The market to provide legal services is a competitive one, and law firms are not competing only with one another. That’s a familiar refrain as reports come steadily about the Big Four accounting firms’ exploits overseas.
In the U.S. generally, and in New Jersey specifically, the picture is much different. Laws and ethics rules—chiefly those prohibiting the practice of law by nonlawyers and barring legal fee-sharing with nonlawyers—are major impediments to the sort of market-shifting moves happening in Europe and Asia.
But that doesn’t mean that the relationship between lawyers and accountants in the state hasn’t evolved over the years—and that much more evolution couldn’t be in store.
In some areas of work, accounting firms “are as much of a competitor as another law firm would be,” said Frank Cannone, chair of the corporate department at Newark-based Gibbons, who regularly works deals, including cross-border and overseas transactions, involving accounting firms. “I do think this dynamic of accounting firms migrating into the practice of law is happening and will continue to happen because there’s demand for it overseas.”
“In the end, they’re going to be disruptors,” Cannone said. “Right now the industry is getting disrupted on a very small scale.”
He added, “it’s certainly an aggressive evolution overseas.”
Indeed. Earlier this year, for example, KPMG’s legal services arm made moves or announced plans for moves in the U.K., France and Hong Kong, and reported large revenue gains. (KPMG has upward of 2,300 legal professionals in 76 countries, Law Journal affiliate the American Lawyer reported). Also in 2019, Deloitte became the last of the Big Four to launch a law firm in Hong Kong, as EY and PwC already had done so, in 2015 and 2017, respectively.
In the U.S., meanwhile, it’s common for accounting or consulting firms to employ lawyers, though the lawyers may not provide legal counsel.
A Big Four invasion might not be imminent stateside, but according to New Jersey lawyers and accountants, competition does occur, including with some work that has traditionally been the province of lawyers but doesn’t amount to legal services per se.
“They’re passing us by, and they’re better businesspeople,” one law firm leader said of accounting firms providing consulting services.
The lawyer, who asked not to be named because of relationships with accounting firms, said numerous common tasks can be done—or mostly done, pending only legal review—by accountants or nonlawyer professionals: Among them, drafting wills, estate plans, employee benefits documents or executive compensation documents.
“What the accounting firms do is say, ‘we’re not your lawyer. … So we’re going to give you these documents, and you take them to your lawyer,’” the lawyer said. “It’s a very polished product, and … [usually] the lawyer isn’t going to have much to say.” The revenue difference to the law firm is “a couple of hours of review rather than dozens of hours” of billable work, the lawyer said, adding that there is “as much as 80 percent less legal work … when you’re reviewing rather that creating documents.” What might have been a $25,000 fee might be a $2,500 fee, the lawyer said.
Hubert Klein, a partner in the Iselin office of accounting firm EisnerAmper heading the firm’s
financial advisory services group, said the dynamic of accountants taking on more work goes back decades.
“A lot of times you see this in the estate and gift tax arena,” Klein said. “There was a period of time when only the lawyers were doing the estate tax returns.”
He said EisnerAmper has “a measured approach” in terms of what work it takes on, and the firm employs lawyers, but those lawyers work on tax compliance matters, not as legal advisers.
“In my experience, accountants generally don’t draft the agreements,” Klein noted. “While accountants can be well-versed and knowledgeable on what the law may be, I think it’s always safe to refer to the attorney.”
The best teams consist of both accountants and lawyers doing legal work, but when it comes to clients, “everyone is budget conscious,” he said.
“We work with legal counsel a lot,” he said. “Accountants and lawyers should work together. At the end of the day, it’s about what’s best for the client, not what’s best for the respective firms.”
Robert Salad, managing partner and chair of the tax and business practice at Cooper Levenson in Atlantic City, said PwC’s 2017 launch of ILC Legal in Washington, D.C.—advising on foreign law, and not providing legal services per se, according to the firm—”got me thinking about what they could do and they couldn’t do.”
“My feeling on all this is … accountants should do what they do best,” and so should lawyers, he said, noting that Cooper Levenson has a half-dozen lawyers with LL.M. degrees in tax law, but they don’t do tax work that an accountant would normally take on.
“I don’t feel threatened at all,” Salad said of potential competition with accounting firms. “We work collaboratively with accountants. I can’t think of a time in my career where I considered an accountant a competitor.”
Ralph Thomas, CEO and executive director of the New Jersey Society of Certified Public
Accountants, agrees that lawyers and accountants normally have a mutually beneficial relationship, and should continue to do so, but said the evolution of accounting firms is real: “The thing that we’re seeing today is, without question, an expansion of advisory services.” The Big Four “have taken a big dive into that” and “it’s starting to cascade down,” Thomas said.
Firms are “looking to expand their bandwidth,” he said, noting that acquisition of accounting firms by non-accounting firms has become more common.
“It’s happening because, at the end of the day, clients want one-stop shopping,” which “makes sense because the [accounting] firm understands the company based on doing tax work or compliance work for them,” he said.
Still, accounting firms, like law practices, have their own restrictions to consider. Some are imposed by the Sarbanes Oxley Act of 2002. And generally, accounting firms may not perform other types of services for clients they are auditing ( hence the term “independent audit.”) CPAs also have a code of conduct in order to “make sure our members try not to cross over,” as Thomas put it. “I think our members try to stay in their lane.”
He noted that there are about 3,500 firms registered with the New Jersey State Board of Accountancy, and the future is as uncertain for some of the smaller firms as it is for any legal practice. ”The challenge is going to be, how do those firms go forward, and not just survive but thrive?” Thomas said.
For example, according to Thomas, the makeup of audit teams has changed over time. While a team would include one or two CPAs, it might also now include a data scientist or data analyst, and might utilize artificial intelligence in some capacity.
‘It always starts somewhere’
Change isn’t unique to either the accounting or legal profession. Lawyers and accountants said it wasn’t difficult to envision a future where U.S. regulations are revised, and the landscape begins to resemble what is developing overseas.
The future could provide “more of an opportunity for the CPA profession and the legal profession to work together,” Thomas said. “The question is, what would that look like?”
Cannone said accounting firms are often more efficient, offering alternative fees and pricing models. Those firms also offer brand names that carry weight with in-house counsel: “There’s a trust level” because corporate counsel “are in the risk-management business,” he said.
Still, substantial migration into legal services in the U.S. “won’t be an issue until the RPCs address sharing legal fees with nonlawyers,” Cannone said.
Klein agreed, but said accounting firms and organizations in the U.S. are actively evaluating the market and eyeing the future. Since Jan. 1, 2018, there has been mutual recognition of CPA credentials in the U.S. and Canada, noted Klein, a member of the American Institute of Certified Public Accountants who has been on several organization committees. Also, the AICPA has sought to develop relationships with global organizations, as has the National Association Of Certified Valuation Analysts.
“While it may be held at bay now,” Klein said of a serious foray into legal services, ”U.S. organizations are looking to partner with global organizations. Credentialing organizations are getting into this.”
“It always starts somewhere,” he said.