New Tax Advisors Act in preparation: Legislator wants to prohibit financial investors from entering tax advisors
The highly regulated industry of tax advisors has recently been noticeably changed by the entry of financial investors. The legislator seems to take a critical view of this and wants to stop this development. With this goal in mind, the “9th Act Amending the Tax Advisory Act (StBerG)” was discussed and surprisingly passed in the Bundestag on April 24 with a tightening of the so-called ban on third-party ownership. In this context, the prohibition of third-party ownership means that tax consulting firms may only be controlled by members of tax consulting or comparable liberal professions – not by investors or investors from other disciplines. The Bundesrat’s approval was actually supposed to take place on May 8 – but was postponed again due to a different issue in the same legislative package. In Ypsilon’s opinion, however, the amendment to the Tax Advisors Act will soon be passed. The new rules will then apply from the day after promulgation for the ban on third-party ownership.
Peter Lenz, Partner and Managing Director at Ypsilon, comments: “The industry is undergoing structural upheaval and strong consolidation: Currently, more and more financial investors are participating in tax firms. Large funds such as KKR, Blackstone or EQT are already active. Tax advisors are attractive investment targets because they have very predictable income, are often faced with a succession problem and the market is fragmented. Experts speak of the “corporatization” of a classic liberal profession.”
Lenz continues: “We have to wait and see what consequences the ban on third-party ownership will have, especially for existing law firms that are already owned by others. The Chamber of Auditors will also be called upon. In a statement by the board of directors on 23 April, the latter has been critical of this, but has not yet taken a clear position. We will see which path the Chamber of Auditors in particular will take.”
Independent law firms are faster, more flexible and more specialised
In Ypsilon’s view, independent law firms that are not controlled by financial investors have an advantage: they are entrepreneurially freer, faster and more flexible in litigation and they have a clear specialization – for example in real estate or private equity. Furthermore, the personal client relationship and greater profitability are important, as there are no overhead structures and no profit transfer to external investors and thus in the company’s own employees and structures can be invested.
Lenz elaborates: “Certainly, the large platform law firms owned by financial investors also have advantages. For example, the business model is easier to scale, and there are synergies in higher-level functions such as HR departments or administration. Branding and visibility are also higher due to its size and stronger financial strength. Nevertheless, we believe that the advantages outweigh the disadvantages with independent law firms. The main argument for this is that the quality of the advice is better. This is essentially due to the better client relationship, the higher specialization and, in our opinion, the significantly lower staff turnover.”
