc, but when I did work in larger firms all clients got to meet a partner at least once a year, even if he/she just popped their their head into the meeting room to say hello for ten minutes, for one thing it kept the client/partner relationship fresh and reduced staff walking away with blocks of fees following them.

I never found it was wasting time ,having a natter with clients about family, life, the universe brought forward little snippets of information where we could add value, maybe we did not always earn an extra fee but we likely helped to keep clients from straying to other firms.

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By Hannahmc8
01st Oct 2021 09:38

No one is saying that compliance is dead surely? As trained professionals, we rely on you to interpret legislation to ensure we make the best tax decisions and ensure that we are indeed compliant.

But using the relationship you have with your clients; the privilege you have in having access to the inner workings of their business - no other industry gets to see the Balance Sheet of their customers; the financial knowledge that you have trained for years to amass, that can truly help them - isn't it a duty of care to help?

Isn't that what advisory should be? Help.

We have so many accounting clients @futrli who do just that.
- Ensure their clients are compliant
- Assess their current and predicted numbers individually or with our Portfolio report,
- Help their clients understand things they may not and identify growth/risk areas e.g.

These are common sense steps in a funnel - there's no need to "sell or launch" advisory. Advise, agree scopes of work and success outcome, rinse and repeat?

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By mkowl
01st Oct 2021 10:55

Yes agree with the sentiment that compliance and advisory work hand in hand. I mean how many meetings start within the context of discussing and finalising the accounts and 2 hours later you suddenly realise we haven't specifically discussed them.

So my clients want to ensure the muck and bullets is right, they pay for the compliance so they don't have to worry about it or know the risks are mitigated

However you then hopefully become a trusted advisor, but do you only gain their trust by doing the compliance right in the first place

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By Andy North
01st Oct 2021 11:29

I closely watched this debate develop in the US as well. Realistically only about 10% of firms we making anything like a serious fist at 'advisory' (and there was a LOT of wriggle room in the definition of what that actually meant).

The majority of firms seemed to broadly accept that it was a good idea but had made little effort to do a great deal about it.

The problems seemed to be twofold.

Firstly the business model change required is not insignificant. Many firms were just getting stuck with issues around pricing, skill sets and, most commonly, confidence.

Secondly the market did not seem to be demanding it. A lot of accountants reported that their clients did not need (and would not pay for) 'advisory' services. In fact the vast majority of the pressure to introduce advisory services was coming from software vendors - not customers.

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By MattS
01st Oct 2021 11:49

It is aligned with the needs of the clients, and clients will always need both advisory and compliance services. Accounting firms being set up to provide both is key.

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By [email protected]
01st Oct 2021 12:36

The Compliance v Advisory thing makes me laugh

The two coexist and feed off each other. And anyway with the contortions of HMRC compliance has been getting more complex not easier.

IMO what we should be doing is accepting that compliance exists alongside Advisory and educating our clients (perhaps ourselves too) what value add we can provide beyond compliance.

With the regular touchpoints that compliance gives into a business you can have your "finger on the pulse" and be a proactive advisor; rather than doing each in isolation.

I don't think compliance will ever be "Dead", just more automated.

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Replying to [email protected]:
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By Hugo Fair
01st Oct 2021 15:40

More automation (in this case of compliance) will have the usual effects:
a) a slow attrition in the number of people with detailed knowledge;
b) a rapid increase in the number of incorrect results generated by automation.

So, the growth sector will as always - see medicine, law, employment, etc - turn out to be in the burgeoning role of faulty-compliance investigation & rectification services.
This is fine from a selfish perspective (people pay more when already threatened by the state), but is neither a good thing for the country (grossly inefficient) - or of course the impoverished taxpayer who as often as not did nothing wrong.

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By Ian McTernan CTA
01st Oct 2021 15:24

I don't use twitter. My vote is no, it's not dead, far from it. In fact, MTD will bring in even more compliance work for smaller firms.

Compliance would only die off if they vastly simplified the tax system, forced everyone to learn basic book keeping at school plus a mandatory tax course plus a VAT course plus..you get the idea!

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By Paul Crowley
02nd Oct 2021 13:38

Did not know there was any debate
Where do I look to find out how this debate started?

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By AdamMurphy
02nd Oct 2021 15:58

Anybody who thinks compliance is on the way out can't have been in practice over the last decade. It's INCREASING not decreasing!

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Mark Lee 2017
By Mark Lee
19th Oct 2021 11:37

The only people arguing that compliance is 'dead' have their own agendas. Of course it isn't and it's not disappearing either. I've been challenging the view that all accountants need to move to become business advisers for years. More recently I have offered clarification as to 6 different types of advisory services and how the mix of these will almost certainly change over the next few years.

One reason for the change (which isn't happening overnight) is that the perceived value of compliance work will fall in the minds of business owners who start relying on cloud systems. They will still want help but may seek a lower-priced commoditised compliance service. Accountants will need to enhance their key business skills so as to attract higher fee paying clients - and offer more than the commoditised compliance service if they want to secure higher fees per client.

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