The value of client advisory services and its impact on the accounting profession can no longer be denied, as recent data shows explosive growth within just a few short years. But even if many firms are now offering these services, it is not certain they will do it well, nor that they will generate a lot of revenue from it.
Speaking at the AICPA Engage conference on Tuesday, Amy Bridges, professional development manager for CPA.com, noted that between 2018 and 2020, the mean gross profit margin for CAS went from 34% to 47%; she contrasted this with profits generated by more traditional CPA firm services, which grew from 28% to 34% in the same time period.
“Client advisory services are really growing and becoming a strategic part of most CPA firms,” she said.
The past four years also saw a 20% median net client fee growth rate for CAS practices, which is almost twice the rate for other areas in the profession. She said it also outpaced firms’ expectations.
“In 2018, we asked firms to predict what they thought their growth would be, and they predicted 15% growth. But what they reported was a median growth of 20%. So it’s not only outpacing the profession, it’s outpacing our expectations,” she said.
CAS practices were further differentiated from traditional practice areas in how they are billed, with the majority, 60%, shifting to fixed-fee billing versus the more traditional hourly rates, which she said was a result of technology.
“The real shift has been moving away from time and materials billing. The bottom line you hear when talking about CAS is you become more efficient as the technology gets better. As you are more able to use technology to support you, the amount of time [the work] takes falls and the value to your clients goes up. There’s no reason to continue to bill hourly for something that won’t take you as long,” she said.
The data came from the AICPA’s second CAS Benchmark Survey, the first of which was conducted in 2018. From this survey the AICPA found that, though CAS growth was everywhere, different firms were at different levels of development and profitability when it came to this practice area. While there was a huge diversity of firms getting into CAS, Bridges said that the latest data showed there were certain commonalities among the high performers.
It did not necessarily have to do with the types of services offered: While top CAS services did grow over two years, they already accounted for a very large portion of client engagements anyway. Financial statement preparation grew from 93% to 98%; CFO advisory/controller grew from 86% to 92%; accounts payable grew from 88% to 90%; forecasting/budgeting went from 85% to 89%; and payroll/1099 services grew from 81% to 89%.
The differences had to do more with internal firm practices. The most successful CAS practices, for example, invest a great deal of time and resources into developing their staff. The survey found that 84% of the top performers send their staff to attend vendor training or certification programs versus 65% of all respondents; similarly, while 60% of top performers invested in outside learning opportunities for staff, only 44% of overall respondents did. Meanwhile, 48% of top performers developed their own internal CAS training program, versus 37% of overall respondents.
“The investment in talent and training is an important part of what’s happening. Top performing firms are really able to communicate the value of what they do in a way that some firms who are still getting into these services started may struggle with,” she said.
Similarly, attitudes toward remote work were another major division between the top performers and everyone else. By an overwhelming margin, top performers were much more friendly to remote work than respondents overall. A full 79% of top-performing CAS practices have embraced remote work. Meanwhile, 75% of top performers said they were surprised by how well the move to remote work went, and expect more remote work going forward, versus 59% overall.
There was also the matter of what these staff were doing. Another commonality among top-performing CAS practices is the presence of dedicated professionals who work in this area, just as surely as tax people work in tax and audit people work in audit. Beth Allen, a partner with GreerWalker, one of the aforementioned top-performing firms, is one example. She said that, with the exception of an admin person, all the staff in the department are 100%-devoted to CAS services; she conceded this can create something of a culture shock for accountants who come in from other areas.
“There’s always that transition period, and that’s where I see and very much say we won’t have shared staff because even in a transition period, as they wrap up their work, we see balls getting dropped and projects not done on time because you’ve got two different focuses stealing your time. So that’s the message to our partner group: We need to make these transitions as short as possible, when they can be 100% dedicated to CAS,” she said.
Technology was another commonality among top performers, who were more likely to use things like workflow tools (87% versus 77% of overall respondents), dashboards and alerts (78% versus 66%), budgeting and forecasting software (48% versus 44%), AI (30% versus 21%) and robotic process automation (22% versus 15%). At the same time, the poll found that these firms tend to be judicious when it comes to what general ledger programs they use: 88% of top performers support three or fewer programs. In contrast, only 12% say they support whatever GL software the client is using, versus 21% of all respondents.
Scott Lazarone, a partner with Faulk and Winkler, which is also among the top CAS performers, said that his firm will occasionally accept a client who is not on either of the firm’s two supported programs, though commonly they convince the client to make a switch anyway.
“We’ve gotten to where even in our proposals we show the price difference: This is the price with our tech stack and this is the price on your own and once they see that difference they ask about it and we talk about efficiency and experience. Most of them, they see that price difference and they’re more willing to go to our technology use,” he said.
One thing a top performer does not have to be, however, is big. In fact, according to CPA.com’s Bridges, some of the highest CAS fee income came from practices in the $1-2 million range. These firms boasted median net client fees per client of $24,133, higher than even practices of $4 million or more.
“The largest firms are not necessarily generating the highest firm professional fees. What we are seeing at CPA.com is a lot of what we think of middle and even smaller size firms being very efficient and optimized and effective CAS practices, particularly when they get really focused. So the idea that, as a smaller firm, this will never be important to you is certainly not true when it comes to CAS,” said Bridges.
Allen, the GreerWalker partner, noted that once a practice gets to that level, it tends to start looking for more efficiencies without adding staff, which could explain why they’re able to collect more client fees than larger firms.
“By the time you get to that point, you understand your current processes and procedures,” Allen said, referencing her own firm’s decision in 2012 to step back and evaluate its growing practice. “What we feel now is we have a completely new look at these processes and procedures to grow and really keep our staffing relatively consistent to grow efficiencies and raise these net client fees per professional.”
Not that big firms can be counted out entirely: They still led in median net client fees per professional at $160,189. That being said, the $1-2 million firms weren’t far behind: $144,000.