March of the accountants
Latest Big Four firm ups the ante by announcing move into legal services.
Recent news confirmed what had been long expected: Deloitte is branching out into the legal industry, making it the last of the Big Four accountancy firms to do so.
This move is the direct result of a relaxation of the regulatory environment and innovation, both technological and in the marketplace.
However, although the new offer will enable Deloitte to offer a wider range of services, it is now apparent that around 50% of the financial statements of the top 100 law firms will be audited by accountancy firms that offer legal services.
Although attractive to some firms, developing a legal services offering is not a decision that all will take. It is important that any such offering is complementary to the services already on offer, and is consistent with the firm’s overall strategy.
Please note: Smith & Williamson have taken the strategy decision that, unlike a number of our competitors, we won’t be providing legal services.
New market, new players
Gone are the days where law firms occupied a privileged position, often literally, in the marketplace. Increasingly, firms must seek out their clients and differentiate their offering to make themselves more attractive than the growing competition.
In a sense, this is the direct result of innovation, in two principal ways. Firstly, the application of technology has transformed the market. The balance has shifted much more in favour of the client who is now more empowered when deciding which firm to select.
Second, innovation is more apparent in the services that professional practice firms can offer. It is increasingly likely that firms will offer a wider range of services as they look to exploit client relationships to a much greater extent. Professional practice firms are increasingly on the path to becoming one-stop shops.
Rise in competition
Anecdotal evidence suggests that competition across all professional practice firms has increased over the last few years and this is backed up by research conducted by Smith & Williamson in 2017 which showed that eight out of ten respondents believed that competitive pressure had increased in the legal market, compared with just 60% in 2016 – and 18% said that it had increased significantly. At the very least, this shows an ongoing shift towards a more competitive landscape.
However, these respondents saw competition from their direct competitors as the biggest threat, rather than new entrants to the market. There was less concern about competition from online services and international firms, although a number of respondents highlighted the growing influence of ‘virtual firms’, ‘commoditised quasi-legal services’ and new entrants adopting aggressive marketing strategies.
The legal market is seen as one that is profitable, but also ripe for efficiency improvements through greater innovation and deployment of technology. This is fuelling new entrants to the market which itself is requiring more traditional firms to up their game, resulting in increased competition all round.
Who is affected?
This new type of accountancy-law firm is an attractive proposition for accountancy firms: they are relatively easy to set up, with low barriers to entry; they can expect to entice (some) lawyers looking for a new challenge; and they will be able to feed their lawyers at least during the initial phase from their vast client bases.
The responses to our 2017 Law Survey indicated that this change was unlikely to impact major law firms; the most vulnerable to this market change is more likely to be mid-tier and smaller law firms, as there is more of a chance that the new accountancy-legal hybrids will encroach on territory previously considered their domain (e.g. immigration and employment, both particularly relevant in the context of Brexit)
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.