PracticePeople In PracticeDo partners have fee income pulling power?

Do partners have fee income pulling power?

An increase in partner numbers doesn't necessarily mean an increase in fee income or does it?

ALTHOUGH we are in a midst of a credit crunch, the Big Four have continued their recruiting rampage, including directors, graduates and school leavers. But why the interest in them when fee income is generally falling?

In the most recent Accountancy Age Top50+50 survey it was revealed that three of the largest four firms had seen their fee income shrink.

PwC was the only firm to see a marginal growth, of just 4%, with Deloitte reporting a 0.8% decline alongside KPMG (1.5%), and Ernst & Young (2%).

However, in PwC’s latest results published this week (12 September), it highlighted the drive to increase its staff numbers further, not to reduce and reign in its spending.

In the last year the firm had 89 new partners, 49 from internal promotions and 32 from external sources.

Bucking the trend PwC also managed to bolster partner profits to an average of £763,000 per partner from £759,000, despite the increase in their numbers.

According to Ian Powell, PwC chairman and senior partner: “The people cost has increased by about 6% in the last year, but our people worked incredibly hard and got rewarded.”

Powell has also set his sights on A-level students, taking on more now than ever before. His reasoning is that the firm should have a diversity of students, and they should not be penalised for deciding that university is too expensive for them.

He calls his drive to recruit talent “investing in the recession”. However, his theory is that the only way to grow the fee income and expand the business is to invest in the staff in service lines, including sustainability, which now has more than 100 people, compared with about half that figure two years ago.

However, historically there is no evidence to suggest that partner numbers will increase fee income. According to figures published in the Accountancy Age Top50+50 survey the firm’s partner numbers grew from 822 in 2008 to 858 in 2010 with fees per partner staying the same at about £2.6m. Despite the increase in partner numbers, fee income increased just slightly to £2.2bn in 2010 from £2.1bn in 2008, highlighting fee income is not necessarily affected by how many partners are on the books.

In 2011 PwC even reduced partner numbers to 845 and saw its fee income rise to £2.3bn from £2.1bn the previous year.

Deloitte made a significant push to bolster its partners according to the 2011 Accountancy Age Top50+50 survey to 953 from 681 in 2010.

However fee income with all the new staff dropped marginally to £1.96bn in the 2011 survey (Deloitte’s 2010 figures) from £1.97bn in the 2010 survey (2009 figures).

KPMG and Ernst & Young had similar issues. In 2011 KPMG had 576 partners who pulled in £1.6bn fee income, but this is a decline in fees from the £1.63bn racked up by 569 partners in 2010

In the most recent survey, Ernst & Young had recruited an extra 19 partners but fee income dropped to £1.35bn from £1.38bn on the previous year.

graph-partner-number-big-four

Outside the Big Four RSM Tenon posted its results recently and highlighted that its headcount had reduced by about 200 people in the past 12 months and had no plans to increase those numbers in the coming year. The listed firm also managed to increase turnover 31% to £249.1m.

On the face of it, it looks as though PwC was the only firm in the last survey to decrease partner numbers and pull in a growth in fee income, but Powell is sure that investing in the recession is the right way forward. He has even vowed to create a further 600 jobs made up of staff from all levels in the organisation in the next 12 months. All eyes are on PwC’s gamble and whether its fee income will suffer as a result of staffing costs.

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