The Big Four’s legal ventures should worry mid-tier law firms
THE BIG Four’s first forays into the legal sector in the 1990s ended in abject failure. Yet over the past decade, the world’s four biggest accounting firms have captured a significant share of the UK’s market for legal services, and have increasingly begun to compete with traditional firms.
Deloitte, EY, KPMG, and PwC have used their brand recognition, global reach, technological capabilities, and huge existing client bases to rival mid-market and even top tier firms. The Big Four are now looking to seize an even larger share of the legal market, after making record gains over the past few years.
The Big Four have capitalised on their brand recognition and the diversity of the UK’s legal sector – which is made up of more than 200 major players – by positioning themselves as “one-stop shops” for business and legal services.
Matt Doughty, chief operating officer at DWF, told CityAM the Big Four are “competing by bringing together lawyers with consultants and technology experts in a way many traditional law firms are unable to.”
The agility of the Big Four and their penchant for technology has let the accountancy firms compete with traditional law firms in facilitating their capture of the market for low-stakes, procedural work over the years.
Notably, the introduction of new rules in 2007 to allow the formation of Alternative Business Structures (ABS) – that let lawyers start businesses with non-lawyers – transformed the Big Four’s prospects in the legal sector, by letting them fully integrate their legal businesses into their wider firms.
Previously, the Big Four had been forced to ensure their legal arms remained separated. Yet, the introduction of ABS’s into the UK market allowed greater connectivity, meaning clients could be more easily referred between departments.
EY’s bid to split out its advisory business could also boost its law ventures in strengthening its brand and freeing it from the conflict-of-interest that prevent it from advising audit clients.
Edward Stratford, director at legal recruitment firm Fox Rodney, said the Big Four are now increasingly going after high stakes work by hiring top-tier legal talent. He explained that lawyers from traditional firms are being won over by the scale of the accounting firms and the global reach they offer.
KPMG Law head Nick Roome said lawyers are coming over to the Big Four for their “multidisciplinary approach,” that allows more regular and long-term contact with clients. In traditional firms, lawyers may only interact with clients during specific transactions or legal disputes.
KPMG’s legal business has shown record growth of more than 30 per cent per annum over the past two years, Roome said, as he noted the firm is set to hire 200 new lawyers by 2024, including 45 directors and partners.
Stratford added that the Big Four are able to offer more collegiate working environments, compared to traditional firms, as their existing client bases mean “the focus is not on winning clients”.
This has let the accounting firms win over lawyers, despite offering lower salaries than the top Magic Circle and US firms.
However, the Magic Circle’s dominance at the top end of the legal market looks set to continue, as the Big Four struggle to overcome the lack of prestige that blocks them from winning the highest stakes work and recruiting top-tier talent. Mid-tier firms might be more worried.