The 2019 Top 100 Firms: New niches, strong clients

The 2019 Top 100 Firms found niche services to be a strong source of growth again this year, following the trends of previous years but with a few new specialties making the list of the top growth areas.

The same niches that were strong growth areas for the largest number of Top 100 Firms last year remained popular this year, with the two specialties of attest and state and local taxes remaining at the top of list for 2018, though both were down slightly in percentage of firms reporting growth. No. 1 niche attest was down 3 percentage points, with 80 percent of firms reporting growth there, and SALT was down 2 percentage points, with 74 percent of firms seeing growth. Still, the two specialties held their leads, and were rounded out in the Top 3 by IT and data security, a service making its debut as a choice in this year’s survey and immediately proving worthy of inclusion with 73 percent of firms reporting growth.

In the fourth slot, M&A’s 1 percentage point increase up to 72 percent was enough to bump it up two spots to tie with technology consulting, which was down 1 percentage point but retained the same spot on the list as last year. Behind those services, in fifth place, was business valuations, up 5 percentage points and two spots on the list, with 70 percent of the T100 experiencing an increase. Below that, industry specializations and international taxes tied at 68 percent, with both falling down the ranks a bit, losing 6 and 4 percentage points over last year, respectively.

Nonprofits occupied the seventh spot again this year, but tracked a 2 percentage point increase over 2018. Tied in the eighth spot were two niches that exploded in popularity this year — management services for wealthy individuals, growing 9 percentage points, and client accounting services/business process outsourcing, a double-digit climber with a 10 percentage point increase. Rounding out the Top 10 highest-growth services were two more niches that notched double-digit movement, but in opposite directions. In the ninth spot, litigation support was up 12 percentage points over last year, at 62 percent, but estate/trust/gift tax planning fell four spots and 11 percentage points in the same period, with 60 percent of the Top 100 seeing growth there.

A little farther down the list, many niches made impressive climbs: SOX compliance/risk management, at 53 percent, was up 8 percentage points over last year; business intelligence increased a stunning 19 percentage points to 52 percent; employee benefits rose 11 percentage points to 51 percent; investment advice/services ballooned 16 percentage points to 49 percent; cost segregation was up 9 percentage points to 47 percent; CFO/project staffing services shot up 13 percentage points to 46 percent; and strategic planning/business plans jumped 9 percentage points to 44 percent of firms reporting an increase.

Farther down the rankings but well worth noting was another service that is new to this year’s survey, blockchain, which had a very respectable 31 percent of firms tracking positive movement.

Inside the niches

One of the top niches of 2019 ­— and the last several years — SALT owes its continued success to client need and economic strains, according to Carolyn Puzella, state and local tax practice senior manager at Chicago-based FGMK.

“Market demand is driving the growth of FGMK’s SALT practice, which stems from both the expansion of our clients’ business footprint across state lines, as well as the ever-changing state tax landscape that results from states’ ongoing budgetary pressures and corresponding energized tax collections and increased audit activity,” she explained, noting that her firm expects “continued growth in our firm’s SALT practice over the next few years.”

Ranking closely behind SALT and making an impressive debut as the third most common niche for growth, IT and data security’s success goes beyond the usual risk-avoidance needs associated with the specialty, said Bonadio Group chief executive Tom Bonadio.

2019 Top 100 service niches

“I believe that the overall understanding of how effective information security can drive business successes, not just alleviate risks, along with a strong understanding of where cybersecurity regulatory requirements can be met with appropriate and reasonable risk management programs, has actively transitioned from the IT department to the boardroom,” said the leader of the Pittsford, N.Y.-based firm. “We are seeing cybersecurity, data privacy, and overall risk management as common discussion topics at board meetings, and boards are actively adding members with enterprise and cybersecurity risk management backgrounds to help facilitate and understand this very volatile subject.”

Greenville, S.C.-based Elliott Davis attributes a similar mindset shift to the success the firm has experienced in IT and data security services, according to risk advisory and cybersecurity practice leader Jimmy Buddenberg. “Organizations are realizing that ‘security by obscurity,’ or thinking you’re too small to appear on the radar of a cybercriminal, isn’t a wise strategy,” he explained. “Ransomware, business email compromise, and electronic funds transfer payment fraud are hitting organizations of all sizes, and they’re looking to trusted advisors for help.”

The need for this assistance is continual, making this service especially sustainable as demand grows. “Risk management in the cybersecurity and data privacy areas is not a discrete or one-time action,” Bonadio continued. “There is a common saying in the industry: Effective information security is not a destination, it is a journey, and that has never been more true than today as companies are changing their footprints from local to online and international presences. Data is the business currency, and ongoing and effective and assured protection of that data, everywhere it is used in its life cycle, is the opportunity we see.”

