Merging interests: bringing accountants and lawyers together?

IN OCTOBER this year there will be dramatic changes affecting the whole legal profession – so far reaching that they could potentially affect many accountancy firms, particularly high street and SME-focussed practices.

The Legal Services Act, nicknamed “Tesco Law” is the equivalent to the legal sector of the “Big Bang” that revolutionised the City in the 1980s. As the nickname suggests, Tesco Law is set to benefit the consumer by enabling greater competition around price and transparency over fees – something that has definitely been lacking from the legal industry.

Already changes are afoot – big established brands such as the Co-op and WHSmith are entering the market, national legal brands (such as Highstreetlawyer.com) are being created to build associations of solicitors, and price comparison sites such as CompareLegalCosts.com are appearing to take advantage of the changes.

Offerings are already emerging that target SMEs; for instance fixed price basics such as Shareholder Agreements and Website T&Cs are being offered through Highstreetlawyer.com at fixed prices of £600. It will not be long before these changes reverberate further up the value chain to affect more complex commercial and private client legal advice.

Further big changes will be set in motion by two other important innovations. The first is that people and businesses (including accountants) will be able to go directly to barristers (rather than via solicitors as at present) for the first time enabling direct competition between the Bar and other legal specialists.

The second is of particular relevance to accountancy firms; for the first time lawyers will be able to form partnerships with other professions. This means that law firms can bring in accountants as partners to offer non-legal services and vice versa. Accountancy firms can merge with law firms to create firms offering combined financial and legal advice. Although whether these two complimentary professions can work satisfactorily together under one roof is yet to be proven.

For those of you getting a sense of déjà vu, the concept is reminiscent of the 1990s, when four of the then “Big Five” accountants set up associated law firms (Arthur Andersen initially with Garretts, then followed by most of the others). But the outcome was not a success. Ultimately the “multi-disciplinary practice” (MDP) concept was killed off by Sarbanes Oxley, which made cross-selling of services to audit clients difficult.

But corporate governance legislation aside, the idea had simply failed to set the world on fire. For my money it was never realistic for big accounting firms to aspire to build law firms blue chip enough to displace the top City firms.

The high street and mid-market, by contrast, seems a more natural place for solicitors and accountants to be under one roof, offering seamless business advice to cost-conscious SMEs. After all, are small business owners particularly bothered about using separate legal and accountancy firms (I suspect not); does someone buying or selling a business want lots of advisers each creating work and running up costs (again, I suspect not).

However, just because joint legal and accounting partnerships might look good in theory does not mean they will work well in practice, as the lawyers who joined forces with the large accountancy firms in the 1990s found out.

The biggest stumbling block is culture, with accountants’ unflashy, process-led and generally passive-aggressive approach jarring with lawyers somewhat more self-centred and technical ways. If accountants can be caricatured as being like Oscar Wilde’s cynics, knowing the cost of everything but the value of nothing, solicitors are rightly described as people who argue for a living and enjoy doing it in their spare time too.

If one doubts the differences between the people in the professions, just compare Accountancy Age to its legal sector equivalent The Lawyer and the nature of the stories published. With accountants, for instance, partnership is a solemn undertaking and the arrangements are private with discretion important. Partner earnings are certainly not for disclosure, collective responsibility is important and talking down the opposition or your former employer unacceptable.

By contrast, many law firm partners feel it is perfectly normal to air their grievances about the way their firm is managed, albeit off-the-record with the legal press. When not denouncing their fellow partners, there is nothing lawyers enjoy more than talking down the opposition. The legal press is full of partner earnings tables and billings ranking, stories of partners defecting and taking their clients with them, and profiles of the star lawyer of the week. In short, the cultural differences between accountants and lawyers should not be underestimated.

Another experience encountered by the MDPs was the referral problem. If you are an accountant and you team up with a law firm, you need to consider the impact of this on the reciprocity and referral that is vital to many professionals. To put it bluntly, if you team up with a solicitor your referrals from other solicitors will dry up. This will be the case too for any solicitor who teams up with you. Of source, if your current pipeline of referrals from law firms is small, then this will not be a problem.

As with any merger, you should consider what value the bringing together of legal and accounting services could offer. Given their training, it is not surprising that most accountants look at mergers from the perspective of the costs to be saved.

But mergers based simply on cost cutting often disappoint since their authors are over-optimistic about the savings that can be made and the ability for increased cross-selling. By contrast, mergers that allow innovation or other strategic gains can produce radical results.

So, if your firm is struggling and you feel a merger with a law firm with similar problems is a good solution on paper, the reality is you will have simply turned two separate headaches for one large combined one.

That is definitely not to say accountants and lawyers should not be using the opportunities created by the Legal Services Act to consider working together or combining. Some firms will take the plunge, and those that go into it with their eyes open and offer innovative services that are compelling for clients stand to take a giant leap ahead of their accounting rivals.

Tim Prizeman is a director of Kelso Consulting