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In this episode of the INSIDE Public Accounting Podcast, Rob Brown and Chelsea Summers unpack key findings from the June IPA Insights Report.

They discuss early practice management survey results, including slowing growth, rising technology investments and an unexpected decline in advisory revenue. They also explore findings from a joint advisory survey with Rosenberg Associates, revealing that talent and partner alignment, not client demand, are the biggest barriers to advisory growth.

The conversation examines rapidly growing niche practice areas, the current reality of AI adoption, overlooked KPI metrics such as net revenue retention and concerning succession planning trends across firms.

Whether you're evaluating advisory services, considering niche specialization or preparing your firm for leadership transitions, this episode provides practical insights grounded in IPA's latest data.

Learn more and order the IPA Insights Hot Topics Report at: https://insidepublicaccounting.com/about/ipa-quarterly-insights/

Welcome back to the Inside Public Accounting Podcast. I'm Rob Brown and I'm here today with Chelsea Summers, Executive Director of IPA, to walk through what's inside the June IPA Insights Report. Chelsea, before we deep dive, what are these insight reports?

Yeah, so IPA's insights are four quarterly reports that we publish based on the data that we have through our survey. So in the spring, we published one in April that was a trends report. So we looked at 10 to 20 years worth of data. June, we call our hot topics report. So we look at different very timely topics and how the data affects those. And then in August, we're gonna do our IPA 500. So those 500 largest firms in the United States.

And then in October, we look at the IPA best of the best, those top performing firms and what they have in common. So those IPA insights really give us a space to dive even deeper into the data in different aspects than we can in our one ⁓ annual report.

These are really popular, aren't Chelsea? People love getting these regularly.

Yes, we cannot put out enough data for our audience. So they they love any way to look at the data. And especially ⁓ you know, when we look at those historical trends. And then in June, when we're looking at the more timely topics, you know, everything's changing so quickly. So it gives us the space to talk about those things that are moving very quick. And then of course our IPA five hundred is is always very well received as well.

Indeed so. And inside public accounting, they produce data that's not available anywhere else. Some of it you charge for quite rightly. ⁓ some of it people can get on your website and your other outlets, including this podcast. but this is stuff that's not just the data. You're very good Chelsea at telling the stories behind the data and what it means. So I know there's a lot packed into this June IPA insights. ⁓ where do we even start?

Yeah, that so there really is a lot in this month. And something that caught my attention right away, we always do a preliminary look at our practice management results. So ⁓ we had about 350 firms who submitted so far out of the around 600 that we expect. And we're seeing some interesting trends already.

Now this comes out in September, doesn't it, the Practice Management Report? This is one of your flagship documents. So tell us what's jumping out from the early results.

Yeah, so there was a few things. So growth continued to slow, which was what we started seeing last year. Organic growth was tracking around seven percent, which was down from 7.7% last year. And then that overall growth that included mergers was around eight. And that's a small but pretty meaningful movement. ⁓ but I think the number that that's gonna get people talking is advisory revenue.

Wow, so that's gone down. That feels counterintuitive given how much people are talking in the profession about advisory and how it's the future and and how they're investing in building it out in their firms.

It it really does, but I do want to be careful about overreading the results at this stage. The early submitters, so a little over half the firm submitted, and those early submitters may skew more compliance heavy. So we could absolutely see that number shift once we have a full data set. But I'm watching it really closely. And I think the other trend that I'm gonna highlight is technology spend.

We expected it to climb and we're seeing it climb. It went from 5.5% of revenue last year to 5.9% so far this year. So that's not necessarily a huge number by itself, but it's really consistent with what we're seeing across the profession. Firms are investing. One more data point is on the profitability side that net income per partner is up about 35,000 year over year. That's that's a really healthy sign.

There's there are some positive signs there, but a few asterisks as well, or ⁓ as we would read that, more to follow, or there's a lot more behind the stats than you would think.

