The current legal landscape

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To describe the current legal landscape as interesting would be a real understatement. You could say that a perfect storm is brewing. A variety of different factors mean that the legal sector is undergoing significant change and firms of all sizes need to rise to the challenges they are facing. Amongst this apparent maelstrom there are not only real threats but undoubtedly opportunities too.

Not surprisingly, the stories that have made the biggest headlines at the start of this year relate to the long-awaited advent of alternative business structures in the Legal Services Act.

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Personally, I have been surprised by the number and diversity of the various announcements. These include the takeover of a UK law firm by an overseas firm - Russell Jones and Walker and Slater & Gordon, the real significance of this being that the Australian acquirer is the world’s first listed law firm. We have an acquisition by a listed outsourcing group owned by non-lawyers, Quindell, of the personal injury firm, Silverbeck Rymer, and a private equity investment by Duke Street Capital into Parabis.

Commercial firm Irwin Mitchell indicated their desire to exploit the opportunities of external investment early last year. Indeed, the Solicitors Regulation Authority (SRA) recently revealed that it has over 150 requests from firms looking to become alternative business structures (ABSs). Those requests are just a preliminary and, by their own admission, the SRA does not know how many requests will translate into actual ABSs.

Perhaps we should anticipate further appetite for investment on the part of external funders given a recent report that six of the UK’s biggest law firms would be included in the FTSE100 if they had publicly traded shares. I still think it is early days but there undoubtedly will be a trickle-down effect through the profession over time.

Of more significance is how the current climate and recent developments will affect access to legal services. QualitySolicitors is making a bid for widespread recognition by creating a nationwide franchise of consumer-focused firms. Note that before its deregulation, the opticians’ market was made up of thousands of local and regional companies with no national brands, whereas three brands now represent approximately 80% of that market. There is increasing use of online legal services, which undoubtedly will be aimed more at small and medium-sized businesses as time progresses, and the third-party litigation funding market is maturing.

Nearly all firms are finding themselves subject to pressure on fees and greater competition. Many firms also have to deal with issues such as cashflow, funding, pricing, salary pressures, staff retention, premises requirements and succession planning. Clearly a challenge for any managing partner or executive board. All of these issues will force firms to consider how they deliver services more efficiently and whether they change the way they work and adopt a more strategic approach to compete effectively in the current marketplace. In my view, greater consolidation through merger activity at global, national and local levels can be expected. Almost unnoticed, one of China’s largest firms has recently opened a London office, which may prove to be an interesting development.

As if this wasn’t enough, firms are still getting to grips with outcomes-focused regulation. Firms were required to nominate compliance officers for legal practice (COLPs) and compliance officers for finance and administration (COFAs) by the end of March but the SRA has just announced that it is extending the deadline, in their words, 'in order to give firms more time to finalise their nominations and to allow for further checks on the application process.'

Separately, recent developments in case law around fiduciary duties of LLP members and the true status of partners, together with the awaited further decision in the Seldon retirement age case, means that firms now need to be even more careful about their internal partnership arrangements. The storm is approaching, and we will be watching eagerly to see how it unfolds.

Fergus Payne is a partner and joint head of the partnerships & LLPs group at Lewis Silkin LLP

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