Lawyers and CPAs: How the Landscape Is Changing

Rethinking who you can call partner.

  • FIFTY STATES AND THE American Bar Association currently prohibit lawyers from sharing fees with nonlawyers, such as CPAs, effectively barring multidisciplinary practices (MDPs). The ABA’s rule-making body, the house of delegates, shows signs it may reverse this ruling and allow lawyers and CPAs to share fees and be partners under one roof.
  • MUCH OF THE RESISTANCE TO MDPs comes from the legal profession, where opponents contend that fee sharing would compromise the independence of lawyers and the legal profession’s unique attorney–client privilege.
  • PROPONENTS OF FEE SHARING FROM BOTH professions, arguing that the major issues could be addressed satisfactorily by rule changes, note that MDPs already exist in Australia, Canada and many European countries, where the Big Five U.S. accounting firms are in some cases the largest law firms.
  • IN NOVEMBER 1999, Ernst & Young announced its alliance with a group of attorneys to form the Washington, D.C., law firm McKee Nelson Ernst & Young LLP (MNEY), which will offer a full spectrum of legal and CPA services.
  • IT WILL TAKE SOME TIME for the ABA to review this issue and even more time for state high courts to change their rules on professional behavior, so it may be premature for accountants to search out legal partners now. On the other hand, it wouldn’t hurt if CPAs give some thought to whether a combination would make sense for them.
RANDY MYERS is a financial writer in Dover, Pennsylvania. The winner of the fall 1997 excellence in journalism award from the New York State Society of CPAs, he has written for Global Finance, CFO and Chief Executive magazines.

arolyn Sechler-Callton has a seemingly modest business fantasy—to have practicing attorneys on the staff of her Phoenix-based accounting firm so she can offer her clients one-stop shopping.

She can’t do that, of course. Arizona law bars attorneys from sharing fees with nonlawyers, as do the other 49 states. That and an American Bar Association ban on fee sharing effectively prohibit lawyers from forming so-called multidisciplinary practices (MDPs)—firms in which attorneys would share ownership with CPAs or members of another professional group such as engineers or physicians.

Proponents of MDPs don’t like the barriers. In their view, the allied services of attorneys and accountants in MDPs would be more attractive to clients who don’t like having to work with different professionals on the same project and would generate important new business opportunities.

“I have wonderful relationships with attorneys outside my office, but I can see the value to my clients by bringing their competencies in-house,” says Sechler-Callton, owner of Sechler CPA Inc. “It would provide a more focused delivery of service” to clients for their diverse but often interrelated professional needs.

The ABA had a chance to make Sechler-Callton’s fantasy come true this past August 9. That day, the association’s rule-making body, the house of delegates, considered a controversial recommendation to pave the way by dropping the ABA’s ethics rule prohibiting lawyers from sharing fees with other professionals. It rejected the proposal pending further study, but the matter of fee sharing isn’t going to go away just yet.

“This may be the most important issue the legal profession has faced in many, many years,” incoming ABA President William G. Paul said at the time. “It is so important that we need more time to listen to one another and review what we have learned.” Sherwin Simmons, the attorney who heads the ABA commission on MDPs, which crafted the proposal that was considered, said he hopes to present a new report to the house of delegates next July.

Legally the ABA’s stance on this issue is moot—it takes a decision of the high court of each state to change the rules governing attorney–nonattorney fee sharing. But it is widely presumed that the states’ high courts would follow the ABA’s lead and permit MDPs if the ABA indicated its acceptance. Many in the legal and accounting professions believe it’s only a matter of time before that happens.

“My guess is that the MDP will exist in some form in the United States in the 21st century,” says Simmons, who serves as chairman of the tax division of Miami law firm Steel Hector & Davis LLP. “The public may well insist on it,” he adds.


Most of the resistance comes from the legal profession, where opponents of MDPs argue that such practices would compromise the ethical independence of lawyers and the legal profession’s unique right to attorney–client privilege. In MDPs, they say, lawyers could be pressured by nonattorneys to act counter to the best interests of their clients. As a cautionary example, they point to the medical profession, where constraints imposed by HMOs have led to substandard care for many patients, according to news stories.

The accounting profession has concerns, too. The SEC noted in written comments about the ABA’s proposed rule change that SEC rules prohibit an auditor from forming an opinion on a client’s financial statements if the auditor’s firm also has an attorney–client relationship with the company. The AICPA—although applauding the ABA’s willingness to consider MDPs—objected to how the ABA/MDP commission proposed to define the practice of law in an MDP environment. That definition would have been so broad as to encompass activities that the AICPA says accountants have historically—and properly—performed, particularly tax-related services such as tax consulting and estate planning.

The AICPA also criticized an ABA plan to require MDPs controlled by nonlawyers to submit to annual certification and audit requirements by the courts. Firms owned by attorneys, however, would be exempt from meeting those certification requirements.

