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State Of The Nation

7th November 2013

It was not all that long ago that innovation in the law meant trying out a daring new type of biscuit for client meetings. No longer, however. The advent of alternative business structures (ABSs) in the past two years has been the catalyst for a new breed of entrepreneur eyeing up the £25-30bn UK legal market.

Numerically, ABSs are still a relatively small phenomenon – around 240 have been licensed as against around 11,000 law firms in England and Wales – but they loom large in many minds because of the size of the new competition they are bringing and more generally a mood of innovation that others are looking to exploit without the need for an ABS licence.

A good number of the ABSs approved so far are just small firms bringing a non-lawyer member of staff into ownership (itself a startling innovation if you think back a decade), but among those 240 are some big names. The Co-operative was the first mover, but now former Dragon’s Den star James Caan, BetFair founder Bert Black and Stagecoach chairman Brian Souter have invested in law firms – Knights, Brilliant Law and Winn Solicitors respectively.

Some of the country’s largest insurers – including Direct Line, Admiral and Ageas – have formed ABS joint ventures with law firms, and other big corporate names such as the AA, Saga, the Stobart Group and BT are making their play too.

Conveyancing has been at the heart of ABSs from the start – the country’s first ABS was Premier Property Lawyers (part of myhomemove), approved by the Council for Licensed Conveyancers (CLC) – with many of the big names having to become ABSs because on their existing ownership structures. The CLC accounts for 38 of the ABS total at the time of writing.

Possibly because external investment had already been allowed for many years via the CLC, conveyancing has not been at the forefront of ABSs licensed by the Solicitors Regulation Authority. The new status has come at just the right time for personal injury lawyers given the fundamental reforms to civil costs in recent months, and so it is PI where the focus has been.

Probate is seen as the next growth area, given the commoditisable nature of the work and a market even more fragmented that the conveyancing sector. It was interesting recently to see Smedvig Capital, the private equity business invested in myhomemove put £4m of growth capital into King’s Court Trust, one of the country’s largest probate providers.

There is, of course, far more than just ABSs to worry conveyancers. Separate representation has probably gone away given the recent Law Society of Scotland vote against it, but lender panels are never far from their thoughts.

In its response to the ongoing Ministry of Justice review of legal regulation, the CLC argued that when combined with the Law Society’s Conveyancing Quality Scheme, the burden is becoming too much for firms. They amount to “double regulation in the sense that regulated lawyers are having to meet two or sometimes even three sets of separate requirements”.

These additional “quasi-regulatory burdens” are being placed on practitioners who have already been judged by their regulator to be fit to practise, it pointed out.

“Lenders may be seeking to address real risks but we would contend that these are better addressed within the framework of regulation, with all the safeguards provided by the full regulatory framework around proportionality and consumer interest. Ad hoc actions by lenders are not subject to those controls.”

That is set to run and run, as is a more unified campaign – supported by both the CLC and the Council of Mortgage Lenders – for reform of the current compensation fund arrangements for the victims of fraud. The pair have backed the call from the Legal Services Consumer Panel to scope out a single compensation fund across the legal profession, and the Legal Services Board has agreed that the idea has attractions.

But given the work I do, I cannot help but come back to the new ways of practising law that are emerging. Some have developed completely different business models, the benefit of starting from scratch. Business law provider Riverview Law, for example, has no partners, no billable targets, and recruits people for jobs previously unknown to the law, like project manager and data analyst. It runs itself as a company providing legal services.

Technology looms large – the traditional model has been sustainable for a very long time for two principal reasons, mystique and protectionism. Protectionism is being pulled down by ABSs and technology is pulling back the curtain of mystique. Rocket Lawyer and LegalZoom, online legal services from America, have moved into the UK because they recognise its fertile territory.

But outside of the largest consumer practices like Slater & Gordon – the fast-expanding UK arm of the listed Australian law firm – that want to position themselves alongside The Co-operative, the response from traditional firms has thus far been sluggish. The exception is QualitySolicitors, the long-term success of which remains uncertain notwithstanding the private equity investment it took two years ago.

It is too early to judge the success of all these new entrants and models, of course, and of the liberalisation agenda more generally, but – taking a step back – the pace of change in the last three years or so has been breathtaking compared to the previous 30 (or even 300). The profession is slowly waking up to the need to separate process from value, to focus on what lawyers are really needed for and for which people will pay.

ABS is no panacea. As readers will know, AIM-listed online conveyancing ABS In-Deed bought a CLC-regulated law firm as part of its bid to change the way the market operated and threw in the towel earlier this year, selling back the practice to its founder for £1. ABS is not a strategy in itself. It is a means to an end. That end, almost certainly, will leave lawyers in a very different market to the one they inhabit now.

 

Neil Rose is the editor of Legal Futures

 

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