In December 2014, EY became the latest Big Four accountancy firm to gain Alternative Business Structure (ABS) status from the Solicitors Regulation Authority. KPMG had already been awarded an ABS licence in October 2014, whilst PwC were the first of the Big Four past the post in January of last year. But what does this actually mean for the legal profession? Will accountants now compete directly for work which was historically the preserve of traditional law firms? Will the other large accountancy practices – Grant Thornton, Baker Tilly and BDO for example – follow suit? And what are the implications for young lawyers looking to build a legal career in this brave new world?
ABS in a nutshell
Put simply, an ABS is a firm where a non lawyer (whether a person or company) is a manager of the firm or has an ownership interest in the firm. This new business model was brought about by the Legal Services Act 2007 and was implemented in October 2011 as a way of increasing competition and access to legal services.
Since 2011, ‘non-law’ entities are now able to use the ABS vehicle to provide legal services. ABS structures also serve as a good way to raise equity from a broader base of investors.
Yesterday’s news – the consumer market for legal services
To be frank, I think I’ve heard enough about Alternative Business Structures to last me a lifetime! Ever since the passing of the Legal Services Act, rumours were abound about the prospect of non-law companies entering into the legal market, especially with regard to consumer legal services. ‘Tesco Law’ became a buzzword (and a scaremongering tool) conjuring the impression that the old order of high street law firms and notaries would be swept away in favour of a mass market for off-the-shelf wills and do-it-yourself conveyancing kits.
There have been some notable entrants into the consumer side of the market such as the Co-op. Furthermore, in 2013, the AA also began providing legal services related to their core road traffic recovery business. More recently, outsourcing giant, Capita also entered the legal market in 2014 through its purchase of Optima Legal via an ABS.
The larger national law firms specialising on consumer or retail focused legal services have also taken advantage of the ABS model, often as a way of attracting external investment. Irwin Mitchell now look likely to float in 2015 after ‘The Lawyer’ reported last month that brokers had been appointed to advise on an initial public offering. Parabis Group, whose subsidiaries include Parabis Law and Cogent law also made use of the ABS model when private equity firm, Duke Street, took a significant stake in the business in 2012.
Business Legal Services – The beginning of the ‘gold rush’…?
Nevertheless, whilst the area of consumer legal services has witnessed a number of new entries, there have been fewer headline grabbers at the non-consumer, corporate and commercial end of the legal services market. Until now.
In 2014, three of the ‘Big Four’ accountancy firms were awarded an ABS license by the Solicitors Regulation Authority. Not surprisingly, these developments sent murmurs through the legal community. But do the established corporate/commercial firms have any real cause for concern?
In order to understand the impact of the arrival of these global financial services giants, it is important to appreciate the motives behind acquiring ABS status in the first place.
PwC Legal – an aggressive growth strategy
PwC has perhaps adopted the most aggressive stance. Following receipt of its ABS licence, it established a separate legal entity within the firm with some two hundred fee earners. PwC Legal LLP will provide stand alone legal advice as well as multidisciplinary services – legal services provided in tandem with existing core financial services.
It is clear that the firm has a clear growth strategy planned with senior partner Shirley Brookes commenting in an interview to ‘Legal Futures’ that, in time PwC could “be up there with the magic circle” in certain areas.
KPMG – a multi disciplinary approach
KPMG, however, seemed to have taken a different tack, with no intention to develop a stand alone legal practice. As their UK Chairman, Simon Collins, commented: “we will only offer legal services, which are fully integrated with other areas where we already provide advice”.
In other words, unlike PwC, KPMG only plan to focus on multidisciplinary services. KPMG does plan to triple its current number of lawyers to one hundrend and fifty in three years. At the moment, the tax-focused arm of their UK legal services offers brings in around £10m and there are plans to expand into areas such as immigration, employment, and commercial law. However, as stated by the UK Head of Indirect Tax, Gary Harley, “to think we could compete with big law firms is not credible”.
EY – A client service driven initiative
EY also appeared to adopt a similar stance to KPMG. On winning their ABS licence in December 2014, the UK Chairman, Steve Varley, stressed that the accounting giant had no intention to compete with traditional law firms:
“…having lawyers, accountants and other professional advisers working side-by-side will be a real advantage to our clients and ultimately help to provide a better level of service.”
That said, EY already boasts a global legal team of well over a thousand people so traditional law firms may begin to feel a little nervous faced with a organisation, which offers a ‘one stop shop’ for financial services including legal advice.
Deloitte and the question of conflict
On the one hand, one could argue that, apart from PwC’s stance, traditional law firms look unlikely to face massive competition from their accountant cousins. Furthermore Deloitte has revealed it will not be taking the ABS path at all in the UK, preferring to work with existing legal partners in the market.
It is not clear what route the other key accountancy firms will take outside the ‘Big Four’. Grant Thornton, Baker Tilly and BDO, to name three appear uninterested in the ABS model with Grant Thornton believing that such a move would create clear conflicts with its existing business.
In any event, the pace of change is unlikely to be rapid. The process for obtaining an ABS licence is a long one, so the impact on the corporate sector is likely to be slow and evolutionary.
The fight for talent
But to think that the arrival of large accountancy firms into the corporate and commercial legal services market will only bring about limited change, would be untrue. For, whilst law firms may not be competing directly with accountancy firms who adopt the multidisciplinary ABS approach, they will certainly be competing for talent.
PwC have already snapped up partners from Freshfields and McDermott Will & Emery in recent months. Philip Goodstone joined EY from Addleshaws to head up their legal offering. Furthermore KPMG hired Nick Roome from DLA Piper in Manchester to lead its legal services team in the North.
To have such titans looking to draw staff away from traditional law firms is something that cannot be ignored. Even if they steer clear of establishing a stand alone legal practice, companies such as KPMG and EY, will still be able to offer lawyers a broad range of high quality work and an attractive career path.
Whilst most of the recent financial services press has focused on the large accountancy firms, it remains to be seen what other institutions might follow a similar route. Would it be so outlandish to suggest that large commercial property companies such as JLL or Knight Frank might look to establish a legal capacity to complement their existing services? How about corporate financiers. Might they look to provide a more holistic customer service through an ABS licence.
Building a career in this brave new world
It remains to be seen just how far the members of the financial services community will be prepared to exploit the opportunities afforded by the ABS model. But one thing is for certain, the arrival of PwC, KPMG and EY on the scene is unlikely to be the only key departure in the world of corporate legal services.
Lawyers will face a market going through a period of evolution previously unseen. However, they will also enjoy a legal services market which offers them numerous career paths and any number of exciting career opportunities.