When I was slaving away at my accounting studies in the latter half of the 20th century, mention of the word “consolidation” struck fear into my heart and those of my fellow students. Our worst nightmare was that there should be a complex question in the final examination on this unexciting and essentially illogical accounting topic. The very existence of “consolidations” was enough to convince me that being a real accountant was not for me, and so I’ve spent the balance of my career unsuccessfully seeking to avoid any exposure whatsoever to the accounting process.
However, during the course of the last few years, consolidation has come to mean something completely different and its new embodiment is attracting the undivided attention of accountants across Australia and around the world.
These days, consolidation refers to the process whereby accounting firms of all shapes and sizes are merged into a corporate structure, usually publicly listed, thus enabling access to capital to the former partners and access to working capital, expertise and new services to the consolidated business venture.
The drivers behind the move are numerous, but in Australia the principal issues include:
a) the massive growth in the funds management industry caused mainly by the move to compulsory superannuation. The result is a superannuation industry managing $500 billion, and promising to grow to $1 trillion within the decade;
b) the need by institutional product providers for access to distribution, which, it is perceived, accountants could control if only they’d get their act together;
c) the nature of the work in traditional accounting practices, which for the most part has become low margin, process driven, commoditised and increasingly worthless;
d) as a corollary of (c) above, the ability of partners in firms to actually receive, via consolidation, a “fair value” for their hard work in the form of cash and/or publicly listed shares; and
e) the worldwide trend towards the industry of advice, rather than the industry of accounting, whereby accountants may transform themselves into high margin providers of a range of financial advisory services in a multi-disciplinary environment. The proposition behind this trend is that clients don’t care whether the services they want and need are provided by chartered accountants, CPAs, financial planners, lawyers, insurance agents, bankers or even used car salesmen. All they want is a comprehensive one-stop financial advisory service, co-ordinated by a person they can trust.
Is this trend towards consolidation simply another “flash in the pan”, which will eventually be consigned to the scrap heap along with other ideas that become fleetingly fashionable in the marketplace for a year or two, until something else attracts the attention of institutional analysts? Or does the consolidation concept have substance and longevity?
Frankly, if the answer to the first question is in the affirmative and to the second, in the negative, then one must question whether the accounting profession has any meaningful future at all.
The reason for this is that the consolidation concept offers interested practitioners, and indeed the profession as a whole, a substantial opportunity to transform itself from the low margin, process driven, form-filling, tax collecting occupation it has become for the most part, into the high margin, client controlling, value adding profession that it should be. In other words, without the success of consolidations, the risk that the accounting profession faces is that we will simply become marginalised and wither on the vine.
I have no doubt that this analysis will be confronting, if not irritating and objectionable to some people. However, it is a simple proposition that unless our profession is in control of our clients’ wealth creation aspirations (not just their tax returns), then we have no future.
If the accounting profession does not rise to the occasion and enthusiastically adopt a control position in the distribution end of the financial services industry, then the market will decide that our profession is actually what we have always been perceived to be… bookkeepers, form fillers and tax return preparers.
And if that perception takes hold, the value of our profession and the interest by consolidators in us, will plummet.
If there has ever been a time when accountants need the attribute of vision, for which they are not renowned, it is right now. For those who don’t have it, slow death will be the result. However, for those who do have it, the future has never looked better.
— Robert M.C. Brown is an executive director of Bridgeport – Advisers & Asset Managers.