Yeah. And the the full practice management report, like you said, will come out in September. ⁓ and if you want to order that before the price increases, there is preferred pricing ahead of our June deadline. ⁓ the link to order the full report will be in the show notes and and then you can kind of see where that data has ended up. Did did advisory stay going down? is the technology cost still about six point six percent of revenue? You can really dig into that data a little bit more.

And it's worth mentioning, Chelsea, that we give a little overview on this podcast here and we put things out in the insight reports, but there's a whole wealth of information in here that we know accounting firms make strategic decisions on.

Yeah, exactly. And our reports really dive into specific revenue ranges as well. So when we talk through it, we're talking generalities. Here's what all firms look like. But if you're a five million dollar firm, that's gonna look a lot different than if you're a five hundred million dollar firm. So our reports really let you dig into that.

Certainly things you can't get anywhere else. So look out for that. ⁓ let's talk about the advisory piece a little bit more. That that was fascinating. There's a full article on it this month too, right?

There is. And I think this one's going to be really good. We partnered with Rosenberg Associates and we did a mini survey of managing partners of accounting firms. We had 181 firms participate. And that was on where advisory actually stands today, on what services they're offering, what's driving the growth, and then what's holding firms back from more growth. One of the most important findings was that the bottleneck of growth isn't where most people would assume it would be.

That sounds intriguing. You got me thinking that where most people think that would be. So what do you mean by that?

Yeah, so most people might guess that it's maybe client demand or trouble with pricing or issues with technology. But when the firm right when the firms were asked what's holding you back from scaling your advisory, the top two answers were talent availability and then partner time and alignment. So business development and pricing confidence really didn't register. The issues are internal and it's the organizational maturity.

That's where I was going in my head, yes.

That's interesting because I've always thought that the problem with the whole advisory piece was firms don't know how to price it and package it, ⁓ let alone deliver it. But you you're talking here about firms know how to do the work. They're just not structured to scale it.

Exactly. And they don't have the partner buy-in and alignment to make it a priority. And there's another finding that I think pairs with that. When we asked whether advisory work at their firm is proactive or future focused and holistic, only 28% strongly agreed, with 15% either disagreeing or strongly disagreeing. So there's a real gap between firms that offer advisory services.

And then the firms that have built an advisory culture and operating model.

That's fascinating. There's gonna be so much in the report that firms can learn from to to integrate that into their practices. What's the service mix looking like, Chelsea? Where are firms actually growing?

Tax advisory and CAAS or client accounting services. They're essentially universal at this point, offered by nearly every firm who took our survey. And the service category that stood out as the next big growth driver is that CFO and controller advisory. So a significant number of firms are pointing to that as where they expect the most growth in the next two years.

CAAS seems to be functioning as sort of the the gateway where once you're embedded in client operations through that service, the advisory relationship will expand from there.

Makes complete sense. And it does need some clarification because if I ask a hundred people what CAAS is, I'll get a hundred and ten different answers. So it's great that you're putting this into the narrative. And with advisory, it's worth mentioning you've got a guest coming along that's gonna hit a future episode on this topic.

Yeah, I'm excited. Matt Rampe of Rosenberg Associates has done a lot of work with firms on advisory strategy and contributed to the article in this issue and partnered with us on the mini survey. So we're gonna have a full episode with Matt coming up. So I don't want to dive too deep into the piece right now because I want to save it for the conversation between Matt and I, but he has some pointed observations about what the data actually means for firms and some of his implications for.

actions are things that I don't think firms are hearing enough of. So stay tuned for that one in the next couple of weeks.

Quality, we definitely look forward to that one. I've had the pleasure of interviewing him a couple of times. Let's shift gears, Chelsea, for a

There's also a niche practice area article in this issue, and I know you've got some pretty striking data here.

Yeah, I think the numbers are really concrete in this one. We looked at which niche practice areas have grown the most aggressively over the last five years. Some of those growth rates are really remarkable. Construction is leading all niches with 697% revenue growth since 2020. Family-owned businesses is right behind that at 559%. So entertainment, auto dealers, and technology are also all up pretty dramatically.

They're not small numbers.

