{"id":6603,"date":"2026-10-07T15:27:37","date_gmt":"2026-10-07T05:27:37","guid":{"rendered":"https:\/\/insight.thomsonreuters.com.au\/business\/?post_type=insight_resource&p=6603"},"modified":"2026-10-07T15:35:37","modified_gmt":"2026-10-07T05:35:37","slug":"why-advisory-demand-isnt-yet-translating-into-stronger-margins","status":"publish","type":"insight_resource","link":"https:\/\/insight.thomsonreuters.com.au\/business\/resources\/resource\/why-advisory-demand-isnt-yet-translating-into-stronger-margins","title":{"rendered":"Why advisory demand isn’t yet translating into stronger margins"},"content":{"rendered":"\n
Three-quarters of your clients want strategic advice, not just a tax return. Many practices are responding by expanding advisory services, but the data suggests fewer are pricing that work in a way that reflects its value.
That finding comes from Thomson Reuters Institute’s 2026 State of Tax Professionals Report, a survey of more than 600 tax professionals across eight countries, including Australia, covering AI adoption, talent constraints, profitability, and the shift toward advisory services.<\/p>\n\n\n\n
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Key takeaways<\/h2>\n\n\n\n
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Advisory demand is strong, but margins suggest pricing has not caught up<\/strong>. Advisory services return margins of 20\u201324%, compared with 28% for individual tax return preparation..<\/li>\n\n\n\n
Profitability remains healthy, but performance varies by firm size<\/strong>. Average margins were 30% across firms in 2025, with smaller firms reporting the highest average margins.<\/li>\n\n\n\n
AI is now the top technology investment priority, but adoption remains uneven<\/strong>. Larger firms are further along the technology maturity curve, while smaller and midsize firms face greater time, cost and process barriers.<\/li>\n<\/ul>\n\n\n\n\n<\/div>\n<\/div>\n\n\n\n
Advisory services are returning margins of 20\u201324%. Individual tax return preparation returns 28%. The demand for advisory work has never been higher: 74% of respondents say most of their clients now strongly want a trusted adviser relationship. Yet practices are earning less on that work than on the compliance services it is supposedly replacing. Technology and talent still matter, but the data points to a more immediate commercial issue: whether firms have the confidence and discipline to price advisory work appropriately.<\/p>\n\n\n\n<\/figure>\n\n\n\n
The profession is financially stronger than challenges suggest<\/h2>\n\n\n\n
Set the pricing issue aside for a moment, because the broader picture is genuinely positive. Profit margins across firms of all sizes averaged 30% in 2025. Smaller practices recorded margins as high as 41%. Almost two-thirds of respondents expect revenue to grow in the coming year, and 53% anticipate profit growth \u2013 a five-percentage-point increase on last year.
In Australia, where skills shortages and rising overheads have put sustained pressure on practice economics, these numbers carry weight. Australia was the second-largest country cohort in the survey after the US, meaning the data reflects local conditions more directly than most global benchmarking studies do, and the pattern it reveals will be familiar: firms growing profitably are making deliberate commercial choices, not just riding market demand. The report suggests profitable growth is being driven by practical commercial choices: fee increases, more selective client acquisition, and greater focus on higher-value work.<\/p>\n\n\n\n
AI investment is real, but the divide is growing<\/h2>\n\n\n\n
More than half of respondents (57%) now name AI as their top technology investment priority, up from 35% just two years ago. It is the only technology category to show consistent budget growth year on year.
The gap is already visible. Nearly two-thirds of large firms describe themselves as being at the proactive or optimised stage of technology development. Among small firms, that figure drops to 35%. For Australian mid-market practices, which make up the majority of the local profession, the question is less whether to invest in AI and more whether the pace of investment is keeping up with larger competitors who are not slowing down.
The top barriers to faster adoption are time and resource constraints (51%) and implementation cost (47%). Those barriers are significant, but the report suggests firms make more progress when technology investment is planned around workflow improvement, rather than treated as a reactive upgrade.<\/p>\n\n\n\n
Talent remains a practical limit on growth<\/h2>\n\n\n\n
Four in ten firms say their capabilities are constrained or at risk because of talent issues. For midsize firms, that figure climbs to 51%. The pipeline of new entrants to the profession is not growing fast enough, senior practitioners are retiring, and competition for qualified candidates is intense.
Recruitment alone is unlikely to solve the issue. The report points instead to structured development, clearer career pathways, and smarter use of automation or task reallocation. Fewer than half of all respondents (49%) say their firm takes a genuinely strategic approach to people development.<\/p>\n\n\n\n
What the data tells Australian practitioners <\/h2>\n\n\n\n
Australian respondents reported some of the strongest demand figures for trusted adviser relationships in the survey \u2014 71% said most of their clients strongly want advice beyond tax preparation, above the global average of 74% but consistent with it. That demand is there. The gap the data reveals is between what clients are asking for and what firms are confidently charging for it.
The report points to several habits associated with stronger margins: closer profitability tracking, more deliberate client selection, and a clearer approach to pricing. The 2026 State of Tax Professionals Report gives you the data to benchmark your own practice against both global and local peers, and to bring more evidence into pricing conversations with clients or partners.<\/p>\n\n\n\n
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