Consultancy: The Top 50 +50

MOUNTING PRESSURE on profit and fees in audit and compliance work is leading firms to reposition themselves as broader advisory businesses, data collected by Accountancy Age shows.

According to the Accountancy Age Top 50 +50, firms have continued to become more consulting-based in their approach to clients, with three out of the four largest firms reporting double-digit growth.

Deloitte, KPMG and Ernst & Young all made significant increases to their consultancy incomes in the past year, while PwC failed to provide data in this area. E&Y made the biggest strides, posting a 20% increase in consultancy fees to £370m.

However, KPMG remains by far the biggest player with consultancy fees of £859m, representing a 10% increase on the previous year. Indeed, the size of KPMG’s consultancy practice dwarfs that of its audit/accounting and tax services, which produced incomes of £456m and £392m, respectively.

While the firm remains the third-largest auditor in the UK based on income, Richard Fleming, KPMG’s UK head of advisory, concedes it is very hard for the largest firms to “have a strategy to gain market share”.

“Audit is a very mature market,” Fleming explains. “To really add value to clients, you need to have skills that are C-suite and be engaged as to what is important to their business. You want to be a trusted business advisor.”

It is not only the Big Four that are beefing up their consultancy work. Of the 23 other firms that provided information, 12 reported increases, compared to six that posted a decline in income and five that remained flat. Within the top 50, star performers included Bishop Fleming, which doubled consultancy revenues to £0.2m, and Littlejohn, which posted an impressive 51% increase to £0.8m.

Menzies, ranked 23rd, has been busy growing its consultancy practice through strategic partnerships and acquisition, although this has yet to come through in the firm’s figures, which showed a 5.4% decline. During 2012, Menzies announced a joint venture with Insight Management & Systems Consultant to develop and grow specialist systems consultancy and recently merged with TAL-London, originally the London operation of Target Consulting Group.

“Consultancy is something we are spending a lot of time on,” says Menzies’ managing partner Julie Adams. “HR consultancy has been good for us. We have got an excellent HR department, so why not spin that out to clients?”

Although firms ranked 51 to 100 did not provide a breakdown in overall fee income, their smaller size has not prevented them from targeting consulting work as a way to grow their practices.

Bobby Lane, partner at Shelley Stock Hutter, which appears in the list for the first time at number 78, says the firm’s outsourcing practice has been growing at a rate of about 25% to 30% a year.

According to Lane, the demands of clients are changing. “They need someone to deal with issues around financing, challenges around working capital and access to finance. We have gone from compliance role to being an expert that can offer a broader range of services,” he says.

Lane adds that providing “added value services” will generate traditional compliance work for firms. But accountants are hardly the first profession to broaden the scope of their offering to win more business. Insurance companies and brokers have already moved in this direction with Aon, the world’s largest insurance broker, providing human capital consulting services through its Aon Hewitt division.

A move towards consultancy work will also see firms compete with the likes of Mercer and Towers Watson. However, Lane is confident that accountants “are best placed to talk about the business” given their existing knowledge of their clients’ financials through the provision of audit work.