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Talking about a revolution

Cover Story

Cite as: Cite as: March 2012 86 (03) LIJ, p.14

A radical shakeup of legal services is under way in the UK with big retailers and banks entering the law.

By Neil Rose

It was a decade or more in the making, but on 3 January 2012, the Solicitors Regulation Authority (SRA) in England and Wales began accepting applications from organisations wishing to become alternative business structures (ABSs).

ABSs are the creature of the last Labour government but taken up enthusiastically by the current Conservative/Liberal Democrat coalition. Put basically, they will enable lawyers and non-lawyers to share the management and control of a business which provides reserved legal services to the public (the reserved activities are six areas of work which by law only an authorised lawyer can do, including litigation, advocacy and parts of the conveyancing and probate process).

All that is required is a single lawyer partner. Scotland, as a separate legal jurisdiction, has its own ABS rules coming in later this year, requiring lawyers to maintain majority ownership.

The radical liberalisation of ownership structures in England and Wales is causing international waves, as the Americans and Europeans in particular watch on nervously – unenthusiastic on principle but worried about the competition from cash-rich English firms.

The preferred alternative business structure in Australia is the incorporated legal practice (ILP) which continues to grow – ILP Slater & Gordon was the world’s first publicly listed law firm back in May 2007.

In the first two weeks of January the SRA received 50 initial applications, with the first ABS expected to be named in late February. Among those to have started the process as soon as the SRA’s doors opened were Co-operative Legal Services (CLS) – the legal arm of the Co-operative Group, a major retailer and services provider, national law firm Irwin Mitchell, the first law firm to confirm its intention to seek external investment, and legal expenses insurer DAS.

In fact, the relatively limited nature of reserved activities means that innovation has been flourishing ahead of ABSs going live.

The most notable has been the development of QualitySolicitors (QS). QS is at heart a marketing collective of (currently) around 110 law firms in 220 locations that aims to build the first truly national legal brand – firms have to add “QualitySolicitors” to the beginning of their names. It has been sold to solicitors as a way for them to get in first ahead of big retailers and banks entering the law.

Much of this competition is initially expected to take the form of white-label operations (where, for example, a bank may provide legal services to its customers but actually they are being provided by a third party under the bank’s name) provided by volume law firms, or other “engines” that deliver a systematised, call-centre type operation staffed by large numbers of paralegals under the supervision of qualified lawyers.

QS has been one of the most talked-about developments in the legal market for many years, winning admiration and derision in equal measure with a deal to place “legal access points” (LAPs) in up to 500 branches of leading retailer WH Smith. These LAPs are staffed, branded stands where customers can make appointments, take away information leaflets and sign up to a loyalty card. QS says around 3000 people a day are taking the card, which entitles them to discounts at other retailers.

With private equity house Palamon Capital Partners taking a majority stake in QS last year – and in doing so giving a major tick of approval to the business model – chief executive and former barrister Craig Holt hopes to reach the goal of over 1000 branches in every significant population centre by the end of 2012.

This will mean a network with a collective turnover of £1bn – which he says will give it around 10 per cent of the consumer legal market. QS will shortly launch a £10m television advertising campaign.

Mr Holt describes the strides QS has made as having the two key elements required for market dominance – accessibility and visibility.

“It provides everything the Legal Services Act was hoped to provide without the perceived negatives – accessible, consumer-friendly legal services but with the actual legal work being done by expert, leading local law firms and not unqualified staff in a remote call centre,” Mr Holt said.

Other franchise-style networks (such as HighStreetLawyer.com, Lawyers2you and face2face solicitors) have entered the fray although they all have some way to go to catch up QS.

Then there are organisations planning city-centre law shops, where consumers will be able to buy and fill out legal documents on the spot with the help of an adviser, and even one which is putting video conferencing kiosks in shopping centres that will connect people with a lawyer for instant advice. (See “Shopping for legal advice”, Jan/Feb LIJ, p14.)

Online legal documents are increasing in visibility, with various financial institutions and a growing number of law firms offering them. This is set to explode in 2012 with two of the biggest legal brands in the US, LegalZoom and Google-backed Rocket Lawyer, both launching UK versions of their online document sites.

Certainly for law firms that have decided they need to do “something”, there is no shortage of somethings to choose from, with “find a lawyer” websites a trend being watched especially closely. The lawyers come from panels which they usually pay to be on and/or agree to referral fees for the work that ensues.