They're not. And I think it's it's important to compare them to the established niches. So manufacturing and distribution is still the largest niche by revenue share, about 13.5% of revenue among the firms that are reporting, but it is still growing. And then we have healthcare, financial institutions, and banking, which have both lost revenue share of the same period, but they're still large markets. Some of that might be some consolidation more.

the revenue is concentrated among a few highly specialized firms. Some broader signals is that the those generalist practices are under real pressure. And the clients in complex industries are increasingly migrating towards towards firms with genuine sector debt.

Yeah, that does make sense to me. And there's a lot of emerging markets as well, emerging sectors that firms are operating in. It's difficult being a generalist and trying to be all things to all people. And this is going to be really instructive for firms in that ⁓ helping them decide which areas they're going to go into, which they're going to pull back from. So what do you think firm leaders should take away from this?

question to ask is whether your fastest growing niches are actually growing their share or just growing because the market in general is growing. Secondary secondary question is whether you're positioned in any of the areas that are dramatically outperforming. Construction and family-owned business in particular are really not narrow markets. There's a lot of runway for firms who haven't committed yet.

Yeah, of course.

Yeah, I'm just thinking of that analogy of a pie. Is your piece of the pie getting bigger or is the pie itself actually getting bigger? We've got to mention AI. Chelsea, it's the one of the topics of conversation at the moment in accounting firms. There's a significant piece in this issue on AI. Tell us what we're seeing there.

Exactly.

Mm-hmm. Always.

Yeah, so this ⁓ article drew from responses from 192 of our firms that participated in the information technology survey this year. So it's about half of our total participants that we expect, but still a really solid data set. And the big takeaway that I saw was that the profession has moved past debating should we adopt AI? More than half the firms are now actively deploying it or in some form.

⁓ but there's a real gap between the adoption of AI and then the results from AI.

Yeah, that that is an interesting thing. What does that gap look like? You analyze these gaps really well in your data.

So 44% of our respondents said there was no measurable impact from their AI investments. So firms are investing ahead of demonstrated returns. Interestingly, that number is pretty steady across firm sizes. So where firms have seen results, the most common outcomes are shorter turnaround times and improved employee satisfaction. The decreased staffing needs, which is what a lot of

people thought would be a big outcome was only reported by 4% of firms.

Well, that is surprising to me and probably to a lot of people. Just on the the AI adoption, the hype is way ahead of the reality, isn't it? That's what we can say right now. But yeah, that that start 4% of firms, that's ⁓ something.

Yeah, I I think it will surprise people. And maybe it won't be an outcome of the AI adoption, the the decrease in staff, but maybe it just hasn't caught up to the investments that have been made. But another thing that stood out to me was that 55% of firms are only using a quarter or less of the AI capabilities that are already in the software that they own. So before firms go and spend more, there's a

conversation that needs to be had about whether they're using what they already bought or already have.

Such an important conversation. Let's stay with that for a moment. How many times do firms go out and buy a new piece of tech or software because they perceive a gap and they don't really take an inventory of what they're using right now? So just pause on that for a moment, you firms, and and examine your tech stack a little bit more. Talk to us more generally, Chelsea, what's some of the big barriers holding firms back?

So the firm's top concern, regardless of firm size, was the risk of disclosing private client information at 53% of respondents. So that actually ranked above cost or unclear return on investment. So that shows you firms are really taking confidentiality seriously. For the smaller firms, we saw lack of internal expertise and cost as bigger pain points, where the larger firms are wrestling with.

governance and data privacy as their adoption scales.

And this is one of the outstanding things about the data that you collect. It's from all different kinds of firms and different sizes of firms because as you make apparent in your research, different problems occur at different firm sizes.

Exactly. And on the training side, that gap in sizes is is very stark. The firms over 100 million, 69% are offering training to staff. And then for firms under 10 million, that number is about a quarter. So the full IT report with all this data is gonna also come out in September. So a lot more depth on this on this topic, and we'll have the full all of the participants in there at that point. And so we can really dig into the data.

