As rapidly developing technologies automate audit, bookkeeping and tax tasks — fundamentally changing the foundation of the profession — accountants need to transition their firms from compliance shops to advisory shops in order to not become obsolete. The key? Pruning clients.
If accountants really want to become "trusted advisors" and "partners to their clients' success" (both common phrases in discussions surrounding advisory), that means going against some of their instincts.
"You've got to be very selective on the clients you take on, and you've got to eliminate clients that don't value the work you can deliver," said Geni Whitehouse, founder of the consulting firm The Impactful Advisor.
It's hard for accountants to turn clients away, Whitehouse explained, and it's common for accountants to undervalue their own work. These conservative tendencies create friction around change, and whether they realize it or not, most firms are already doing advisory work. They're just not charging for it.
"Every firm, small and large, has been doing advisory services since day one because our clients call us for everything — not just the tax work, not just the audit work, the reviews, the compilations. They call us for every single question they have," said Jim Bourke, partner and managing director of the advisory services practice at Top 100 Firm Withum. "So without formalizing it, I've been doing it for 38 years."
So with most firms already doing advisory work to some degree, the next step is codifying these processes and scaling them.
Three camps
Firms are all across the board in developing their advisory practices. Madeline Reeves, founder and CEO of the consulting agency Fearless Foundry, which hosted a series of nationwide conferences called Advisory Amplified last year, divides them into three camps, the first of which is firms that say they aren't doing advisory but actually are in some capacity without charging for it.
"What this looks like is a firm that perhaps has sold a compliance service or sold a bookkeeping service, and inevitably, their clients are coming to them with questions, and they're answering those questions, but they're doing what we call 'random acts of consulting,'" Reeves said. "They're not actually structuring and selling advisory in a way where it's woven into the core service container for the client. And so as a result, those folks don't really have any level of codification around what they're doing, or even pricing."
The second camp is firms that are trying to do advisory but have centered the service around one person.
"What we see in this instance is that there is a struggle to scale the advisory beyond a certain number or subset of their client base. Usually they can't serve more than 10 to 20 clients in this capacity because it's all contingent on one person inside of the firm," like a partner or leader, Reeves said.
The final camp is firms that are doing it right, more or less. These firms take a team-based approach, bring in junior-level staff to shadow client conversations, and tier their advisory services so that not every conversation is at the partner level. These firms are few and far between.
Pruning low-value clients
The first step is pruning. Experts agree that in order to scale their advisory practices, firms need to cut low-value clients in exchange for high-value clients that want advisory services. Low-margin clients ultimately use more time and resources than high-margin clients.
Hitendra Patil, CEO of Accountaneur Advisory, compared it to fitting a square peg into a round hole — advisory services just aren't a good fit for every type of client. "Everything else is secondary — billing, pricing — because ultimately, it is the client who sees the value in advisory," he said. "If the client doesn't see it as a fit and doesn't need advisory … you've got to change your business model."
Most firms are structured in such a way that expertise is concentrated at the top. When partners are much more experienced than the professional staff that works for them, it creates a knowledge gap that, in turn, makes it difficult to delegate processes and scale.
Partners are also known to be possessive of their clients, driven by the fact that their compensation is determined by the number of clients they bring through the door. This creates another challenge, according to Deb Defer, director of CAS consulting at Woodard.
"In the current practice management system, it's very difficult to track it," she said. "So you need to be using tools that can really extrapolate the data and slice and dice it multiple ways so that the partner still gets credit for it, but the revenue dollars fall in the correct department and it's holistically the firm's client — not the partner's client."
Defer identified another hurdle: "The No. 1 enemy of efficiency, standardization and being scalable, is variation. If you continue to say yes to every single industry and not home in on four to six industries for a larger firm, no more than two to three for smaller firms, you're not going to be able to scale."
But perhaps the most discussed challenge to implementing an advisory practice is billing. Accounting firms are accustomed to billing hourly for their core audit and tax services, but in an ideal advisory practice, firms are billing clients flat fees.