Among many such sites are:

  • Contact Law (www.contactlaw.co.uk): an adviser contacts the inquirer to determine their problem and then refers them to a lawyer;
  • Wigster (www.wigster.com): allows users to find, compare and rate lawyers;
  • TakeLegalAdvice (www.takelegaladvice.com): a tailored matching service for consumers and businesses;
  • Legally Better (www.legallybetter.com): search by your address and results come up with reviews and ratings of nearest solicitors.

And within each of these there are different approaches – joining a national brand against building a local brand, for example.

Conventional wisdom is that the largest corporate law firms in London will shy away from ABSs for a variety of reasons, such as losing some control to an outside owner and because they can currently raise any money they need.

But a report from Espirito Santo Investment Bank (The Legal Services Market: The Race Is On, published October 2011, not available online) predicted that while the top firms may be able to put off changes in the short to medium term, “such an attitude would be unsustainable in the long run”.

It identified two key drivers for the take-up of external financing: “The need for capital to fund expansion and law firms’ doubts about the internal strength of their organisations; and the need to retain human capital and keep pace with labour market forces”.

Many barristers also think they will be unaffected by ABSs, but there is a creeping realisation that they will not. The Bar Council has developed a procurement vehicle through which chambers can bid for work, while it is also encouraging barristers to take up “direct access” rights, which allow many clients to seek out a barrister directly without needing to instruct a solicitor first.

While rumours abound of new entrants to the legal market – both for consumers and businesses – very few have put their heads above the parapet yet beyond offering online legal documents as part of a wider support service.

The most high-profile of those that have is CLS, which began in 2006 and now has a £25m business employing 400 people (it is currently recruiting a further 150). Becoming an ABS will give CLS much more flexibility in what it does and how it delivers advice in both reserved and unreserved fields.

As well as food outlets, the Co-operative Group has a growing bank network and the largest funerals business in the UK, meaning there are lots of enticing cross-selling possibilities. Currently legal work is done over the phone or via email, but this is likely to change; CLS has been piloting face-to-face legal advice in some bank branches.

One area where non-lawyer owners are expected is in personal injury work. Much personal injury work is sourced by so-called claims management companies, which then sell the leads on to solicitors. But the government is trying to stamp out these “referral fees”, prompting the companies to consider recruiting lawyers and doing the legal work themselves as a way around any ban.

Another prominent new name is In-deed, an online conveyancing service that floated on the junior London stock exchange AIM in spring 2011 and with several million in the bank has announced its intention to invest in a number of law firms to start building a national brand. In late January, publicly quoted IT company Quindell Portfolio announced its intention to buy Liverpool-based personal injury law firm Silverbeck Rymer with the intention of building an entire claims-handling operation that it could offer to the insurance market.

The SRA reported last year that it had received “strong interest” in ABS investment from abroad and from non-English law firms that want to use the structure. They include one of China’s largest law firms.

Former director of international at the Law Society of England and Wales and now an adviser to the SRA, Alison Hook, said Asia appears the most enthusiastic about the changes. The SRA has received delegations from China, Hong Kong, Singapore and Malaysia that wanted to learn more about how the ABS regime works.

A former partner at top City firm Linklaters, Stephen Kines, has even set up a consultancy dedicated to finding major Chinese and Indian law firms to use the ABSs to help them build global practices from the UK – the Australian experience shows such structures can work, he says.

“London would be a good place to start for the first-level investment [in expansion] because of the financial markets and also because of the flexible structure provided by ABS,” he adds.

For Ms Hook, this provides an opportunity for Australia. “Australia’s ABS regime is a lot simpler than that in England and Wales, but what are they doing to market it?” she asked. (see “London Calling”, below.)

The UK legal market could be a very different place in five years. There can be no doubt that change is coming. A larger market perhaps through more accessible providers, and processes largely automated, so that lawyers focus on those parts of their work for which consumers really need them (and will pay).

There is now a recognition that ABSs are just a means to an end, not an end in themselves with a pot of gold at the end. It is, according to leading legal “futurist”Professor Richard Susskind, “unimaginable” that investors and entrepreneurs will ignore the opportunities presented by the legal market.

In his view, only lawyers who can deliver better and more accessible legal services at a lower cost – “more for less” – will flourish in future. It may not appeal to all, but some are embracing this challenge with gusto.

NEIL ROSE is a UK-based legal journalist and editor of LegalFutures.co.uk.

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