The Big Four have arrived: How the Big 4 firms are challenging (and changing) the legal market
The Big 4 had long dabbled with a move into the legal services market, having made their first tentative steps as early as the 1990s. Yet, it was only with the enactment of Legal Services Act that the UK regulatory framework allowed them to make real headway into the market. Since then, the Big 4 have accumulated a 6% market share in the highly fragmented and competitive UK legal market.
The global legal services market has an estimated value of $1 trillion, with the UK market alone accounting for 7% of that, illustrating the huge financial incentive motivating the Big 4’s entry into the market. A lot of the Big 4’s traditional work is tied to legal services, causing them to employ many solicitors and work closely with law firms. Once they were allowed to grasp a direct link into the market, the Big 4 had all the incentive to do this. Where they used to refer clients to law firms when dealing with legal activities, the Act enabled them to cut out the middleman and provide those services directly. The Big 4 still regularly rely on traditional law firms for complex issues, yet they now have the expertise to deal with the majority of their client’s legal needs and have become a one-stop shop for all the professional services requirements of a business.
What the Big Four can do better
The Big 4’s most significant strengths are their client books and finances. No single law firm can challenge any of the Big 4 in these areas. Their global reach, each being established in over 150 countries, and their long-established dominance of the accounting world, means that most businesses either currently work, or have previously worked, with one of them, while their reputation is truly universal.
Having established business relationships with so many enterprises globally makes it easy for the Big 4 to market their legal services. This is done as an add-on to the existing services they provide. The Big 4 already know their clients’ business and this, combined with the offer of a multi-disciplinary approach, where a single entity can advise them on all aspects of their business, means clients are very likely to entrust them with their legal work. The Big 4 have a ready-made client pool who regularly bring them work on their own initiative. In contrast, traditional law firms expend considerable time to attract new clients in what is a drain on the firm’s resources.
The Big 4’s long-standing dominance of the accounting world has resulted in the accumulation of huge financial power within them. In 2019, the turnover of even the smallest of the Big 4, was more than 7 times higher than that of the most profitable law firm. This means they can afford to invest heavily in marketing and technology, whilst also being able to acquire new business opportunities where those arise. Their financial might means they can attract the brightest legal talent, enhancing their position in the market.
The large war chests accumulated by the Big 4 through their other services allows them to invest significantly in legal tech. PwC’s acquisition of NewLaw and EY’s purchase of Riverview Law are examples of their financial strength. Investing in legal technologies gives them a competitive edge over traditional law firms and their scale of operations means the sums required for this are divided between all their offices, making investment in disruptive technologies more sustainable, enhancing the Big 4’s offering to potential clients and reducing their costs in the long-term.
The use of legal technology has brought about large efficiencies in the way legal work is undertaken, reducing the time it requires. The pricing model for most law firms remains tied to billable hours and, although the Big 4 often employ different flexible pricing strategies, time savings often translate to cost savings and reduced prices for clients. Tech also facilitates the commoditising and unbundling of legal services, breaking up a legal matter to smaller separate tasks, with only the most complex parts assigned to law firms. Many legal tasks can be completed at mass scale, primarily through the use of legal tech; automation, and precedents being the most relevant in this process. Law firms remain conservative buyers of legal technologies, but the Big 4 were quick to grasp the opportunities provided by technological advancements and have managed to leverage their investments to lower their fees and attract more clients.
What law firms can rely on
Regardless of the Big 4’s strengths, the top law firms are still raking in huge profits. Their expertise and reputation are such that clients often trust them with complex legal problems, and these usually represent the most profitable matters. Even the Big 4 recognise the expertise offered by traditional law firms, often working together, or referring clients to them. The Big 4 have regularly reiterated that their intention is neither to replicate the law firm model, nor to replace law firms, arguing that their investment in law is complementary to their other services. Their focus remains on the mid-level work which can be more easily streamlined, and cooperation with law firms remains a centrepiece in their strategy.
The Big 4’s legal offerings are further limited by the practice areas in which they operate. They focus only on the practices most relevant to their accountancy and consulting business. Whilst the crux of the legal market relates to business and commercial affairs (47% of total market revenue), the Big 4 often have only a small presence in litigation services, and they don’t pick up non-business matters. Most of the work of small law firms, such as wills, family law issues, and consumer claims, is not affected by the Big 4 and it is unlikely that expansion into these areas from them will follow. This limitation prevents them from attracting more clients, as their focus, for now, is on the clients they already provide other services to.
The global presence of the Big 4, their established relationships with clients and their multi-disciplinary approach has allowed them to get a foothold into the legal industry. Their revenues outshine those of traditional law firms and they can afford to invest significantly in recruitment and legal tech. Whilst the expertise and range of practice areas of top law firms may enable them to weather the storm, the Big 4’s challenge has nonetheless caused law firms to increase their own investment in recruitment and tech. It is the mid-level law firms which are more under threat, as the Big 4 focus on work that was previously their remit. Law firms must adapt to the changing legal market, embrace technology, and listen to their clients, or else they may face extinction under the challenge of the Big 4.
UPDATE: 06 November 2020
One of the Big Four gets Bigger
Deloitte announced its acquisition of Kemp Little, a technology and digital media law firm, on the 3rd of November. With this single move, Deloitte doubled the size of its UK legal arm by adding 29 partners and 57 lawyers to its team of around 85 lawyers. This move increased Deloitte's capacity to handle legal matters, whilst also expanding the sectors in which it can advice on. Deloitte's clients will have access to legal advice in broader areas and Kemp Little's lawyers will bring in their own experiences and expertise, further enhancing Deloitte's legal offering.
Deloitte Legal does not plan to grow solely through acquisitions. It has already launched its new graduate training contract and it has become an early adopter of the SQE, the new route to qualification as a solicitor. It plans to combine organic growth with targeted acquisitions, but its significant investment in the sector is illustrative of the Big Four's plans to establish themselves in the legal market.