Posted by Neil Rose, Editor, Legal Futures
Among the many things that the Legal Services Act has done is revive the idea of multi-disciplinary practices (MDPs), thought dead after the Enron scandal a decade ago and compounded in the US by the Sarbanes-Oxley Act. It is often forgotten that there was no MDP actually involved in Enron.
Professor Richard Susskind recently predicted that the big accountancy firms will re-enter the law in a big way (cue shout from PwC Legal that they didn’t go away), and I now regularly trip across representatives of the Institute of Chartered Accountants in England and Wales (ICAEW), who are taking a very close interest in what is happening in the legal market with a view to the opportunities there may be for its members.
I have already reported the ICAEW’s intention to apply for reserved probate rights, and that it is also eyeing up becoming a regulator of accountant-led alternative business structures.
MDPs could, of course, take many shapes – the conveyancer, estate agent, surveyor, builder, house mover and so on – but I want to focus on accountants. My father is a partner in a firm of high street accountants and I have been telling him for ages that he should be planning his high street ‘supermarket’ of professionals. There are already firms out there like Whale Rock and Oury Clark where lawyers and accountants work in separate businesses but under a single umbrella and brand.
I have always been more sceptical about the value of MDPs at the top end of the market, where clients will buy on quality rather than convenience, but the financial climate could make an all-in-one offering more attractive.
There are clearly some regulatory issues that need to be overcome, although lawyers would be wrong to think (as I suspect some do) that they operate to a higher standard of ethics. As it was put to me recently: “Lawyers tend to think it shocking that accountants have no absolute requirement for client confidentiality, nor a requirement to put the interests of their clients above all others, as fundamental ethical requirements. Accountants are shocked that lawyers have no requirement to serve the public interest or for objectivity.”
The point is that the professional rights and obligations are just different and this does need to be sorted out (the Supreme Court is to have a crack at the question of whether accountants giving tax law advice should be able to claim legal professional privilege). Another element will also be the long-awaited memorandum of understanding between all the various regulators likely to be involved in ABSs.
The two sets of ethical principles can be reconciled in almost all client engagements, someone from the accountants’ side recently told me. It is almost always in clients’ enlightened best interests to be advised to do that which is also in the public interest. And lawyers’ absolute requirement for client confidentiality has already been undermined by the anti-money laundering reporting requirements. It should be clear to the clients of both lawyers and accountants, from their terms of engagement, when confidentiality can be expected and when not.
The introduction of legal disciplinary practices has already brought some accountants into law firm partnerships, but this has been support staff, such as CFOs; I am not aware of any firm that has an accountant partner providing related fee-earning services, but would very much like to hear from you if you did.
Accountancy firms already employ solicitors, but they just can’t call them that. The marriage seems an obvious one on many levels. So I was slightly surprised to receive a press release recently from the UK200Group – which is made up of both law and accountancy firms – that was pretty cool on the idea (and less surprisingly promoted the idea of networks like theirs instead).
David Whiscombe, tax partner at London accountants Berg Kaprow Lewis, said: “I can see the attraction for clients, but I think in many cases MDPs would be culturally difficult. You would think that accountancy and insolvency were disciplines that were so closely related as to be a natural and seamless fit, yet increasingly I am seeing ‘divorces’ in this area where the two disciplines decide that they can work better apart than together.
“If this is the case for accountants and insolvency practitioners, I suspect that it would, in the medium term, be the more so for accountants and lawyers. I envisage a number of ‘marriages’ in the short term and some of these will be successful; but I also envisage quite a number of ‘divorces’ in the next few years.”
David Ingall, a consultant at Yorkshire accountancy firm JWPCreers, felt that law firms would be more enthusiastic about becoming an MDP than accountancy firms, particularly as a general practice lawyer coming into an MDP as a partner might not be as profitable as his accountancy counterparts.
He said: “MDPs would probably work in corporate finance, high-level tax planning and for practices dealing with certain types of specialist clients, though perhaps accountants would prefer to employ the lawyers or put them in an associated vehicle. That would be very similar to the arrangements generally used for financial services businesses.”
He suggested that associations, where accountancy and law firms held an interest in each other but remained as separate legal entities, might be a more popular alternative.
I’m more optimistic. The idea of the high street ‘professional supermarket’ remains an appealing one in principle, especially for lawyers, who will be attracted by the continuing relationship accountants have with their clients. The synergies will surely be too compelling for some to ignore. With the ICAEW focused on what MDPs mean for its members more than legal bodies are on the opportunities accountants offer their members, and the generally more business-like attitude of accountants, I suspect they will take the lead in establishing MDPs. For all the talk of external investors, the accountants are likely to be a major force reshaping the legal market.