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Are multi-disciplinary firms a reality?. Fergus Payne Lewis Silkin LLP 2 December 2011. We have been here before. We have been here before. Forays of Big Five into legal services saw opportunities to exploit client bases of law firms law as another line of business
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Are multi-disciplinary firms a reality? Fergus Payne Lewis Silkin LLP 2 December 2011
We have been here before... • Forays of Big Five into legal services • saw opportunities to exploit client bases of law firms • law as another line of business • aimed to build competitive advantage • Failed first time • Enron/Worldcom and Sarbanes Oxley Act • other reasons? • Lawyers employed by accountancy firms
The path to MDPs • Review of the regulatory framework for legal services in 2003/4 • Clementi report • independent regulators for the legal profession • greater competition in the legal services market. • Recommended new forms of legal practice • Legal disciplinary practices (LDPs) • Multi-disciplinary practices (MDPs) “which bring together lawyers and other professionals to provide legal and other services to third parties”
The path to MDPs “in the areas of consumer debt, inheritance planning or personal taxation, a combination of both legal and accounting skills could be a valuable asset for the client. Research carried out by MORI suggests that there is some consumer interest in the convenience and accessibility of ‘one stop shopping’, provided that appropriate regulatory safeguards are in place.” Sir David Clementi Final Report, December 2004
Legal Services Act 2007 • New regime intended to benefit consumers through more competition • Law firm MDPs a reality because of new rules on ownership and external funding • Introduction delayed until early 2012 • SRA disclosed that “serious discussions” with only 15 firms (but including accountants!)
Legal Services Act 2007 • What is an Alternative Business Structure? • Legal Disciplinary Practices - the interim step • Benefits of ABSs? “the introduction of ABS will allow for greater flexibility of professional services provision... there will also be more opportunities for firms of all sizes to work, partner and merge with other professional services firms to create multi-disciplinary practices. These MDPs may be complex global services firms, or a local solicitor partnering with a local accountant.” Jonathan Djanogly, Justice Minister (2010)
Accountancy and legal professions • Are the number of firms sustainable over time? • Some similarities in profile at top and bottom of firm sizes • Mid-sized tier different • No apparent shortage of supply ..... • Expect number of traditional solicitors’ firms to decrease
Accountancy profession in 2011 • The number one firm of chartered accountants in UK is PWC - 845 partners and UK turnover of £2.3bn • Big Four turnover for 2011 was £7.2bn • Number 100 accountancy firm is Taylor Viney & Marlow - 6 partners and turnover of £2.07m and in 2011 • UK registered audit firms continue to decline from 9,950 in 2001 to 7,198 at March 2011 • 4,285 sole practitioner accountancy firms at December 2009 and an 8% decrease in the number between 2008 and 2009 Source: POB’s Key Facts and Trends in the Accountancy Profession, June 2011
Legal profession in 2011 • Number one law firm in UK is Clifford Chance - 552 partners and UK turnover of £1.22bn in 2011 • 5 “Magic Circle” law firms - turnover in 2011 was £5.13bn • Number 100 law firm is Thrings - 56 partners and turnover of £22m and in 2011 • 10,927 law firms in England and Wales at March 2011 • 3,692 sole practitioner solicitors’ firms at March 2011 • 377 legal disciplinary practices at March 2011 Sources: The Lawyer UK 200 report; Accountancy Age Top 100; SRA Summary of Performance Measures and Statistics, March 2011;
Challenges for accountants and lawyers • The economy • Fee pressure • Technology • Meeting client demands • Greater need for resource • Greater regulation and compliance • Legal Services Act 2007 • Need to be more competitive
Probable new entrants to legal market • Membership organisations • High street retailers • Branded networks • Consolidators • Commoditised providers • Overseas firms • Multi-disciplinary practices?
Is there demand for a one stop shop? • Would this be of benefit to clients - if so, which? • What would clients think? • Would this be a good strategy for the participating firms? • Would a MDP have any competitive advantages? • External considerations • Internal considerations
Preliminaries for a MDP • Consider whether this is the right strategy • Market research • get clients’ views? • analyse clients’ current and future business requirements? • identify potential law firm and other merger partners? • What is needed for success - added value to clients? • What would be the USP of a MDP? • Structure is secondary
Reasons for a MDP • additional areas of work... • more fees from existing clients • win new clients • better resources • opportunity for competitive pricing • potential costs savings
Reasons against a MDP • will the cultures blend? • mergers can be difficult • ownership – dealing with relative profitability • management • loss of referrals • conflicts • regulatory burden • lack of demand
Where are we now? • Introduction of ABSs delayed until early 2012 • Regulatory issues • who would be the regulator if two professions in the MDP • compliance issues • PI requirements • Accountants’ response • ICAEW as regulator • application for reserved probate matters • legal professional privilege
Where will we be? • Likely that there will be MDPS involving accountants • Turcan Connell • Whale Rock • Alternatives structures? • joint marketing associations - UK200Group • common ownership/umbrella organisation • branding or franchise model - Quality Solicitors • strategic alliances • lawyers not providing reserved legal activities join accountants?
Conclusions • There are going to be changes, but... • what? • how quickly? • how radical?
