Devil in the detail

Private client work is often seen as an area slow to change. In my opinion, it is an area where huge opportunities and risks will exist for practitioners in the future, whether they are accountants or solicitors. Here I have a confession. I am a solicitor and practised in the city for many years. I now work for the Institute of Chartered Accountants and have developed an understanding of how accountants run their businesses and are regulated.

Coming together

Private client lawyers and tax solicitors probably have more in common with accountants than any other part of the legal profession. Research indicates most law firm clients deal with firms on an episodic basis. Accountants, on the other hand, tend to have a continuing relationship with clients, driven by the ongoing needs for audit, account preparation and general business advice. This relationship is replicated in the private client legal world, where trusts require routine administration and review in the light of commercial and legal changes. Does this communality of approach mean that hitherto unrealised opportunities may exist for closer and more profitable working between the professions and how will the Legal Services Act promote or hinder those opportunities or indeed create risk?

Many accountancy firms have close working relationships with law firms, and both firms may decide it is easier for a variety of reasons for such arrangements to continue. Other firms may consider that a merger of activity could result in an enhanced client base and income, but reduced administration costs by integrating back-office functions. Why have two firms from different professions in the same town when one could do? However, it is always difficult and time consuming to complete a merger and often takes time for the financial benefits to be realised. These difficulties will be amplified when firms from different professions merge and may act as a positive disincentive.

Consider though whether more entrepreneurial accountants and solicitors may see this as an opportunity to provide a new ‘one-stop shop’ for professional advice geared to the private client world. They could set up a new multi-disciplinary practice ABS and avoid the merger issues and costs from day one. Keen and talented staff, whether they are accountants or solicitors, may well be attracted by such entities. Might these new MDP firms emerge as the real challengers to existing private client accountancy and law firms?

Thorny issue

Private client and tax work is an area particularly suited to a vertical integration and the Legal Services Act will encourage it. A new MDP might enhance its service offering and branding by employing top tax QCs direct, as this too will be permitted. The opportunities for firms to secure the best talent in client-facing roles, whether on a part-time or full-time basis and irrespective of professional background, will be there. Many clients, particularly those from overseas or with complex needs, may find the one-stop shop containing all the professional advice they need very attractive indeed.

A number of accountancy firms already have solicitors working in them at a senior level in key areas such as tax and private client, but often you do not know it. Due to professional conduct rules, they cannot call themselves solicitor and provide services direct to clients. Instead they must work as an in house solicitor providing services to their employer firm, or if client facing must adopt another title completely. This unsatisfactory fudged arrangement will be swept away provided the firm is regulated as an ABS, and firms may choose to rebrand themselves as a one stop shop professional services firm. The staff are already in place. In response, law firms will be able to offer partnership to talented accountants who may be attracted by an alternative career path and potentially higher returns. The impacts for both professions could be profound at all levels.

I will now throw the vexed topic of legal privilege into the melting pot. It has been a thorn in the side of accountants for many years that lawyers can claim advice privilege but accountants cannot, even if the advice sought by the client is the same, for example in relation to tax. Since Prudential was decided in the Court of Appeal in late 2010, some law firms have used the fact that they (rather than accountants) provide advice subject to legal privilege as a key component in their marketing strategies. So what will happen in a multi-disciplinary partnership ABS post October 2011 if a client seeks tax advice which can be given equally by accountants and solicitors?

Small print

Will client A who was put through to a solicitor partner be able to claim advice privilege, yet client B who was put through to an accountant partner be denied it? What happens if the client is looked after by a team of solicitors, but the expert within the firm on a particular issue is an accountant, will his tangential involvement corrupt the advice privilege?

Advice privilege is also available to anyone supervised by a solicitor. If tax advice is given by junior accountants and solicitors supervised by a solicitor partner then that work is privileged, but what if the partner is on holiday and the advice is signed off by an accountant partner in the firm’s name?

What is abundantly clear is that the law on privilege does not sit comfortably with parliament’s desired intent to encourage multi-disciplinary partnerships. These firms may be positively encouraged to have lawyers at appropriate levels to secure the ‘supervision’ necessary to claim advice privilege. This is counterintuitive to the whole ethos of the Legal Services Act and the concept of multi-disciplinary partnerships, but will at least ensure that clients are not disadvantaged by inadvertently calling the wrong telephone extension. These conundrums will make their way to the Supreme Court in 2012 when the Prudential case is considered, and hopefully a request for a fundamental review of advice privilege may be the result.

From my perspective, accountants as a profession have been slower to assess the opportunities and risks presented by the Legal Services Act. This is by no means surprising. Attention has focused on Tesco Law, and less thought has been given to the implications of multi-disciplinary practices on professions, and particularly non-law professions such as accountancy. If the Act had been described as the Professional Services Act 2007, then the landscape today might be very different indeed.

Imelda Moffat is the manager for information law and legal services at the Institute of Chartered Accountants of England and Wales