Growth opportunity for many tax & accounting firms has come from creating a niche offering, client advisory services
In the Thomson Reuters Institute’s recent 2024 State of the Tax Professionals Report, leaders from many tax & accounting firms highlighted a confluence of factors that are impacting the profession — from the talent challenge to the disruption taking place brought by new advanced technology such as artificial intelligence (AI) and generative AI (GenAI) that is resulting in dramatic changes in how work gets done.
To say that the tax & accounting industry is in a state of continuous evolution is an understatement, especially because many of these ongoing changes are giving way to new opportunities for many firms. Indeed, as their business and corporate clients face increasing complexity in their financial operations, the demand for comprehensive, strategic tax advisory services has surged.
Understanding CAS
Client advisory services (CAS) refer to a wide variety of services that tax specialists and accountants can provide to their clients, according to the Journal of Accountancy. These services encompass a broad range of financial and strategic advisory solutions that go beyond traditional tax compliance and bookkeeping. CAS includes offerings such as financial planning and analysis, business strategy, technology consulting, and risk management. On a simpler level, CAS can include taking over the back office of a business and taking on tasks including accounts payable, accounts receivable, processing payroll, and in some cases conducting the company’s HR function. Overall, CAS is designed to allow firms to provide their clients with actionable insights and strategic guidance to help those clients achieve their financial goals and drive growth in their businesses.
Historically, tax & accounting firms’ bread and butter came from compliance-related services, such as tax preparation and filing, auditing, and bookkeeping. As society became increasingly digital, firms’ role extended to tax preparation. This proved lucrative for decades as tax & accounting firms were able to bill clients for many hours of tax preparation, most of which was done manually and therefore took several hours to complete.
With new technology, the hours’ and days’ worth of work that were previously the norm have been condensed down to minutes and in some cases mere seconds. This resulted in clients viewing their tax services as commoditized and therefore much less costly, at least in their eyes. As clients pushed back on fees charged by firms and firms could no longer able to justify billing the same rates since tax work now required less time, it became a necessity for tax firms to shift their business model away from being a simple tax preparer and toward becoming their clients’ trusted advisor.
The shift to advisory services
While offering advisory services isn’t a new concept for tax & accounting firms — the Big Four and other large public accounting firms have long had it as a part of their offering portfolios — for the rest of industry, however, this wasn’t always the case. Most firms neither had the interest or resources to do so. In fact, in the year following the pandemic, the Thomson Reuters Institute surveyed tax professionals about their feelings toward offering advisory services, and while a few said they were exploring it, most said they lacked the confidence to start. Fast forward to just three years, and later what has changed?
In no particular order of importance, the convergence of several external factors has resulted in CAS being the number one service offered by tax firms today, according to Accounting Today‘s survey of the top 100 tax firms. For some firms, the change in clients’ expectations occurred during and after the pandemic. Client businesses struggled to figure out their best course of action to remain viable in the post-pandemic era. In doing so, they often sought proactive advice and strategic insights from outside tax professionals that could help them navigate complex financial landscapes and make more informed decisions.
For other firms, technological advancements including automation, artificial intelligence (AI), and generative AI (GenAI), as well as the availability of data analytics tools have streamlined compliance work and processes. These technologies have freed up tax professionals’ time, allowing them to focus on higher-value advisory services that clients are now expecting and requiring from their outside tax firms.
CAS is designed to allow firms to provide their clients with actionable insights and strategic guidance to help those clients achieve their financial goals and drive growth in their businesses.
Finally, the pace at which tax regulations have changed since 2017 — a time of the most sweeping US tax law changes — could be head-spinning. Also, global entities are shoring up their tax policies to make sure businesses are paying their fair share, adding more complexity to this mix. Amid this, businesses are in need expert guidance to navigate these complexities and ensure tax compliance in multiple jurisdictions.
All these changes combined to blur together tax firms and commoditized tax work in the eyes of many clients, giving them a more agnostic approach to which tax firm they hired. As a result, many tax & accounting firms needed to create distinct value and specialized service offerings to attract clients.
In the Accounting Today survey, 80% of respondents said their firms were seeing substantially higher demand for CAS than any other niche service, creating a tremendous growth opportunity for firms of any size.
Those tax & accounting firms that can successfully integrate CAS into their service offerings could have a distinct advantage, however, such progress requires a strategic approach involving assessments of client needs, firms’ skills, and technology. Firms should assess their clients’ needs, including pain points, to better determine what services would be most beneficial. Indeed, it might be smart to set up an appointment with the client shortly after tax season to explain how they could benefit from the firm’s advisory services.
Firms should also assess their own talent, making sure that the tax team has the necessary skills and expertise to provide CAS; and their technology, to ensure that it currently does allow for the firm to provide proper and expert services.
Conclusion
The rise of client advisory services represents a significant opportunity for tax & accounting firms to drive growth, enhance client satisfaction, and differentiate themselves in a competitive market. By embracing CAS, firms can transform their role from compliance providers and tax filers to strategic advisors and partners, delivering valuable insights and guidance that can help clients thrive in an increasingly complex financial landscape.
As the demand for comprehensive advisory services continues to grow, those tax & accounting firms that invest in CAS will be well-positioned for long-term success and sustainability.