The continued dominance of M&A services is attributable to both economic and demographic shifts, reported Hanny Akl, transaction advisory services practice leader at Birmingham, Alabama-based Warren Averett. “We have seen growth in the mergers and acquisitions services that we offer to our clients due to the robust economy, as well as the large pool of investors searching for good businesses to acquire,” Akl said. “In addition, the baby boomer generation is increasingly looking for succession and exit options, resulting in an estimated $10 trillion of wealth expected to be transferred in this decade.”

Eide Bailly owes its success in tech consulting, which tied M&A in the niche rankings, to effective firm strategy. “The growth in our technology group has been driven by hiring great people, receiving exceptional support from the firm, and selecting the right technology partners,” reported Scott Kost, leader of the Fargo, North Dakota-based firm’s technology consulting group. “The primary areas of growth are migrating clients to cloud-based applications — specifically NetSuite and Salesforce. Our clients benefit from the speed, scale and economies of cloud computing and we see this trend continuing in the foreseeable future.”

This year’s higher reported growth in management services for wealthy individuals can be attributed to the clients themselves growing larger, according to Scott Barchus, president and partner at Aldrich Wealth, an affiliate of Salem, Oregon, firm Aldrich.

“Our growth within Aldrich Wealth has been driven by the development of our professionals, the scaling of our practice, and the growing awareness of our services by our affiliated companies,” Barchus commented. “Over the last few years, new growth in our practice has resulted in our largest clients being larger, and our average size clients being larger. This opens the door to new areas of opportunity with potential larger prospective clients. We expect further growth for the next couple of years, but how long that growth continues depends upon our success in finding high-level professionals to carry out and implement our business plan.”

For New York City firm Marks Paneth, regulatory changes were responsible for the growth in its high-net-worth tax planning services. “Similar to businesses, high-net-worth individuals are grappling with the tax law changes and the impact on their businesses, wealth transfer plans, philanthropic giving, and overall tax situations,” reported Robert Hughes, the firm’s principal-in-charge of high-net-worth services. “Continued uncertainty around the 199A deduction, 163(j) business expense limitation and other compliance issues will provide ongoing opportunities for accountants to be true advisors to their clients — far beyond the preparation and filing of their returns. This advisory approach to client service delivery is one that Marks Paneth has followed for decades and that has enabled us to grow our private client services practice area to be one of the fastest-growing groups in the firm.”

The client-driven need for firms to provide more advisory services has also catapulted CAS/business process outsourcing up the chart of successful niches.

Lancaster, Pennsylvania-based RKL has witnessed this in its CAS practice, according to Bethany Novis, partner and leader of the firm’s business consulting services group. “Like many of our peers, client appetite for better insights, strategy and technology has driven demand for outsourced accounting services, but our broader focus is growing a robust suite of infrastructure services including human capital management, finance, operations and technology,” she explained. “Officially launched in 2018, RKL’s CAS practice is part of our integrated solutions designed to help streamline and optimize their back-office operations.”

Two factors propelled the growth of the accounting and consulting service group at Bellevue, Washington-based Clark Nuber, according to the shareholder in charge of that practice, Cindy Doyle: “First, we realized early on that there was a clear market need. Second, we carefully recruited people with the right depth of operational experience, not just experience with GAAP or tax, as well as private industry experience.”

TOP NICHE SERVICES
Percentage of firms increasing their business with these types of clients (of 81 firms responding)

Specialty service %
Attest 80
SALT 74
IT and data security 73
M&A 72
Tech Consulting 72
Business Valuations 70
Industry Specializations 68
Int'l Tax 68
Nonprofits 67
Mgmt services for wealth individuals 64
CAS/BPO 64
Litigation Support 62
Estate/Trust/Gift Tax Planning 60
Forensics/Fraud 58
Succession Planning/Family office 54
SOX Compliance/Risk mgmt 53
Business Intelligence 52
Retirement Plans 52
Employee Benefits 51
Investment Advice/Services 49
Cost Segregation 47
CFO/Project Staffing Services 46
Strategic Planning/Biz Plans 44
PFP 41
Small biz mgmt 37
Cash Flow Forecasting/Management 32
Blockchain 31
Payroll Services/ Consulting 27
Bankruptcy /Insolvency 26
IFRS consulting 25
1031 Like-Kind 25
Financing Arrangements 21

Subtle shifts

In terms of 2019’s best clients for this year’s Top 100 Firms, the usual categories retained their leading positions, though there was some shuffling in popularity. Midsized businesses and real estate both overtook manufacturing to tie for the No. 1 spot, with 78 percent of firms reporting growth in those areas. Midsized businesses rose from second place by 2 percentage points over 2018, and real estate climbed two spots and 5 percentage points.