Reeves said common billing pitfalls include not charging in the first place, not leaving enough room in the scope to open the door for advisory conversations, or structuring the billing in a way that's too confusing — like creating tiers of offerings jammed with services the client doesn't want or know they need.
While there's a conversation to be had on the move away from hourly billing, Reeves says that firms still need to leave wiggle room for the work that just can't be structured in that way.
"That might be discovery work, or work that isn't ongoing," she said. "I think there was this real kind of emphasis to completely get rid of hourly billing without recognizing that there might be opportunities or areas where it's still essential."
Best practices
Firms looking to formalize and scale their own advisory practices can look to bigger firms for best practices.
Timothy Ball, partner and leader of the advisory and consulting service line at Top 100 Firm The Bonadio Group, gave a few recommendations: "Take an inventory of the types of things your clients are asking you to do that aren't compliance-related," he said, then see which of those can be placed into the advisory bucket. The investment is stripping the partner of compliance-related duties and allowing them to go out and find clients and opportunities — "making them unencumbered by the typical responsibilities of busy season or their client base," he said.
Ball also highlighted that Bonadio is hiring specialists with specific industry credentials or backgrounds, including hires who might not have anything to do with accounting.
Withum's Bourke recommended finding out what advisory services and what products your clients are buying from other providers that they would rather buy from you, if only they knew that you provided it.
"It's a big ocean out there, and the types of advisory services are endless. So no longer are we competing just with CPA firms. We're competing with non-CPA firms, and I do believe that gives us an advantage," he said. "CPA firms have this golden ticket. They've got their client base who would rather buy from their trusted professionals than anyone else."
Firms should also start with what they know by identifying what niches they have expertise in, and what clients need an upgrade — as opposed to trying to cold sell these services to a new client.
"There are things unique to every single firm that the firm has a specialty in — I don't care whether it's construction, technology, oil and gas, health care — that's a great place to start with thinking about the ideal advisory services to offer to your clients because you know them already. You've been playing in that space," Bourke said. "Now it's a matter of do I have the resources from a people perspective to do what I need to do?"
The need for advisory
You can't talk about advisory without talking about the driving force behind it: technology. Tools like artificial intelligence and automation are taking the rote compliance work off of accountants' desks, meaning accountants have to shift their focus to advisory work.
Advisory is a service where AI cannot replace accountants. "What people don't understand is AI works only on what data is already created," Accountaneur Advisory's Patil said. "It does not work on what is there in the minds of clients or business."
For example, if a client is thinking of expanding into a new market, the already captured data doesn't account for that. Only an accountant who has advised the client can know that.
Technology also levels the playing field.
"Most people will produce the same kinds of outputs from the same kinds of software. So how are you going to differentiate? That differentiation comes only through your client relationships," Patil said. "So output is not what is going to help you. Outcomes that you can influence are what are going to really differentiate you."
But for as much as technology clears the way for deeper relationships and human-centric services, some accountants are still focused on the shiny new toy itself.
"I think that we've hidden behind automation — behind the tools on our desk," Whitehouse said. "But what our clients need is an understanding of what they can do differently tomorrow, how they can improve their business outcomes and how they can motivate staff — all of those things."
Whitehouse continued, "We get so fascinated by what we can do on the back end and how we can make the most beautiful pivot table, and we forget that the only thing that matters is how that client can apply that information in what they're trying to accomplish."
Reeves says that with technology automating compliance, it will be a "race to the bottom" of which firm can offer the cheapest, fastest service. That's why firms need to start prioritizing advisory services now.
"We're going to move into a world where, if you're going to sell the value of accounting, it has to be tied to your ability to deliver a true experience to that client, which is going to be your ability to take that information, make it meaningful, and help that client achieve their goals," Reeves said. "Firms need to be thinking about themselves almost as a coach or a guide to their clients in the future, and that's going to change the identity of who an accounting professional is."
