Extinction level event

Well the doors have been flung open - we await the result.Casting my mind back to the beginning of this pandemic, one of the primary rationales put forward for not locking down earlier was psychological rather than epidemiological. The notion that unlike China, in the UK, the populace could not actually be kept inside by having their doors nailed shut, and that self-isolation could only be implemented with consent and cooperation. The argument was that said populace would only tolerate lockdown for so long before becoming a bit feisty and eventually revolting. When faced with a limited amount of powder, its best to keep it dry until needed.That there will be an increase in cases as a result of being let back outside, is pretty much a given, but that is the balance that we as a nation have decided to accept. Little outbreaks will pop up from time to time, and until such time as a vaccine or treatment is made available, we will be playing "whack- a-mole" with this beastie.Mercifully, any realistic suggestions of completely opening everything will be tempered by the horror-show underway across the pond. "Give me liberty or give me death", is the preposterous call put up by the gun-toting Trumpist mob who infest much of that country - and so they must be thrilled that by demanding an end to any pretence of social distancing, they can indeed have both liberty and death, in that order.We will look back and laugh one day I am sure, but we will also have learned a few things, and one of those I noted a few weeks back, was a firmer understanding of the difference between "needs" and "wants", or at least a keener grasp of what something is really worth, rather than what we are told it costs.I was enjoying a socially-distanced chat with a client the other day, and after all the usual niceties, he deftly negotiated his way around the topic he actually wanted to discuss - our fees!"Times were tough", he suggested and so was it appropriate for us to continue to charge our full annual retainer when we could not do many of the things we were supposed to be doing to earn that retainer? He loved us to bits, but …My comment to my friend was why pay several thousand quid a day for work that could be done for several hundred? And yes, I appreciate the irony of that comment coming from a bankerWe saw this coming and had already sharpened our pencil; we didn't just give in instantly, but rather engaged in the required spot of haggling, and then gave in. But we also sat down with the client to assist in working through his company to find the other cost savings there were almost certainly in there and in so doing, ensure our pain was shared around.The list was a long one.Rent of course was first to go. As is now well known, the commercial property sector is facing Armageddon on a global scale. "Ho ho", we might chortle, serves those landlords right - were it not for the sad fact that property trusts, and their nice reliable returns, have become the market darling of pension funds the world over and so it's all of us that will suffer.Our fees were too high: no argument. For a broker to charge $70k a year or more, for services that were either not necessary or not able to be provided while under lockdown, was a bit cheeky.But of the other charges, the one that stood out most was audit. My friend and his company were looking at annualised audit costs of something close to $100k, and wondering if this was fair. Predictably we said, "hmm, that depends".With everything in the cloud, his books kept by a competent person and all provided to the auditors in reasonably consistent digital formats, his audit took about a week, in his office, by one person with a laptop, an excel licence, decent wi-fi, and a professional indemnity policy. If that person were a sole trader, it might cost about $10-15k, and so was it worth the extra for a brand name and signature of a partner my client would probably never meet?Clearly, I am no accountant, and indeed have no wish to be. And nor do I wish to insult their noble profession, but while I acknowledge there is a lot more to it … it's not rocket science.Granted, BHP and Rio are a bit complex, but modern accounting software now means the books for the average junior miner can be managed by a part-timer running a Xero subscription whilst sitting in a cafe in Grimsby. The auditor is simply there to ensure no funny business has gone on - and didn't that work well with Wirecard?Doubling down, and not wishing to only insult accountants, I also waggled my fingers at legal retainers and of course the fees charged by geological and engineering consultants that are both similarly eye watering.The problems, I noted to my friend, were many, but mainly two.First, was the mistaken belief in the value of the brand. The belief that if one of the Big Four was doing the accounts, a top-tier law firm had their back, and XYZ Consultants were doing the resource, then the work would be wonderful. A good theory, but sadly with no basis in fact. I have checked and can attest there is absolutely no correlation between size of firm and quality of work.And secondly, was the structure of these firms and their fees.The medieval partnership structure of the big firms, the antiquated hierarchical work practices, the big city offices, and all the other trappings that come with the brand, mean the only way these firms can function is for the actual work to be done by legions of little people in short pants with acne, but signed off by a partner or principal consultant - a process that adds little value, but adds a zero to the price.My comment to my friend was why pay several thousand quid a day for work that could be done for several hundred? And yes, I appreciate the irony of that comment coming from a banker.But apparently that's not how it works.An accountant chum of mine explained that his firm's charge-out rates were broken into four roughly equal piles - one for the employee, one for overhead, one for the government, and one for the partners.I noted in the Western Australian press the other day that all four big accounting firms down there were slashing staff in advance of a predicted slump in audit business post their financial EOY this week. They see it coming and coming hard, but I fear their actions may only worsen their plight as the people that will leave are precisely the people that can and will set up shop as independent advisors the very next week.Clients are beginning to realise that if Jane Smith is doing the audit, giving legal advice or calculating the resource, then why not just hire Jane directly for what her work is worth?Now of course we don't want the books signed off by the chairman's idiot cousin, Reg - but betwixt Reg and EY there is a broad field of competence and it's only getting broader and more competent.Professional service firms are the last to face proper competition, but COVID-19 is perhaps the final nail in that particular coffin. Good news for miners, less good for the big service firms.Welcome to the new normal.

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