The UK’s Top 200 law firms will see a significant challenge over the next few years from PwC, KPMG and EY who were all granted ABS licences in 2014. Only Deloitte, of the Big 4, have said they do not intend to seek such a licence, but that might change if the other three are successful.
It isn’t surprising that these Big 3 accountants have decided to diversify their offering into the legal market, which remains much more fragmented than the accountancy one. It makes logical sense for the accountants to seize some of it for themselves by diversifying into legal services, just as they did when they began to offer consultancy services.
The impact that well funded and well-connected new entrants can have on the legal market is already being felt in the B2C segment. A small number of players look as though they will dominate this space with ready access to cash and clients. The new players are likely to deplete the work of many, if not the majority, of the 10,000 or so High Street firms that currently make a living from looking after private clients.
The changes in the B2C space have generally been watched with detached interest by the Top 200 Business Law Firms who see their own market as substantially different. This is about to change as these Big 3 accountants gear up in 2015. Here are three key reasons change is on the way:
1. The Big 3 have the cash to invest in the legal market. The turnover of the biggest accountancy firms shows their financial strength. PwC’s UK revenues are £2.7 billion according to Accountancy Age. That’s double Clifford Chance’s worldwide revenues. EY declared global revenue of $27.4 billion. There are huge financial resources that can be deployed in the quest for market share.
2. They have the opportunity. Accountants have strong and deep relationships with those companies and organisations that spend the most on legal services. Audit and tax work means there is regular and frequent contact between them; consultancy (advisory) work means accountants can easily spot legal needs at source; and many of the key decisions makers (CEOs and CFOs) are alumni of these Big 3 accountants. Indeed, the accountancy firm relationship is generally with C-Suite decision makers rather than General Counsel giving them another significant advantage over most law firms.
3. They have the skills. Offering a one-stop shop for corporate finance, tax, and legal advice should be relatively straightforward to implement and appeal to clients who want to reduce the number of suppliers and simplify the transactional process. The “routine predictable” work of many companies would benefit from consolidation enabling a smaller number of larger providers to offer economies of scale in the delivery process. This type of work, and the operation needed to scale it, would be ideally suited to the skills large accountancy firms have acquired doing audit work for some of the world’s biggest companies.
Any serious inroads into the market by the Big 3 would pose a significant threat to many law firms in the Top 200. Law firms can respond to this challenge but need to demonstrate why their offering is the right one for their clients. Brand position, productivity and pricing will be key attributes along with the ability of law firms to demonstrate their real value to clients through better management Information.