Manufacturing dipped below the new list leaders, coming in second at 77 percent, a 6 percentage point decline. Nonprofit organizations, on the other hand, shot up the list, by 8 percentage points, to take the third spot with 73 percent of the T100 experiencing an increase in this type of client.

Technology climbed one spot in the ranking but lost 3 percentage points in its fourth slot, and construction fell in both ranking and percentage, down two spots and 6 percentage points to 68 percent this year. Large business clients were up four spots and 10 percentage points over last year, tying for 65 percent with professional services, which retained its sixth-place position but lost 6 percentage points.

2019 Top 100 client chart

Tied in the seventh slot at 63 percent, health care facilities and individuals were both down, 2 and 8 percentage points, respectively. Wholesale distributors remained in the eighth spot of the most popular client categories, though they dipped 2 percentage points to come in at 58 percent. Pension plans, meanwhile, were static in both ranking and percent, remaining in the ninth spot with 56 percent of Top 100 Firms gaining in these clients. Behind that, hotels and restaurants were down 2 percentage points this year to 48 percent, though they climbed two spots to crack the Top 10.

A few factors influenced the rise of middle-market clients as a leading growth area for the Top 100. For New York City’s Grassi & Co., CEO Louis Grassi credited a combination of economic changes and firm strategy. “Our success in the middle market in the past year has been driven both by a strengthening in the middle market’s access to credit and capital, as well as the Grassi team’s unique market approach,” he said. “After several years of tight credit and capital markets, the entrepreneur’s ability and willingness to access the traditional and alternative credit and capital markets has led to strong growth in that sector. Anecdotally, we are seeing middle-market business making more investments to grow their businesses than in recent years past. Many more of our clients are investing in infrastructure, building new factory lines, buying new equipment, expanding into new geographies or lines of business by taking advantage of both more fluid credit and capital markets and the recent tax incentives to drive their growth.”

Marks Paneth’s middle-market success is driven by changing regulations, said Steve Eliach, principal-in-charge of tax services. “Complexities and unanswered questions stemming from the Tax Cuts and Jobs Act, the Wayfair ruling and other tax law changes create both the greatest challenges and opportunities for serving the tax needs of midsized businesses and high-net-worth individuals,” he explained. “I see more and more midsized businesses seeking out accounting firms that have the additional capabilities to manage these complexities.”

Real estate shared the top client category spot, and for Milwaukee-based Wipfli, the firm’s success in that industry is linked to its similar success in the construction vertical. And while growth in construction clients for the T100 tapered off a bit in 2019, the category remained in the Top 5 areas of growth this year.

“In the last three years Wipfli has achieved considerable growth in our construction and real estate practice,” reported firm partner and national construction and real estate leader John Schwab. “A lot of this growth can be attributed to our focus on strategic hires through M&A, the overall boom in the construction and real estate industry, and our commitment to aligning talent and technology to enhance client profitability. As the fastest growing industry practice within Wipfli, we understand that a firmwide common strategy, good communication, and positioning ourselves as thought leaders will be key to our continued success.”

“We believe that a strong, growing U.S. economy and ongoing federal government investment in infrastructure will continue to fuel our growth in the near future,” he continued.

Close behind midsized businesses and real estate, manufacturing clients proved a boon for this year’s T100, and for Elliott Davis, both manufacturing and distribution were industries of growth.

This success was due to many factors, said shareholder and manufacturing and distribution specialty group leader Eric Shmid, “but probably most impactful have been industry specialization, intense focus on business development, and having a broad and deep bench of experienced professionals who can deliver the required client solutions. Another important factor has been the expansion of our international practice. We’ve seen that a majority of existing and new inbound international investment is in the manufacturing and distribution space.”

TOP CLIENT CATEGORIES
Percentage of firms increasing their business with these types of clients (of 81 firms responding)

Client category %
Midsized businesses 78
Real Estate 78
Manufacturing 77
Nonprofit Organizations 73
Technology 69
Construction 68
Large businesses 65
Professional Svcs. (lawyers, doctors, etc.) 65
Healthcare Facilities 63
Individuals 63
Wholesale Distributors 58
Pension Plans 56
Hotels & Restaurants 48
Small Businesses 46
Retail Trade 46
State and Local Government 46
Entertainment 43
Banking & Thrift Companies 42
Colleges and Universities 40
Finance Companies/Mortgage Banks 37
Investment Companies & Mutual Funds 37
Auto Dealerships 35
Agriculture/Farming/Forestry/Fishing 32
Brokers/Dealers in Securities & Commodities 32
Government Contractors 31
Franchising 30
Insurance Agents & Brokers 27
Insurance Carriers/Companies 25
Publishing/Broadcasting/Media 25
School Districts 25
Cannabis industry 21
Gaming 15
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