Do accounting firms constitute the next threat on the legal market? A look across the Atlantic raises concerns about the new players that might offset the balance of the market
Published in Israeli financial newspaper of ‘Calcalist’, by Adv. Zohar Fisher, Founder of Robus Legal Marketing- January 2016
The Hebrew version can be found here
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From a business perspective, the legal market is a strange fellow. For starters, many firms are managed by one of their partners, rather than by professionals, a situation that often leads to the managerial aspect taking the back seat to actual legal work. As long as the firm profits – the issue of management is not discussed generally
Indeed, some law firms are exposed to the “rebellious” side of clients more than they used to lately, with complaints over billing rates becoming more and more prevalent. However, no significant change in conduct of lawyers is noticeable just yet, other than a gradual decrease in legal fees charged by some law firms
This may change soon, as changes occurring in law firms across the Atlantic might make their way to Israel and shake its legal market. The threat wears the form of large accounting firms, known as the “Big Four” – KPMG, E&Y, Deloitte, and PwC – entering the legal market
The inclusion of accountants in the legal arena is not an unprecedented development; During the “Big Five” period of the accounting industry in the 1990’s, prior to the collapse of Arthur Andersen LLP, accounting firms were allowed to acquire law firms in the UK, and some indeed did. Investment in the legal market by accounting firms stopped after the Enron scandal in 2001, only to be reignited recently by the “Big Four” who witnessed the changes in the legal market, caused partially by the effects of the Subprime Crisis and clients demanding lower legal fees
Legislation in many countries over the last decade has opened the doors of the legal world for non-legal entities. This legislation gave way to multi-disciplinary practices that combine legal and non-legal services, as well as to Alternative Business Structures (ABS) that permits those that are not lawyers to control law firms
This is exactly what happened in the UK, Australia and Mexico, countries that passed the Legal Services Act, under which entities such as accounting firms can control law firms
Other countries, such as Canada and Germany, passed more moderate legislation that allows law firms to only split their revenues with other professionals, without granting non-lawyers the ability to control them
These changes brought the “Big Four” accounting firms to renew their investments in the legal market, especially by acquiring small law firms, hiring partners of prestigious law firms and recruiting brilliant law students
Data published by the international consultancy company of KermaPartners show the extent to which accountants penetrated into the legal market – nearly 6% in the UK, 20% in Germany and 30% in Spain. Impressive as these figures may be, do they imply a substantial threat to law firms
At the moment, investments of the Big Four are focused on specific sectors (labor law, taxation, migration and commercial agreements), with no real concern of them creeping into the fields of litigation or mergers. The threat on the legal market pertains more to boutique and medium sized firms, which are competing “head to head” with the “Big Four” within the same sectors
Nevertheless, one should take into account the possibility of similar legislation passing in other countries, such as the United States. This might be of critical consequences, and might bring about significant changes such law firms moving to professional management, and law firms establishing a system of inspection and supervision
The main concern is the ability of law firms to “fight back” against accounting firms and compete with giant organizations that are armed with great amounts of capital, modern technology and a well-oiled business development machine
In Israel, as well as in the United States, the legal market has not yet opened its doors to accounting firms, even though accounting firms do offer taxation services. However, one cannot disregard the fact that the changes across the Atlantic are arriving to our country, even if in a delayed manner, especially after the opening of the Israeli legal market to international firms in 2012
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The writer, Adv. Zohar Fisher, is the founder of Israel’s premier legal marketing company of Robus legal marketing
