Mike Jones, Accountancy Age, Thursday 27 May 2010 at 00:15:00

Legal practices at accountancy firms may not have taken off, but the lawyersmay be about to invade the profession


The world has changed in the decade since the Big Four were trying to buildlaw firms ? this change has occurred not only in the accounting space but in thelegal market as well. The Legal Services Act has brought about a number ofchanges to the way that legal services can be delivered, paving the way formulti-disciplinary practices (MDPs). Does this mean that we are coming closer toseeing accountants and lawyers once again working together in the same firm? Andhow can we avoid the demise of MDPs that we witnessed in the last decade?

When I joined Ernst & Young?s associated law firm Tite & Lewis in2000, the advisory landscape presented a different picture to the one we seetoday. We still had a Big Five in accountancy and all of them were gunning forgrowth on whatever platform they could justify. Among their lofty ambitions wasthe desire to grab a hefty slice of the lucrative legal services market and mostof them had already started their ascent of that particular mountain ? K Legalat KPMG and Landwell at PwC, as well as Tite & Lewis.

I was drafted in from mother ship E&Y to be sales director at thefledgling UK law firm and the MDP story was laid before me. The main story, ofcourse, was that clients of all shapes and sizes would benefit enormously fromthe joined-up thinking and working of an integrated accounting and legal serviceoffering. The plan was to dominate certain aspects of the legal market byutilising the combined might of budgets and vast client banks that existed atthe time within the large accounting firms. It was not without its challenges,but the logic appeared sound and progress was certainly being made before theAndersen collapse and subsequent Sarbanes Oxley legislation made the wholenotion of MDPs counter-intuitive to a profession wedded to one service offeringabove all others ? audit. If firms wanted to retain audit as a central part oftheir business then all non-audit services were suddenly put in jeopardy, astighter independence rules took hold. The associated law firms were the first tobite the bullet.

I understand the decision-making. The Big Four, as they now are, stillgenerate the vast bulk of their recurring revenues and around 50% of totalannual income from audit-related services. Why would you risk killing the goosethat lays the golden egg?

However, a multi-disciplinary approach to professional services is still adesirable option for many clients and it remains a huge opportunity for someoneto change the landscape once more. The trouble is, can the accounting firmstackle this while retaining their interest in audit? They seem to be able tobuild advisory practices (consulting to you and me) but perhaps law is still astep too far.

Is it time for the tail to wag the dog? In light of the opening up of thewhole legal services market in 2011 a brave law firm might just fancy taking ashot at this from the other perspective.

Unhindered by a need to protect audit fees, one of the Magic Circle law firmscould easily acquire or build a whole plethora of non-audit accounting servicesto complement its legal offerings and provide a one-stop-shop approach forclients. The legal market is awash with discussions and debates on ?alternativebusiness structures? although, for the most part, these seem fixated on fairlyconservative changes. It will be interesting to see if one of the big firms iswilling to show some real ambition and whether the accountancy firms are readyto respond.

Mike Jones is managing director of intrinsic values at Ernst &Young.