Proponents of change from both professions argue that these delicate issues can be addressed satisfactorily. They note that MDPs already exist in Australia, Canada and many European countries where the Big Five U.S. accounting firms are in some cases operating as the largest law firms, too.

MDPs Now?

What might an MDP employing both accountants and attorneys look like? While the ABA debates the issue, some accountants and attorneys have quietly created de facto MDPs that appear to satisfy the letter, if not the intent, of ABA rules prohibiting them. Unlike most trailblazers, though, most of these firms keep a low profile.

“Our concern,” explains the managing partner of one such firm, “is that we’re the kind of fish the bar association could make an example of. Larger CPA firms have the economic power to fight any challenges to their employment of lawyers. Our firm, however, they could hold up and have drawn and quartered.”

Larry—not his real name—says his firm began to hire lawyers about three years ago, principally to work in its estate planning practice.

“Up until then, we’d do a wonderful job of estate planning for our clients but still find ourselves caught up in a highly inefficient process,” Larry recalls. “To have their plans executed, we’d tell our clients to see their attorneys, and either the clients wouldn’t do it or something would get lost in the translation or the attorney would steer them in a different direction and confuse matters. We began to look for a way to offer our clients a seamless process from start to finish and concluded the only way to do that was through some type of affiliation with a law firm.”

Larry says his preference would have been to hire attorneys to practice law and execute documents within his own firm. Because that wasn’t possible under current law, he and his partners took a different approach, hiring attorneys as part-time employees of the accounting firm and simultaneously helping them set up their own law firm, which was housed in the accounting firm’s offices.

“These lawyers do estate planning inside the accounting firm,” Larry says, “and when the time comes to execute documents—to do the legal work—they switch hats and draft them as attorneys practicing within the law firm that they own.”

Larry says the owners of the accounting firm don’t share fees with the owners of the law firm. “The law firm charges us a fair market value for its lawyers’ services and we charge them a fair market price for administrative and support services, marketing and overhead. Any profit in the law firm goes to that firm. Also, the law firm bills its clients directly. We don’t handle the law firm’s billing.”

For now the firm isn’t aggressively touting its legal capabilities. “Most of our marketing has been done with our existing clients, not the outside world,” Larry says. “That’s not to say we haven’t gotten business from new clients. But the preponderance of our legal work has come from people we do other work for.”

Overall, the response from clients has been “phenomenal,” Larry says. “The marketplace is telling us it wants more efficient ways of doing business—eliminating communication problems between the professional service providers and getting jobs done on time. This unique affiliation has been a very positive experience for us.”


In this country, the Bar Association in the District of Columbia has allowed MDPs since 1991, but only if ownership of such firms is controlled by attorneys. There are additional complications for any D.C. firm also practicing outside the District, so few MDPs have been formed there. Still, the Big Five accounting firms are the biggest employers of attorneys in the United States, employing by the estimate of Carolyn B. Lamm of Washington, D.C., a delegate-at-large to the ABA’s house of delegates, approximately 5,000 lawyers.

These CPA firms skirt the ABA’s prohibitions relating to MDPs by contending that their lawyers don’t practice law and don’t hold themselves out to the public as lawyers. In the real world, that boils down to saying they don’t draft legal documents, offer legal advice or represent clients in court. They do, however, perform such tasks as tax planning and consulting.

“We have MDPs (outside Washington, D.C.) in the United States now,” says Phil Anderson, a law partner in the Little Rock, Arkansas, law firm of Williams & Anderson. As the ABA immediate past president, he appointed that organization’s commission on multidisciplinary practice. “Larger accounting firms are performing services that, if performed in law offices, would be considered the practice of law,” he says. “The only question I see now is this: Will the lawyers who are practicing in accounting firms be held to the same rules of professional conduct that govern lawyers in traditional practice settings?”

In Anderson’s view, having the ABA formally allow MDPs is a nod to reality. And the lesson to be learned from the medical profession, he says, is that attorneys must act now if they want to have a say in how MDPs will be structured.

“When I announced the appointment of the MDP commission, I called attention to what had happened in the medical profession,” Anderson recalls. “I asked then if the public was better off today. I asked whether patients were better off. I asked whether the medical profession was better off. I think the answer to each one of those questions is no, and it’s no because the medical profession did nothing whatsoever to channel the forces of capitalism that beset it 10 years ago.”

Larger Firms Press Ahead

MDPs appear to be one step closer to reality in the United States with Ernst & Young’s November 1999 announcement that it was forming an alliance with a group of attorneys who are starting a Washington, D.C., law firm.

The new law firm, called McKee Nelson Ernst & Young (MNEY) will offer a full spectrum of legal and CPA services. While other Big Five accounting firms already have established strategic alliances with law firms in the United States, MNEY is unique for several reasons. First, it is a start-up law firm that includes the accounting firm’s name in its name. Second, it will be situated in office space contiguous to E&Y’s accounting practice. Finally, unlike many of the other strategic alliances entered into by accounting firms, the law firm will provide legal services outside the tax area.

