This article was first published in the May 2015 UK edition of Accounting and Business magazine.

It has now been eight years since the Legal Services Act was enacted amid much fanfare, promising a big bang change to the way legal services could be offered. Dubbed the ‘Tesco law’, it was expected to greatly increase choice of supplier (including supermarkets) and affordability, according to speculation at the time.

At the heart of this liberalisation is the alternative business structure (ABS). It is this section of the act that enables the creation of a genuine multidisciplinary practice, allowing accountants and lawyers to offer a ‘one-stop shop’ service to their clients.

Given the market value of the legal services sector, it might be assumed that there would be a stampede of professionals, including accountants, keen to exploit this new opportunity. But this has not been the case. Only about 350 businesses have been issued with an ABS licence, and barely 80 of these have gone to accountancy firms. The legal sector’s big bang is apparently more of a damp squib. 

However, this small number does include some big names. EY, PwC and KPMG have all acquired ABS licences. Despite an underwhelming start, this could yet become the business model of choice for many firms, but over a longer time frame than first expected.

Risky business?

The ABS model carries with it a perception of risk that seems to be encouraging a ‘wait and see’ attitude. Mandy Mitten, MD of Midlands-based mid-tier accountancy firm Mitten Clarke, can see how aspects of her work and legal services could link in well, such as inheritance tax and estate planning. She has already had contact from interested parties. ‘I’m not saying never, but we are halfway through a five-year business plan, and we wouldn’t want anything to distract us from that,’ she explains. ‘Just because you are allowed to do something, doesn’t mean you should jump in feet first. We need properly thought-out strategic decisions.’ She also sees risks. ‘I’d hate to be responsible for a company that I couldn’t operate myself. People want the best advice available. If you try to be a jack of all trades, does your message get muddied?’

The question of legal privilege within an ABS firm is also seen as risky. Could a client receiving advice from both a lawyer and accountant under the same roof find that the line between what is privileged and what isn’t gets blurred?  ‘Lawyers aren’t providing financial services because they are so wary of legal advice privilege,’ says Dr Sundeep Aulakh, research fellow at Leeds University Business School, who is examining the impact of ABS. ‘It can create all sorts of difficulties, and I don’t think the Solicitors Regulation Authority has a clear position on that.’

However, Ian Waters, head of standards at the ACCA, suggests that concerns about privilege are unfounded, with both sides knowing where they stand. ‘There are defined rules that both professions understand. Privilege is relevant in litigation but that is not a place our members would be rushing towards.’ He says the two professions have much in common: both are ‘very aware of confidentiality, and the personal and commercial sensitivities they deal with on a daily basis’.

Blurred lines

KPMG’s ABS model is an example of one way of avoiding the problem: don’t offer certain services. ‘The reason we became an ABS was not to offer privilege,’ explains head of legal services, Gary Harley. ‘The reality is there is a blurring of the lines between what accountants, lawyers and advisers do. We think this presents an opportunity to provide an integrated offering.’ For example, KPMG has clients and a mobile workforce spread around the world. It makes sense to offer tax advice about a country and also provide the visa and immigration services needed to do business there. ‘The buyer gets the convenience of working with a firm with a global footprint,’ says Harley, ‘We see the ABS as a game-changer. We want lawyers to be integrated, working alongside tax and advisory. That is why we moved hard and fast when ABS came in.’ 

Harley expects KPMG clients to continue using other law firms for privileged legal work. Taking on the ‘magic circle’ is not part of the plan. ‘Our competition is the rest of the Big Four,’ he says. Deloitte states it has no plans to pursue an ABS ‘at this moment’, but this decision will be under constant review. PwC’s ABS is to enable it to bring PwC Legal, a standalone business, into the fold, while EY’s offering is similar to KPMG’s. 

Another potential problem when adopting ABS might be divisions emerging between the legal and accounting service lines. For example, lawyers tend to have higher billing rates, but accountants have more repeat business. If one group feels it isn’t getting a fair share, then resentments might grow. Ian Waters explains, ‘It is more likely to be the cultural side of things that threatens this merging of professions. Stresses are likely to be caused by technological issues around billing practices and account management. It’s these issues that principals in a new ABS would have to address early, managing the expectations of team members.’ 

An accountant who already has a profitable cross-selling relationship with a legal firm could be forgiven for thinking an ABS licence will bring more stress than reward. However, as more multidisciplinary practices emerge from successful ABS offerings, the pressure to be in the market will increase. 

No two ABS offerings will be the same as different businesses seek the right blend of skills for their model. But they are growing in number as accountants, insurers and lawyers begin recruiting from other professions. Law firm Eversheds has recently announced some poaching of high-profile talent from KPMG. 

The appeal of being able to offer clients more services is clear. Aulakh points out that historically, small businesses are an ‘underserved market’ for legal services and could respond well to the ABS model. ‘Commentators believed it would be revolutionary, but 10 to 15 years of incremental change could lead to this more radical shift.’

Mandy Mitten sums it up: ‘I think it a case that people have overestimated the speed of change but underestimated the impact. It’s an interesting time. People will learn from others’ mistakes, but then I think adoption will be exponential.’ 

The ABS model may only be starting to surface, but it is gathering momentum and could ultimately prove irresistible in professional services.