How the Big Four are eating into legal services

The expansion of teams and offerings has always been what keeps accountancy firms ticking, as shown by Evelyn Partners’ recent acquisition of Feathers or by Burgis and Bullock’s expansion of its bookkeeping team. One surprising area that accountancy firms are expanding into is the legal market as alternative legal services providers (ALSPs). 

According to the ‘Alternative Legal Services Providers 2023’ report that was recently published by the Thomson Reuters Institute, ALSPs, which include professional firms such as accountants and insurers, are growing their overall “legal ecosystems” at an increasing rate as they look to “serve both traditional law firms and corporate law departments”.  

In fact, the reach these ALSPs have now amounts to $20.6bn (£17bn) of the total legal market, as the biennial report showed that they experienced a compounded annual growth rate (CAGR) of 20% from 2019 to 2021. This is reported to be a significant jump from the 15% CAGR recorded between 2017 and 2019. 

This growth was perhaps reflected in the fact that Deloitte reported that for its 2022 financial year, tax and legal revenue grew by 11.5% in US dollars, while KPMG experienced a net sales growth of 13% in the same period. 

Thomson Reuters’ report has revealed an interesting trajectory for accountants and financial advisers. In today’s “evolving” legal market, lines are beginning to blur between each of these separate offerings, as more firms are beginning to tap into each other upon the demand of their clients. 

Nick Roome, the head of law at KPMG, says that the vast majority of the work they do with clients involves “working alongside other capabilities within the firm”, whether that’s deal advisory, tax, consulting or accounting.

“The reason why clients are seeking out this sort of joined up solution from KPMG is a combination of factors, such as their business environment is complex and they get greater benefit from integrated professional services,” he says. “KPMG as their firm of choice does the connecting for them to get to the right outcome, rather than the client having to piece together multiple inputs from multiple firms.”

Roome also notes that the Big Four firm is “well invested” in technology and has the scale and resources to wrap around projects to get better results for clients, delivering a stronger value proposition. 

In the UK, the report found that 13% of law firms said they had lost work to the Big Four – Deloitte, KPMG, Ernst Young and PwC – in the past year. The exuberant hiring patterns of Big Four firms are also aiming to double or even triple their legal headcounts in the coming years. 

It seems that more US law firms have lost work to a Big Four firm, as 24% confirmed so in 2022 compared to 18% in 2020. However, they also reported a decrease in competition from ALSPs, from 18% to 13% in 2022. 

Thomson Reuters suggests that this drop in competition could be because the Big Four may be winning work that is not being presented to traditional law firms, or even because the type of work they are winning is not work that regular law firms would usually do in the first place. ALSPs are most commonly used by law firms for ‘legal research services’ in the UK, as 47% of firms confirmed to use them for this purpose the most frequently. Legal research services were followed by ‘consulting on legal technology’ in popularity. 

Meanwhile, areas where competition is highest between the Big Four and US law firms include M&A due diligence, in which 41% of firms said they competed with the Big Four, 36% cited litigation and investigation support, 33% said regulatory risk and compliance services and 31% said electronic discovery.

Deloitte’s legal practice boasts that it helps clients “transform” with tech-based solutions for managing contract lifecycles, collaborating with advisors in real-time, and automating routine tasks, which they say improve the accuracy and speed of processes while producing cost efficiencies. Deloitte’s clients would also have access to intellectual property management, as well as compliance with ESG regulations, transactions and streamline contracts, and design and roll out policies to address the changing work environment and resolve disputes.

At the start of this year, KPMG also announced that among 108 of its colleague promotions, 26 were made partners and 37 were made directors in its tax and legal teams. 

Roome also confirmed that the firm intends to double the size of its law offering by 2024, as in the last two years KPMG Law had increased its headcount by over 100 legal professionals to over 250 in the UK. Over the same period, the firm also grew its revenues by over 80%, which shows that there is an appetite for legal and accounting as an integrated offering. 

James W. Jones, a senior fellow at the Centre on Ethics and the report’s lead author, says: “Both law firms and in-house counsel are increasingly seeing the value of alternative legal services providers. Meanwhile, ALSPs are expanding the services they offer to law firms and corporate law departments by providing specialised services, improving cost efficiency, and delivering greater flexibility in headcount.”

As a way to expand their reach, it is clear that Big Four accountancy firms have worked to sharpen their legal services, which is something that smaller, more regional accounting firms could benefit from implementing some time in the future. However, for the purpose of this report, the head of Thomson Reuters Institute, Michael Abbott, concedes that most regional accounting firms currently do not provide such services, because “given the specialisation of legal services, they may determine that the market presents challenging barriers to entry”.