Five Forces Analysis 2026: What's Shaping Profitability in Accounting, Law and Advisory
Updated: 2 days ago
Our new industry report brings together the latest evidence on what's shaping profitability in accounting, law and advisory, and what it might mean for your firm.
We've published the Five Forces Analysis 2026, a free report for leaders of accounting, law and advisory firms.
We wrote it because the pressures on these firms are usually discussed one at a time. AI is changing what clients will pay for. Private equity is reshaping who owns firms. Qualified people are harder to find and more willing to leave. Looking at them together shows how they combine to shape profitability across the industry. It also shows which kinds of work are under the most pressure, and which are under less.
The report applies Michael Porter's Five Forces framework to the three professions. It draws on 102 sources from the UK, Ireland and the US, including government bodies, regulators, professional bodies and research organisations, each one dated and linked. This article summarises what we found.
Free report · 32 pages · PDF
What the Five Forces analysis shows
Across all five forces, one pattern repeats. Pressure on profitability is concentrated on standardised work, which clients can compare on price and which new entrants or AI tools can replicate. Complex work, which depends on reading a specific situation and deciding what to do about it, shows less pressure, and some of it is being priced higher. There is one exception. Where private equity consolidation reduces the number of firms competing locally, prices for standardised work have risen rather than fallen.
Talent pressure cuts across that divide. Fewer qualified people are entering the professions, and losing someone senior is expensive, often because clients leave with them. At the same time, what firms need from their people is broadening. Professional bodies, firms and their clients describe a wider set of capabilities alongside technical skill, including building trust, advising clients directly, bringing knowledge of the client's sector, and connecting clients with colleagues across the firm. These capabilities apply in every engagement, routine or complex. The evidence also suggests that a client served by more than one person at a firm is less likely to follow a professional who leaves.
New entrants: lower barriers, well-funded challengers
Barriers to entry are falling for standardised work. In England and Wales, regulators have approved technology-only law firms, and a directory launched in March 2026 tracks 27 AI-native firms. In accounting, private equity is mainly entering as an investor in existing firms: ICAEW found in May 2026 that 46% of UK mid-tier firms now have private equity backing, up from 12% in 2024. At the same time, senior people are leaving established firms to launch challengers. Unity Advisory and WTS UK, both led by former Big Four leaders, have raised $300 million and more than €500 million, respectively.
Clients: using AI to push back on fees
Clients are now ahead of many of their advisers on AI adoption. Thomson Reuters found in June 2026 that 78% of corporate clients say AI-enabled quality improvements are essential, but only 6% think most providers deliver them. Some large clients now ask firms to show their AI-related savings in the proposal itself. In the UK, a government consultation that closes on 30 November 2026 includes the option of removing the audit requirement for some medium-sized companies. If that goes ahead, audit for those companies would become a choice rather than a legal requirement.
Talent: a shrinking pipeline and a high cost of losing people
The supply of qualified people is tightening in both the UK and the US. A June 2026 UK survey found 67% of accountants aged 55 and over plan to retire. Losing people is expensive: law firm leaders put the cost of losing a third-year associate at more than $1 million. At partner level, the largest cost is often the clients who leave with them. Research suggests that risk is lower when more than one person at the firm holds the client relationship. The report also finds the skill set firms need is broadening, beyond technical delivery, toward building trust, advising clients directly and bringing knowledge of the client's sector.
Substitutes: clients doing more themselves
Large clients are moving repeatable work in-house. Legal AI vendors describe the same shift. Legora's chief executive said in October 2026 that "50% of our new market is coming from in-house legal departments." In the UK, 96% of law firms and 66% of accountants now use AI, but the government's June 2026 adoption plan found 75% of professional and business services firms lack the data infrastructure to use it well. Adoption is uneven by size, too. In Ireland, 17.2% of small enterprises use AI, compared with 57.7% of large ones.
