Within a single office at the heart of the City of London, Buzzacott’s accountancy practice has an intriguing range of services. “From nuns to hedge funds” acts as a kind of unofficial slogan, reflecting the diversity of Buzzacott clients. Buzzacott practices for some religious orders, and has an important specialism in accounting for not-for-profit charities and foundations. These are not, it is safe to say, standard sectors, and so it is possible to begin to see how a practice in hedge funds – so contrasting in so many ways – fits in to the overall Buzzacott offering. Finding niche specialisms and then trying to excel in them is integral to the Buzzacott business model, building around the experience of their key people.
The origins of the firm are venerable, stretching back almost 100 years to a Mr Fred Buzzacott, a munitions accountant who set up his City practice after the First World War. Accountancy has changed beyond recognition since then, but Buzzacott is still situated in the shadow of St Paul’s Cathedral (albeit after several office moves around London over the years) and has not gone down the path of mergers and multinational expansion, save for a small office in Hong Kong to service expatriate tax clients. David Jarman, a partner and the head of the practice for FCA-regulated firms, describes them as “the largest single-office accounting firm in the UK.” This is not to say that Buzzacott has not grown, or that its services remain the same as they did even 10 years ago, but rather that the firm targets specific sectors in which it can point to unique expertise. Jarman describes the way in which Buzzacott has changed as one of positioning rather than of growth: “Whilst a lot of the mid-tier accounting firms took a while to specialize, we have always been a niche practice, and therefore our focus is developing niches,” he says.
In the last 10 years the hedge fund practice has become an important example of this niche focus, developed, as Jarman says, “on the back of key individuals who want to develop the business.” It was Jarman himself who spurred the hedge fund specialism, bringing with him his contacts from a career spent in the financial services sector. He trained at Rees Pollock, helping to set up the hedge fund team, before moving to Moore Stephens and doing the same again. In 2003 Jarman joined Buzzacott, and in the 11 years since then he has helped to make the hedge fund business an important part of the firm’s offering. Buzzacott was well suited to a move into hedge funds because of its long-standing expertise in advising US citizens based in the UK, many of whom worked in the banking or fund management sectors. “A lot of the initial growth,” Jarman says, “was building on existing contacts, as well as targeting many of the US hedge funds setting up offices in London. They have always been a constant supply of business, even in the early days.”
The constant supply of business had been based, Jarman says, on “our US tax expertise.” US firms wanting to set up UK subsidiary LLPs obviously face a huge amount of structuring issues, on both corporate and personal levels. Buzzacott’s US expatriate tax practice thus provides a useful complement to the hedge fund business. Even after the inevitable slowdown with the global financial crisis, US firms looking to set up in the UK are still “an important source of business.” Jarman is confident enough in their offering to describe the firm as “the leading providers of accounting and audit services to subsidiaries of US hedge funds,” advising some of the biggest names in the US hedge fund industry in the process.
This is not to say that US inbounds are the only source of business for Buzzacott. They aim to be a “full service, one-stop shop for smaller FCA-regulated businesses,” including private equity funds, brokers, and corporate finance firms along with hedge. Alongside the audit business, run by Peter Chapman, Buzzacott has a team of 40 people providing a long list of back-office services which these firms don’t want to deal with: the bookkeeping, payroll, VAT, HR consulting, benefits support and regulatory reporting – the latter of especial importance in the last few years. Jarman’s day-to-day role consists of coordinating all of these separate services so that they work seamlessly in the background. Jarman notes that, “It’s great to be a one-stop shop, but if all the parts aren’t working together and there isn’t a sharing of information there’s no huge benefit in being a one-stop shop. It’s quite challenging, making sure you’re on the ball all the time. You’re taking a lot of information and it’s all being shared.”
Setting up the back office for smaller firms is “bread and butter to us,” says Jarman. More than a decade into Buzzacott’s hedge fund practice, the simple assurance of a reputation for reliability has become an important part of the offering. Jarman says, “The biggest thing for us is making sure that they trust us to basically hand-hold them through the process, and they take assurance from the fact that we’ve done it hundreds of times before. It’s being there and understanding what they need and understanding that they need to get assurance and trust in us to be able to outsource and say, ‘You get on with that. I’ll focus on getting this up and running.’”
Buzzacott offer the full accounting service from start-up to wind-down, but can offer a “bespoke” service if desired to those firms that only want advice on the start-up structures. Often though, relationships that were envisaged as temporary stretch on beyond that. The outsourcing model is well established because of the difficulty and spending required in setting up all back-office functions in-house, and Buzzacott is prepared to take “a long-term view” on prospective clients. And, of course, Buzzacott can offer their experience as well as accounting services. Jarman is clear that he views Buzzacott’s offering as much more than a simple accounting service for hedge funds, increasing the value for money of their services: “We’re part of their business for a lot of them. A lot of them see us being there as being their finance team or being their CFO. It’s a connection that means that we are often a sounding board for proposals on change and development, whether they be regulatory, taxation or strategic.”
