Advisory – Where is the Puck Going?

INSIDE Public Accounting and Rosenberg Associates conducted a survey to gather perspectives from professionals across the accounting profession on the advisory services. The survey respondents provided insight into the impact of advisory services on revenue, margins, and long-term growth, as well as the internal challenges firms face when scaling beyond compliance work. View the full IPA Insights June preview. The following are Matt Rampe’s insights from the survey data.

Advisory is a hot topic right now, especially as automation moves more deeply into compliance work and forces firms to find new ways to add value to clients. That said, what is the real state of advisory right now, and how can firms accelerate their journey to advisory growth? Let’s start by looking at the poll data and implications for action.

What is advisory?

• Advisory is non-compliance work The data shows that the two most common areas of advisory for firms are tax advisory and CAS, followed by CFO/controller advisory and M&A support.

Is it a priority?

• Yes! For 67% of responding firms, it was either a high or critical priority, so firms are giving considerable focus to this area.

How profitable is it?

• Half of our respondents said advisory services at their firm had slightly higher margins than compliance work, while 30% said they had significantly higher margins.
• Implications for firms: Advisory is sometimes made to sound like it’s a magical place where the margins are always higher. Yet, for 20% of our responding firms, it is not. This fits with my experience in working with firms. Each advisory service line is often a unique business line distinct from any compliance offering, with its own skill requirements, client needs, and operational challenges. Rather than a service line extension, it’s often more like building a new business from the ground up. That said, you don’t want to scale what’s broken – firms need to give operational discipline and individual attention to each advisory service line to make sure they have a business model that is profitable and can grow. Otherwise you may be jumping out of one service into the next hot thing without any true business benefit.

Are firms taking a proactive approach to advising?

• 44% of firms in our poll agreed with the statement, “Our advisory work is proactive, future focused, and holistic, pressing for root causes and creating value rather than being more reactive, siloed, and scoped to pre-existing billable tasks,” and 14% strongly agreed with this statement.
• Implications for firms: This data surprises me. Many firms I’ve talked to are shuffling clients into predefined options in a given service line or just responding to client demands. That said, if it’s true, this is great! Advisory work is at its best when firms are thinking proactively about creating future value with the client so firms should keep pushing in that direction.

How are firms building it?

• Firms are taking what feels like a low hanging fruit approach to growing advisory services:
  • 87% are selling existing advisory services
  • 67% are building new advisory services internally
  • 52% are hiring experienced advisory professionals

• Implications for firms: While these growth approaches are not wrong, 42% of firms said they expected 6–10% annual growth in advisory services for the next five years. An opportunity to increase that growth rate may lie in acquiring outside existing advisory service lines in addition to the above strategies.

Biggest constraints to advisory growth?

• “Talent Availability” and “Partner Time and Alignment” were cited by 69% of firms as the two biggest barriers to growing advisory services at their firm. This was significantly more the case at firms under $30M in revenue. Firms above $30M still struggle with these challenges, but to a lesser extent, while “Sales and Business Development” is one of their biggest challenges.
• Implications for firms: Given the disruption happening across the industry, there may be a first mover advantage for firms that are able to rapidly push into the advisory space. Since smaller firms are feeling constrained in hiring and alignment, and larger firms have underdeveloped sales support around advisory, those firms that create a high level of focus and structure around advisory build-out and growth may be able to take a larger amount of market share, placing themselves in a comfortable position going forward.

Are partners compensated for selling advisory work?

• 53% of respondents said that partners are compensated to cross-sell advisory work. This is slightly higher at the bigger firms (which may just be a function of more highly developed partner compensation systems). The most common structures of compensation for cross-selling advisory work were partner goals/scorecard, discretionary bonus, and explicit commission or percentage of revenue.
• Implications for firms: As the saying goes, what gets measured gets done. A corollary is, what gets paid for gets performed. I sometimes see firms dabbling in advisory, but without a clear roadmap for what it will become or strong systems to support its growth. Allocating partner compensation based on advisory growth helps firms first define the vision for advisory and then the partner behaviors needed to support that vision. It also raises advisory in the awareness of all partners from “nice to do” to “need to do.” This combination is undoubtedly helpful for growth!

How coordinated is the client experience?

• We asked, “How coordinated is the client experience if they use multiple advisory services at your firm?” The response looks like a bell curve: almost half (46%) of firms said “Moderately,” and the rest were roughly split between “Very Coordinated” or “Slightly Coordinated.”
• Implications for firms: While this data shows that firms are somewhat coordinated when clients have multiple advisory services, I believe that firms will need to do more—because this is where the puck is going. With private equity driving massive consolidation and AI-driven automation freeing up accountants for consultation, I believe the client experience around advisory needs to become elevated. If a firm has only tax and CAS working with a client, it’s not a big deal. But if a firm has multiple specialty service areas and is positioned as a proactive advisor with a client, it can either become a logistical nightmare or a client’s dream come true. As transactional relationships lose value in the market, providing valuable insights and human empathy for the client’s needs will rise as differentiators. This won’t happen without a plan.

Development of advisory services is well under way at most firms, and progress is being made. However, given industry conditions, the firms that can move more rapidly and strategically into these areas will capture a disproportionate amount of the future upside.