Prospering in the ‘value economy’
By Scott Charlton, Director at Fortnum Professional Strategies
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The successful professional services firms of the future will be remunerated based upon the value created by helping clients achieve their goals.
Reviewing one’s results and comparing them to those achieved by others is cause for significant reflection. It’s incredibly useful to know what’s possible and to raise your own expectations as a result. However, as astute readers of The Good, the Bad & the Ugly of the Australian Accounting Profession will recognise, perusing the results is akin to looking at the scoreboard at the end of a sporting fixture. Yes, you get the scores, but you don’t necessarily get a clear view of what activities the winning team pursued. Equally, teams that win consistently, season after season, seldom stay the same. They evolve their style of play, change their tactics and increase the skills of their members.
So, if you are currently seeking some inspiration to take your firm to new levels and to post better results on your firm’s scoreboard at the end of next season, it’s time to consider what you are going to do differently over the next 12 months.
The past and the present
The typical accounting practice is a highly priced factory dedicated to producing financial statements and taxation returns. Any other services provided by the practice are fitted in around this primary focus. Urgent assignments such as assisting clients with finance applications are added on top of accountants’ workload during peak times. Non-urgent jobs such as restructuring and forward planning get a run outside busy periods, and then it’s time for year-end tax initiatives before the cycle starts again.
Traditionally, accountants have not had the dedicated time or headspace to devote to additional services. That’s the reason why, for example, tools for business analysis sit in shrink wrap on their shelves and nothing happens upon returning to the office after initial training courses in using new software packages. Of course, it takes courage too. Initiating a conversation with a client regarding new services (about which the accountant is less confident in providing) is, quite frankly, uncomfortable territory.
Yet embrace the world of new services you must. Regardless of whether the accounting firm precipitates this issue (for example, by outsourcing compliance tasks to lower cost providers) or is forced to react to market forces (for example, competing with non-accounting firms providing SMSF compliance packages), it seems clear that there will be pressure on margins because compliance work is increasingly viewed by clients as a commodity.
For accountants, the challenge will be to replace the security blanket of ‘busy-ness’ which cloaks your taxation compliance assignments at present. The opportunity of course is that, if you can substitute other services that clients appreciate more highly, your firm could be significantly more profitable.
A new era in professional services
What, then, should these other services be? Is it a matter of building additional capability and then convincing clients to invest? Or does it require a deep consultation with key clients and the design of services thereafter? The reality is that one should attack the situation from both ends.
Of course, the danger is that accountants will seek to simply re-tool their factory to produce a different service. For example, team members can be trained, software purchased and systems developed such that the firm can become extremely efficient in producing cash flow budgets. The difficulty is, however, that, unless requested by their bank, clients typically do not get struck by the realisation, ‘Today’s the day I need a cash flow budget’. That’s not to say that the client doesn’t need such a budget; it’s just that the client is too preoccupied with juggling working capital to meet seasonal fluctuations and accommodate irregular capital outlays! So the danger is that you have a factory all set to provide a service, but clients are no longer simply ‘dropping their stuff in’ as they do at present with their taxation affairs.
The other side of the same coin is financial planners, who increasingly must move away from remuneration paid by institutions based upon selling a product or charging clients based upon the balance of funds under management. (As an aside, I have always maintained that if one was to take away the legislated right of accountants to income – that is, that everyone must lodge an annual income tax return – then the two professions would look very similar.)
For planners, traditional commission structures and placement fees based upon the size of investment will most likely be replaced over time with remuneration based on the value of the advice provided. Increasingly, the focus will be upon how clients can achieve their long term objectives and the challenges that invariably arise along the way.
See the similarity? Regardless of whether one starts with grudge purchase tax returns or product-based insurance sales, the adviser of the future will end up in a middle ground where the emphasis is on the value which the client perceives in the services rendered. Remuneration will be based more upon client outcomes than the number of hours clocked up or a percentage applied to what has been sold.
Preparing your practice
Firms that manage this transition successfully will become adept at managing client meetings. This starts with proactively engineering such meetings with the client, ascertaining during the meetings what the client is seeking to achieve and then matching the client needs with core capability to provide services that will deliver on those needs. Some of these services will be competencies that the firm has in-house. Yet others will be provided by aligned professionals that are hand-picked and recommended by the primary adviser. Responsibility for coordinating the services will rest with the primary adviser who will be remunerated not just on that component provided in-house, but also for ensuring that the other components are delivered in such a way so as to achieve the overall outcomes desired.
For professionals who seek to ready themselves for this new era in professional services, there are some steps you should be taking.
Firstly, there is little to be gained by ‘holding out’. It’s far better to engineer a ‘soft landing’ whereby services are progressively added to the firm’s capability and introduced to clients. Further, a new style of working with clients needs to be developed; one which equips the professional to take a broader ‘helicopter view’ of the clients’ total situation. Developing skills to help clients articulate their needs and requirements will take time and practice. Putting processes in place to ensure that services from a range of specialists (within and also outside the firm) are all coordinated to deliver on clients’ desired outcomes will require a degree of re-engineering. Importantly, the skills and templates to prepare compelling proposals that clients are inclined to accept will be essential components of each practitioner’s toolkit.
The successful practitioner will appreciate that the value is not in attaching a standard service to the client’s circumstances. Instead, it is brought about by interpreting the situation, tailoring one or more services and most likely coordinating complementary services from other practitioners with whom a combined approach has previously been developed. Clients will appreciate that their professionals are working together such that the advice received is compatible and ensures the end objectives are achieved.
Pulling all this together will likely require some fresh thinking and external guidance. It is here that case studies and role plays can play a part, providing practitioners with hands-on examples to gain confidence and to test out their approach to these client interactions. For a professional’s sense of self-worth, it is important to appreciate that the objective is not to ‘sell’ the client on anything. Instead, it is to take a genuine interest in the client and introduce solutions which will help a client fix problems and/or achieve long term objectives.
Scott Charlton FCA is Director of Fortnum Professional Strategies, a company that provides licensing and a range of other services to ensure that accounting firms retain and enhance their role as a primary financial adviser to their clients. Scott is also the author of “Partnering with Financial Planners – a guide to growth for accounting firms”, published by Thomson Reuters and endorsed by the Institute of Chartered Accountants in Australia. Scott can be contacted via email at email@example.com.
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