Being available as the first point of contact on any issue can be demanding, particularly when clients are working in different time zones, but for Buzzacott it is an important selling point, differentiating them from some of the bigger accountants. Having a huge multinational operation can obviously have advantages, but it can also lead to frustrations. Clients in need of advice are often priced out of talking to partners because their time is so much more expensive, and there can also be frustrations in being passed around various people who are unfamiliar with the client’s business. The single-office set-up obviously obviates the bureaucratic complexities of bigger firms, and Buzzacott prides itself on the availability of partners to advise clients. This might be seen as a problem with the aforementioned time differences, with West Coast private equity and hedge fund managers who might need to pick up the phone at the end of their working day, but some of the Buzzacott managers work US hours to get around this.
For the moment opening another office is not on the agenda, although “It has certainly crossed our minds.” The Hong Kong office is small, but opening in the US would be another proposition entirely. Jarman and others regularly travel to meet clients, but they don’t feel theneed for a permanent presence, as the businesses Buzzacott is advising are all UK-based, even if the finance teams are on the other side of the Atlantic. On the odd occasion that more specialist knowledge is required, Buzzacott can turn to PrimeGlobal, the worldwide association of firms who share the same standards. Growth is still an aim, however. Recently a growth area in Buzzacott’s hedge fund practice has been in consultancy and benefit support for larger managers. As they gain a reputation in specific services through work with smaller managers, some of these services are scalable to the larger firms.
The consultancy services that Buzzacott provides are wide-ranging, covering the normal accounting areas, but for hedge funds and other regulated entities, advice on regulatory reporting is an important aspect of the offering. Priya Mehta, an associate director, heads up the regulatory reporting and consulting service at Buzzacott, taking the stream of new regulation and working out exactly what applies to their various FCA-registered clients. Despite being a trained auditor, Mehta’s role is now much more the role of a consultant; she synthesizes all of the various regulations and negotiates the rubric to work out how to actually deliver what is required. This is something that, as Jarman says, “the smaller funds aren’t necessarily geared up to provide.” Mehta describes her role as offering “a holistic approach in terms of taking away the whole reporting burden from the fund manager.”
Mehta began her career at the erstwhile Ernst and Young (now EY), where she was “pulled into regulations”, working with some of the largest UK hedge fund managers, and being seconded to Fidelity Investments. However, even with this experience at the heart of a heavily regulated industry, she did not expect quite the pace of regulatory upheaval that has been evident since the financial crisis spurred policymakers. “Literally every three months there’s something new that has to be read, has to be comprehended, and looking for areas where clients need advice,” she says.
Buzzacott’s development of the regulatory consultancy service began with a five-year joint venture with the IMS Group (now rebranded as Cordium). Now the regulatory consultancy service is provided in-house, again aimed at completely removing the reporting burden for managers. Mehta concentrates on understanding what the end product of regulatory duties will look like, so that firms can comply with the minimum input of time or effort. “They have lawyers and compliance consultants giving them advice,” says Mehta. “At the end of the day that advice has to materialize into actual deliverables. My focus tends to be on making that process of getting the deliverable completed as easy as possible for them.” This simplification of the reporting process for managers adds value; the arguments for and against increased regulation are manifold, but what cannot be denied either way is that reporting is a drain on time and resources. Anything to remove that burden is looked upon positively by firms.
It has become a truism in the hedge fund sector that regulatory change is constant, leaving little room for standing still. “My landscape keeps changing every six months,” says Mehta. This shifting landscape makes the regulatory consulting business extremely valuable for clients – particularly start-ups who would struggle to hire in the expertise Buzzacott can provide. It is also another reason that concentrating on being the first point of contact is important: they have found that even clients who at first only asked for advice on regulation on a short-term basis quickly come to rely on Buzzacott in determining the precise impacts of new rules, and in how to determine what numbers actually correspond to what the regulators need.
This is particularly tricky given the various overlapping systems. FCA-regulated firms are subject to multiple different regimes and standards, each with their own requirements and idiosyncrasies which need to be queried and resolved. This process is all the more arduous in this system of overlapping regimes; querying the FCA can take a relatively long time in itself, but, as Mehta says, “Especially with AIFMD and CRD IV, both these regulations, the reporting side of it has come directly from ESMA or the EBA. To that extent there has been very little filtration or dilution from the FCA, and that has made things even more difficult, because you won’t get an answer straightaway.” Even an FCA response can take one or two months – too long from the point of view of service providers like Buzzacott to leave clients waiting. Without access to the extensive network of partners, including other service providers and the Alternative Investment Management Association (AIMA), clients might struggle to resolve problems which can have thoroughgoing implications for business.