Yeah, I can't wait for that one. Now there's an article on KPIs this month, Key Performance Indicators ties in nicely to all of this conversation about how firms are measuring performance.

Yeah, the framing of this article is really the question every firm that's moving away from hourly billing has to answer. So if we're not tracking hours, what do we track? So the article lays out 10 KPIs that can help give firms a complete picture. Things like revenue per client, revenue per FTE, which we've talked a lot about, leverage, voluntary turnover rate, net revenue retention.

Yeah.

These are all metrics that reward output and value rather than just busyness and hours. My favorite one on the list, I think, is probably net revenue retention, because a rate of above 100% means your existing clients are spending more with you than they did last year. I think that's a real clear signal of whether your advisory and client relationships, if that work that you're doing is actually landing with your clients.

I really like that. Net revenue retention. That's not a metric that gets talked about a lot.

No, it is not, but I think it's one that firms should start looking at, especially as you add new clients. ⁓ you could still be eroding your existing relationships. So that net net revenue retention will really help surface that. And the article has some framing at the ends, which is that no single metric will tell you the whole story. I think the goal of looking at metrics is a balanced mix of financial health and people metrics and client indicators. So

These ten were in were developed as a a strong starting foundation, not the end all be all metrics.

Yeah.

And the reason why they're gonna be a must see is if we asked a hundred different friendly, there's one of the top ten KPIs, they wouldn't be able to come up with a definitive list themselves. I was really pleased to see a piece on succession planning in here. That feels timely, Chelsea.

Yeah, it it's a little bit of a wake-up call. So the headline finding is that only 55% of firms have a formal succession plan for the managing partner CEO role. So nearly half of the firms don't have a documented path for what is the most consequential leadership transition they will ever face.

that's a really low number. I'm frightened by that.

Yeah. And the the number gets lower as the firm gets smaller. For firms in the five to ten million dollar range, only 42% have a plan. And when you look at the succession planning for your senior administrative staff, your firm administrators, COOs, HR leaders, 26% of firms have a transition plan. For some of the size segments, it's as low as 12%. So those are people who carry enormous institutional knowledge.

And their departures can be just as disruptive as the partner leaving.

What about the client transition side, Chelsea? How are firms handling that piece?

So that was a bright spot in the data when I was looking at it. 79% of all firms have a formal client transition process for equity partners. So that is encouraging because client retention through a partner departure is often the most financially consequential piece. The challenge is that number drops to one and a third for those very small firms under 5 million. And those are often the most relationship-dependent practices.

And there's also a retirement notice piece, which I was surprised by. That catches people off guard, but it's a really important piece.

Yeah, 16% of all firms require no notice at all from a retiring partner. And for firms under five million, that's 44%. So think about what that means operationally. A key partner can leave without any runway for transition. And the firm then has to scramble to reassign client relationships, to stabilize the team and maintain all that continuity at the same time. So the firms that have figured this out, which is often the larger firms.

have a two year minimum as a standard and I think that's a really good model.

Yeah, I'm just thinking of all the knowledge that's in the partner heads there and they're going at the at the click of the fingers. So as always, Chelsea, we like to give practical applications to what we're learning here. What are the action items for firm leaders listening to this show?

So I think you should start the conversation today if you haven't already. Even a draft succession plan is better than no succession plan. So build in notice requirements if you don't have one and treat your client transitions as a documented system, not something that you would put together when the partner announces that they're leaving.

This is a very beefy issue, as we say, here in the UK. Substantive, it's significant. There's a lot going on for the listeners to dig into here.

Yeah, and I want to reiterate that a lot of what we covered today is just a taste of the full content. The articles and the report go deeper on all of these topics, and preliminary survey data is something we're going to be watching really closely as the submissions come in. So if you want access to all of the the fuller data than we talked about today, ⁓ the link to order the June IPA insights is in the show notes. And keep an eye out for our upcoming episode with Matt Rampe, where we talk about advisory more. ⁓ that is going to be a great conversation.

Thanks everyone for listening to the INSIDE Public Accounting Podcast. We'll see you next time.