BEING AN EQUITY partner in a long-established accountancy practice gives you an interesting perspective on your firm. You are an owner and have legal title, but you are also temporary custodian of a business placed in your trust. That knowledge forces you to think of what you have added during your period of tenure. History will decide whether the business has thrived.
The accountancy profession has consolidated in recent years as the first wave of baby boomer partners approach retirement and seek to withdraw their capital. This has brought considerable change but, over the next decade, a combination of factors will force a far greater transformation. Issues such as changing attitudes to work, new technology and the commoditisation of compliance services will alter the way firms operate.
We asked our younger partners – the future custodians of our business – to develop a vision of what they thought Menzies would look like in 2020.
The traditional partnership structure has changed little since the first accountancy firms were formed, but that is unlikely to continue. The upcoming generation is smaller in number and is saddled with debt and high mortgage payments, so with fewer potential investors available, partnerships will have to adopt wider ownership structures.
The most practical option for most firms will be to make up shortfalls in share capital though the creation of a “corporate partner”. This would be a company owned by the firm’s employees that would have representation alongside the other equity partners. The partnership concept then moves closer to that of the John Lewis model where everyone has an ownership stake.
Another ownership issue is the potential for creating multi-disciplinary partnerships. The Clementi review and subsequent Legal Services Act 2007 sought to make law firms more competitive and innovative by opening up ownership to non-lawyers. Competition will inevitably increase as lawyers, accountants and other professionals join forces, creating multi-disciplinary practices to serve clients. The principle is simple. Removing boundaries between the professions brings better value.
As the range of services offered by accountants broadens, there will inevitably be a greater focus on the value clients place on certain service lines. We can expect the steady commoditisation of compliance to continue. From the moment accountants were given the freedom to market their services, it became obvious that compliance would be sold on price. With improvements in communications technology, we have already seen production being relocated offshore to lower-cost suppliers.
Far from being a threat, this should present a great opportunity for accountants by allowing them to focus on the services their clients value. But it also sets a challenge as firms will have to look closely at their own services and understand precisely what clients want and what they need. This may be a challenge for a profession accustomed to selling time and pricing it according to level of seniority.
In the next decade, the need for compliance will fall but demand will grow for services such as HR advice, business strategy, management information and IT consultancy.
As the range of advisory services broadens, the role of the partner will change. Technical capability will always be paramount but, as firms offer more services, partners will no longer be expected to be experts to the same degree. For some, their role will increasingly focus on account management.
The majority of tomorrow’s clients will come from ‘Generation Y’. Born after 1980, this generation grew up with the internet and places far less trust in both institutions and their representatives. These clients, used to assimilating conflicting information from diverse sources and reaching their own conclusions, will not expect their accountant to know all the answers.
The traditional role of accountant as trusted adviser will shift subtly. Generation Y clients will expect us to know them and their business. They will expect us to be able to use that understanding to co-ordinate a range of experts and work with them to solve problems. Trust will be vested not in our expertise but in our understanding of our clients’ businesses and ability to think strategically.
The transition of Generation Y from youth to middle age will not only change firms’ client portfolios, it will change the culture of firms themselves as today’s juniors advance into more senior positions. Partnerships in 2020 will need to develop a culture that can make room for people with fundamentally different attitudes towards work, salary and career development.
Generation Y not only brings new attitudes to work but also new attitudes towards technology. The accounting profession will be transformed as both transactions and interactions move online. Remote working, flexibility and a greater demand for 24-hour availability will be expected. People may not be working longer hours, but they will be working more varied hours.
In summary, technology, regulation and competition will drive a wedge through traditional accountancy service lines, separating them into those that provide value and those that become commodities. As business owners and advisers, we all know that the most effective weapon in a competitive market is a distinctive brand that offers a strong value proposition.
Accountancy firms still have work to do before their brands are as clearly defined as the strongest consumer brands.
It may never happen to the same extent. In a profession where the adviser is widely recognised as “being” the brand, it is difficult to achieve true differentiation.
But that is not an excuse for failing to try. After all, as trusted custodians of our brand, we have a duty to maintain its integrity, but we must also have the courage to improve it during our period of tenure.
Julie Adams is managing partner at Menzies LLP
HMRC breaches client confidentiality; and partner profits fall at EY. These stories and more discussed in Friday Afternoon Live
Two new audit partners have been appointed at the firm BDO in its audit practice following continued growth and investment
Six new partners have been revealed by top ten firm Mazars
KPMG has announced the appointment of David Campbell as partner within its Enterprise practice.