These implications can even threaten a smaller fund’s future if they are not properly taken into account. Buzzacott is finding that the exemptions and exclusions from regulation on which many smaller managers hope to rely are sometimes not as sound as might be thought. Mehta comments that “Even a medium-sized or sometimes a smaller hedge fund manager may need to at least draft and think about remuneration restrictions. You may not implement, but you can’t completely scope yourself out of it.” Keeping track of regulatory compliance is not something that can be ignored or assumed. In the short to medium term, having come out of the other side of the 22 July AIFMD applications deadline, Annex IV reporting from AIFMs is particularly in focus now. “It’s sad that the whole application process was daunting enough,” says Mehta, “and just as you think, that’s it now, all done, it’s actually the beginning.” Alongside that, the implications of MiFID II are going to affect quantitative and high-frequency traders in particular, with the definition of MiFID activities itself coming under scrutiny.
While the increase in the regulatory burden has inevitably increased the need for the services which firms like Buzzacott can offer, the converse is also true: there are fewer firms in need of these services because of the downturn. There are far fewer people willing to take the risk of spinning out from the larger investment banks, and those who might take that risk are faced with much larger costs. “If you look at our sweet spot,” says Jarman, “historically it’s actually smaller start-ups. Over the years it has gone through phases. The start-up market isn’t as buoyant as it was 10 years ago, obviously. 10 years ago everyone was jumping ship as well as the US guys coming in.” This has had the inevitable knock-on effect on Buzzacott, along with every other service provider, but it also proves the logic of judicious positioning. The start-ups might no longer be present in such numbers, but US inbounds – a key focus of the Buzzacott hedge fund offering – are still going relatively strongly.
Structures under scrutiny
Changes and challenges to tax structuring provide more examples of the way in which regulatory change might affect Buzzacott’s clients. The implications of the recent LLP consultation, for instance, have forced many managers to justify or change the relationship that they have with key individuals in the ‘partnership’. Jarman, for his part, has been involved in advising those with LLP structures since their beginnings. “From day one, many advisers speculated that it would only be a matter of time before the substance of LLP members would be called into question,” says Jarman. “Obviously it took a lot longer but the impact of the consultation is much more intrusive than the industry predicted. Consequently, many US and UK managers find themselves facing a significant increase in their social security tax burden.”
Negotiating these inconsistencies and difficulties can be tricky, and it often comes down to an issue of trust. “A lot of our clients trust our opinions,” says Jarman. “If we’re not willing to do it ourselves as a firm, we’re not going to push it on our clients. It’s always being aware of what the average appetite for risk is for our clients – which actually can vary.”
Staying on top of these developments is obviously demanding, but it is also to be expected in the day-to-day work of advising clients. However, along with changes to laws or acceptable structures, new technologies are also promising to disrupt the traditional accountancy role. Accountants have had to move towards IT solutions for “deliverables”, the actual numbers which are sent through to regulators and HMRC. The possibility of automation changes the role of the accountant somewhat, potentially changing some parts of the business completely, leading Buzzacott, for example, to embrace cloud accounting more and more, which is particularly appealing for a small business. Smaller businesses are “moving towards automated cash accounting” says Jarman. “The bookkeeper’s role might look very different in a few years’ time when bank transactions feed automatically into the accounts which feed automatically into the tax return. That’s the way the profession is going worldwide.” This move is not just blue-sky thinking either; New Zealand and Australia already have quite advanced cloud accounting standards, although perhaps still only a taste of things to come.
These changes, although coming at a relatively slow pace, mean that Buzzacott, along with other accountants, is “Moving more toward [the role of] an IT consultant,” says Jarman, “helping businesses choose and implement software solutions that automate the accounting process.” However, this does not mean that the accountancy profession is dead or dying by any means. Anyone with a cursory knowledge of the flash-crash phenomenon will know that trusting computers completely for huge tasks can have potentially catastrophic consequences without human oversight.
And on the regulatory reporting side of things, technology is still a long way off automation. Mehta points to Annex IV reporting as an example of the continued need for understanding: “There are lots of software providers offering XML solutions, but at the end of the day I genuinely believe there’s so much manual input to it in terms of the thought process, or at least someone who understands what all of these data fields mean. Who is the right source to provide the information and how do we validate the accuracy of that information?” Without a thorough understanding, filing accurate reports will be challenging. “January will inevitably be manic, with many leaving it to last minute!” thinks Mehta.
Again, it comes back to the fact that people are central to the business. Jarman says that “Ultimately, the business has grown by having some good people who have grown with the business, have been trained with the business, and have stayed with us long-term.” This is the real selling point for the medium-sized managers whom Buzzacott have made their speciality. “They want the people to be there to pick up the phone and explain it to them, to explain the risks and explain why certain things are happening, and that’s the gap in the market,” says Jarman. “We’re not trying to be everything to everyone, but we are a professional practice, a people business, to the smallto medium fund manager who needs more than a commoditized solution.” It is still very much the people who define where Buzzacott look to build niche expertise – another more recent development away from fund managers is a practice in media technology and entertainment – and a consistently people-orientated approach is central to their aims. “It’s a changing world and a changing market,” says Jarman, “with new regulations and new ways of doing things, and we develop with our clients so that, in terms of the services they need, and the expertise they need, that we’re there for them as they change, as they grow.”