Accountants tread on legal toes

Neasa MacErlean reports on how accountants are moving towards legal services and asks whether they will be successful

According to David Temporal, of management consultants Hod-gart Temporal, it is only a matter of time before several of the large accountancy firms decide to provide full-blooded legal services.

"They will make significant steps in this direction over the next five years," says Temporal. "But at the top end of the business they face a major problem: they have failed to get into the higher value work areas."

Accountants suffered more than solicitors in the last recession. They lost their major product, the audit, to the ravages of cost competition. The audit is now a process better controlled, in the main, by computers than human beings.

So the audit will not make accountants wealthy in the next century. They have to find something else to provide their millions. Hodgart Temporal believes the profit margins of the top law firms could already be twice as high as the margins for most accountancy firms.

It is no coincidence that the world's most successful and distinctive accountancy firm, Arthur Andersen, is also the one which now offers legal services. Andersen's UK associated law firm, Garrett & Co, has grown from three fee earners to 55 in the two years since it was founded. "We are going like a train," says managing partner Julia Chain.

While Arthur Andersen has decided that it will be explicit in competing with law firms, the other accountancy firms remain coy. "We don't provide legal services," says a spokesman for Coopers & Lybrand.

This simply is not true. Most accountancy firms provide tax advice and are therefore in competition with solicitors. Coopers' tax department is, in effect, one of the largest multi-disciplinary practices in the country. A few years ago it caused a stir by recruiting the Bar's stamp duty expert, Reg Nock QC.

At the time, lawyers were concerned that the accountants would buy up the best talents at the Bar. But despite the dearth of work in the Inns of Court, the Nock defection remains an isolated incident.

Accountants have not been successful in competing with solicitors or barristers for creative, high-value work such as innovative tax planning and design. Accountants may go down-market in tax; for example, setting up a computerised service for the nine million taxpayers affected by the Inland Revenue's switch to self-assessment in 1997.

Lawyers seem to have captured the high ground. Despite the fact that fewer law than accountancy firms work in tax, lawyers have a better reputation for the most complicated work.

Linklaters & Paines, Freshfields, and Slaughter and May were named last year as the most successful UK firms in a survey by International Tax Review magazine. They were followed by Price Waterhouse and Ernst & Young.

Mirroring their experience in tax, accountants have captured plenty of volume in the field of pensions but not much in the way of high value work.

To reflect the growing longevity of the nation, pensions have gone from being a peripheral concern to a central topic of debate in the last five years. If ever there was an opportunity for accountants to break into legal services without stepping on lawyers' toes, this was it. But accountants have chosen to expand into actuarial work rather than law.

In other fields, accountants may be more successful. Employee benefits and remuneration is an area that could be claimed by either profession. Accountants are winning at the moment.

In a broader sense, accountants will probably continue to be regarded as a less-developed profession than law for some time. A society like ours – which demands literacy but happily tolerates innumeracy in most of its citizens – can only have a limited respect for its 'bean-counters'.