Rivalry: consolidation funded by private equity
Consolidation is accelerating. Private equity accounted for 54.8% of US accounting firm deals in 2025, and in the UK, 94% of private equity-backed mid-tier firms plan further acquisitions, compared with 58% of independent firms. The same trend is growing across continental Europe. In July 2026, Grant Thornton's private equity-backed US firm agreed to buy CBIZ, the only standalone accounting firm on the US stock market, for $5 billion. Not every large firm is taking that route. In October 2026, the Financial Times reported that RSM, one of the largest independent firms, is exploring a stock market listing as an alternative to private equity. The report sets out the effects on both sides. Private equity brings capital, structure and an exit route for owners without a successor. It can also mean less autonomy, higher staff turnover during the transition, and higher prices for standardised audit work in local markets.
What the evidence does not yet show
The report sets out its limits openly. For example, it does not show whether clients are following senior people to the new challenger firms, and it found no formal estimate of the full cost of losing a partner. Irish evidence is thinner than UK or US evidence for several of the forces. Each gap is set out in the report so readers can judge the strength of each finding.
Questions and answers
How is AI affecting pricing in law and accounting firms?
Clients are using their own AI adoption to question fees. Thomson Reuters found in June 2026 that 78% of corporate clients say AI-enabled quality improvements are essential. Still, only 6% think most providers deliver them, and 32% would reconsider whom they use within 12 months. Some large clients, including Citigroup, now ask firms to show their AI-related savings in their proposals. Firms are responding with more fixed-fee and value-based pricing, even as headline hourly rates continue to rise.
How is private equity changing accounting firms?
Private equity is now a major owner of accounting firms. ICAEW found in May 2026 that 46% of UK mid-tier firms have private equity backing, up from 12% in 2024. In the US, private equity accounted for 54.8% of accounting firm deals in 2025, and deal numbers are also growing across continental Europe. The effects run both ways. Firms gain capital, structure and an exit route for owners without a successor, but report less autonomy, higher staff turnover during the transition and, in some local markets, higher prices for standardised audit work. Some large firms are looking at other sources of capital. In October 2026, the Financial Times reported that RSM is exploring a stock market listing as an alternative to private equity.
Is the UK removing the audit requirement for medium-sized companies?
Not yet. In September 2026, the UK government opened a consultation that includes the option of extending the small company audit exemption to certain medium-sized companies. These are currently companies meeting two of three limits: turnover up to £54 million, a balance sheet up to £27 million, and up to 250 employees. The consultation closes on 30 November 2026, and no decision has been made. An AccountingWEB analysis puts the number of companies that could become exempt at around 41,000.
What does it cost a firm when a senior person leaves?
More than many firms track. Law firm leaders surveyed by BigHand in August 2025 put the cost of losing a third-year associate at more than $1 million. At the partner level, the highest cost is often the clients who leave, too. In BTI Consulting's research with US corporate counsel, about one in five said they planned or were likely to follow a partner who moved firms. Replacing a partner from outside is costly and uncertain. ALM Intelligence and Decipher found the average all-in cost of a lateral partner hire was $2.3 million, and almost half left within five years.
What skills will professional advisers need as AI takes on more technical work?
The evidence points to a broader skill set. ACCA and the AICPA describe growing demand for judgement, client interaction and advisory decision-making. Thomson Reuters reports that corporate legal teams place more trust in firms with deep industry knowledge. Research on partner performance links higher revenue to partners who build networks across a client organisation and introduce clients to colleagues elsewhere in the firm. A software vendor sponsored that study, so the report treats it with caution.
What it means for your firm
The five forces describe pressures across the whole industry. How they affect one firm depends on its clients, its people and the choices its leaders make. The Value Readiness Check looks at four areas that connect directly to the report. It has 32 questions, takes about six minutes, and gives you an instant, personalised report on your firm's strengths and gaps.
If any of this raises a question about your own firm, I'd be glad to talk it through. You can email me at j.lancaster@practiceedge.ie.
Comments