Proactive advice

According to one lawyer, working with accountants could be improved by their becoming “less expensive, more proactive, and [making] more work introductions”. No doubt accountants would say the same about lawyers.

This is the third year that The Lawyer and accountancy firm Baker Tilly have conducted a joint survey of law firms' views of the services they receive from accountants.

Overall, the responses paint an encouraging picture for accountancy firms, with many positive trends emerging in most of the business areas covered.

But it is debatable how much of this is due to accountants improving the services they offer legal practices and how much is attributable to an overall improvement in the economy.

The most important areas for law firms continue to be financial advice for the practice and partnership tax advice.

However, the survey results suggest that legal practices are increasingly looking for more value added services, especially in the areas of business planning and information technology. These services are usually delivered by the consulting arms of the larger accountancy firms.

One of the main findings to come out of this year's survey is that quality is no longer regarded as a particularly important issue.

The decline is quite marked – in 1995, 12 per cent of the respondents felt that quality would be the most important aspect of the services they would receive from accountants over the next five years, while in 1996 this figure dropped to 4 per cent.

It should also to be noted that there continues to be some doubt about whether accountancy firms can actually deliver these value added services. So it seems that accountancy firms many not always be law firms' first port of call when choosing suppliers for these services.

The survey reveals that there has been a sizeable increase in the number of law firms joining legal networks.

This is perhaps inevitable because accountants are increasingly being viewed by law practices as competitors as well as external financial advisers.

In the 1995 survey, 27 per cent of the firms that responded were members of such a network; in this year's survey that figure had risen substantially to 45 per cent.

As with last year, the smallest firms (with between one and four partners) were most likely to be members of legal networks, indicating that having the security of membership of a larger grouping in the absence of an actual merger continues to be attractive.

But no matter what the size of the firm, legal practices expect financial advice for the firm and partnership tax advice to be the two most important services they will receive from accountancy firms over the next three years.

The service areas which have shown an increase in their mean scores between 1995 and 1996 are:

profit related pay;

litigation support;

partnership tax;

VAT advice; and

financial advice for the firm.

Generally, all the service areas showed an improvement on the rating they received in 1995, suggesting that accountants are devoting more attention to improving services because of the increasingly competitive environment for litigation support services.

The one aspect of service that is given a below average score in the 1996 survey is value for money, although this figure is an improvement on its 1995 rating.

The larger firms are more likely to use accountants to provide litigation support services to assist with reports and act as expert witnesses.

Among the larger practices, all of those with more than 50 partners, 64 per cent of those with 26 to 50 partners and 47 per cent of the 11 to 25-partner practices are likely to use an accountant for these services either frequently or sometimes.

The percentage of firms that have not changed adviser in the past five years has not altered much from the 1994 level – 74 per cent had not changed in 1994 and 73 per cent have not in 1996. In 1995, this figure was 67 per cent, indicating that accountants have been improving their services.

Those most likely to change accountants are the middle-ranking firms – 30 per cent of the 11 to 25-partner law firms had changed, as well as 35 per cent of the 26 to 50-partner practices. These figures might be explained by the need for accountancy firms to offer a good service at competitive fee levels or run the risk of being asked to tender in competition with other firms.

Equally, the relatively high levels of change may be explained by the high level of merger activity in the legal market – when law firms merge, there is likely to be only one accountancy firm appointed to advise on Solicitors Accounts Rules.

Firms in the north of England and Scotland are the most likely to change accountants, with 58 per cent reporting a switch in the past five years.

In London, the corresponding figure was 18 per cent, the Midlands 19 per cent and the South-East 27 per cent.

The principal reasons given for changing accountant were fees and fee-related issues; poor service was also cited as a reason for change.

Linked to the poor service is the need for more or better advice and the inability of some accountancy firms to generate ideas proactively. These reasons featured high on the list of reasons why legal practices had switched accountants in 1995 and 1996.

The aspects of service that are given the best ratings (excellent or good) are:

understanding a law firm's requirements;

having a partner in charge of work;

proximity to office; and

handling of telephone calls competently.

The aspects which score the worst are:

enthusiasm and commitment to your business (down from 8 in 1995 to 10 in 1996);

value for money;

ability to solve problems; and

ability to be proactive in meeting your needs.

There is a growing need for accountants to provide a proactive service which highlights changes in tax legislation before it becomes too late. This is particularly relevant with the recent introduction of the self-assessment tax regime.

The desire for more proactive service from accountancy firms is backed by a number of lawyers. According to one: “The key service missing is advice. At the moment, they [accountants] act as book-keepers and just check the firm's annual accounts. What we need is both financial and tax advice. We need input into the business of an independent financial adviser.”

Others voice concerns that any advice or information provided tends to be reactive and too slow, ending in the ominous comment that the future of the accountancy firm in question is “under review”.

Another adds: “They do not keep us fully informed – it may be that they credit us with more knowledge of income tax than we have, but all the partners in the practice seem to be in a perpetual fog about their income tax liabilities.”

The fees charged by accountants are certainly on the increase, prompting one lawyer to remark: “We believe that the costs levied annually for our audit and tax advice to be tantamount to extortion.”

Another puts in the request that this firm of accountants “stop sending irrelevant promotional materials and provide clearer conclusions when giving tax advice”.

Tax advice and planning was the area in which proactive advice was most sought after. The full figures are:

tax/tax advice/tax planning/ partnership tax – 53 per cent;

other financial issues – 12 per cent;

strategic business planning – 11 per cent;

IT/accounting systems – 7 per cent; and

VAT – 4 per cent.

One new aspect affecting this year's survey is the introduction of the self-assessment tax system.

Most firms welcomed its introduction. At worst, it was regarded as a “short-term inconvenience” and most law firms consider its introduction as a logical progression.

But there was some concern about the amount of form-filling required by the new system, with the most cynical comment being that it was “yet another excuse for increasing accountancy fees”.

Both business and IT/accounting systems feature strongly in the survey, reflecting the growing importance that legal practices attach to these areas.

Even though the results reveal that accountants have regained some of the ground lost in previous years, they cannot afford to be complacent.

It seems that lawyers are learning how not to spend quality (and expensive) time with their accountants.