Clients visiting E&Y’s Washington, D.C., office will be able to access a full array of professional services. The alliance is a new approach that challenges the restrictions of the current state ethics rules prohibiting lawyers from sharing legal fees with attorneys.

E&Y may have selected Washington as the location of the new firm to take advantage of the District’s more liberal ethics rules. Washington, D.C., allows lawyers to share profits with nonattorneys as long as the attorneys remain in control of the firm providing the services. As it set up the new law firm in a more liberal jurisdiction, E&Y was careful to address the literal requirements of the American Bar Association’s model rules of professional conduct (MRPC). Most states use the MRPC as guidelines for their ethics rules, which prohibit the sharing of legal fees with nonattorneys.

In light of the MRPC restrictions, E&Y’s Washington accounting firm and MNEY are set up as separate entities that handle client billings separately. In addition, E&Y will not be involved in the day-to-day management of the law firm.

E&Y’s legal venture follows recent announcements of the formation by other Big Five firms of strategic alliances with influential U.S. law firms. Earlier in 1999, KPMG formed an alliance with the San Francisco law firm Morrison & Foerster, and PricewaterhouseCoopers allied with the Washington, D.C., law firm Miller & Chevalier.

The MDP developments in the United States during 1999 were a sharp contrast to events as recent as 1997, when unauthorized-practice-of-law proceedings (UPL) were filed against two Big Five firms in Texas. The unsuccessful conclusions to these UPL proceedings and the positive signal sent by the ABA’s MDP commission may have been the impetus leading to the alliances between three of the Big Five firms and the law firms. Other accounting firms are sure to monitor the alliances closely, with an eye toward doing the same. In the meantime, the pressure on the ABA to change the rules of professional conduct to allow MDPs will continue to grow. As a result, the floodgates for MDPs between CPAs and attorneys in the United States appear to be opening.

—Jack Baker, CPA, PhD, associate professor of accounting, and Randall K. Hanson, JD, LLM, professor of business law, University of North Carolina at Wilmington; and James K. Smith, CPA, PhD, JD, LLM, assistant professor of accounting, University of Nevada, Las Vegas.


It will take some time for the ABA to review this issue and even more time for state high courts to change their rules on professional behavior. It may be premature for accountants to look for legal partners now, but it wouldn’t hurt to give some thought to whether a combination would make sense for them, according to Gary Shamis, managing partner of the Cleveland-based regional accounting firm of Saltz, Shamis & Goldfarb Inc.

“Compelling and complex issues must be resolved before going forward,” says Shamis. “If you’re in a secondary market and you’re the largest firm by a long shot and you merge with the largest law firm, you will have an incredibly strong hold on the market. In a larger metropolitan area, that’s going to be very difficult to do. You also have to ask whether if you affiliate with one law firm you will alienate others you depend on for referrals. The answer is probably yes.”

Shamis notes that firms that delve into a new line of business could put existing client relationships in jeopardy if they perform poorly in the new area. Give a long-time accounting client bad legal advice, for example, and the disappointed client could pull his accounting business from your firm, too.

Jay Nisberg, president of Jay Nisberg & Associates, a management consulting firm based in Ridgefield, Connecticut, adds that there may be cultural problems in merging legal and accounting firms. Accountants, in his view, tend to be proactive in finding solutions to problems, while attorneys tend “to find reasons why things can’t happen.”

“Attorneys could drive accountants crazy discussing contracts between the two parties ad nauseam,” jokes Sechler-Callton. “Of course, CPAs would drive lawyers crazy analyzing the tax consequences of every move.”

If MDPs do become a reality, most observers expect accounting firms to be the aggressors in acquiring law firms rather than vice-versa.

“Law firms large and small have focused on the delivery of legal services; they have not attempted to broaden their horizons,” observes Stuart Hoberman, a director in the Woodbridge, New Jersey, law firm of Wilentz, Goldman & Spitzer PA and chairman of the special committee on multidisciplinary practice of the New Jersey Bar Association. “Accounting firms, by contrast, have set up consulting firms to do just about anything. If you look at other countries where MDPs are allowed, it’s not the law firms that are buying accounting firms; it’s the accounting firms merging law firms into them. So it’s accounting firms looking to grow through this, not the law firms.”

That said, don’t expect every law firm to wait for an invitation to the dance. Shamis notes that he’s already been approached by three law firms indicating that they’d like to talk about a possible affiliation if the rules governing MDPs are relaxed. “I was flattered that they would want to affiliate with us, if only because their firms are very respected,” recalls Shamis, who already employs a half-dozen attorneys in his firm’s tax and estate planning practices. “I was impressed because they were thinking outside the box.”

If and when the ABA does act to allow multidisciplinary practices, thinking outside the box is a trait that all CPA and attorney traditionalists will have to add to their skill set.


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