Virtual firms thrive in the downturn

‘The recession is very good indeed for us!’ says Andrew Woolley, head of a family law firm that is riding the economic storm battering many not-quite-so-fortunate law firms. But why is his firm proving so profitable when others are struggling financially – and shedding many fee-earners in the process?

Woolley & Co is what is known as a virtual law firm. That is, a firm that has dispensed with the need for a bricks-and-mortar office and operating from the homes or satellite offices of its fee-earners. Most have a ‘nerve centre’ responsible for the administrative side of the business.

Virtual firms’ overheads are drastically reduced and fees are consequently lower. Clients are pleased with the results, and the few virtual firms around right now are sweeping up the best of the newly redundant lawyers – who take home (as it were) up to 75% of the fees they generate in the process.

James Knight, founder of Keystone Law, which has 85 consultants, prefers the term ‘disbursed’ law firm: ‘The term “virtual” law firm is not accurate and gives the wrong impression.’ One thinks of the truly virtual universe of Second Life, in which there is a handful of law firm ‘offices’ that are virtual in every sense of the word – Field Fisher Waterhouse is a UK example.

But just how many virtual law firms (we will persist with the phrase for the purposes of this piece) are there? The Law Society has no statistics and nor do the major regional law societies. There is no formal group or association of virtual law firms. A best guess, going by those clearly visible on the internet at the time of writing, is that there are not many more than 20. This is somewhat surprising, considering that virtual firms started to emerge more than 12 years ago.

Some of the earliest ones did not survive. Even some legal commentators did not believe there was a future for these firms just a few years ago. But they are being proved wrong.

One of the runaway successes is Woolley & Co, founded in 1996 when the internet was in its infancy. Woolley identifies two main reasons why his firm is surviving the recession: ‘More clients are seeking clarity of fees. As we offer many fixed fees, they prefer them to a “tell you at the end” approach.’ He also emphasises the firm’s accessibility, customer service and up-front clarity on costs, ‘ideally offering fixed fees’.

But he points out that this is not in any way exclusive to virtual firms: ‘Perhaps the very fact of lateral thinking causes the lateral thinking [results] set out above.’

His firm’s working model is proving attractive to lawyers aspiring to a work-life balance: ‘We are getting many very good lawyers approaching us direct wanting to “jump ship” from their present firms due (we are often told) to a “lack of commitment to family” or a “lack of direction”.’ So far this year he has recruited six City lawyers.

Keystone Law is also expanding very quickly and, says Knight, is ‘much busier than before and currently growing by about six solicitors per month’.

He adds: ‘We have been faced with a flood of clients needing to trim costs without exposing themselves to additional risk or a diminution of service. For Keystone, the recession is having a very positive impact indeed.’

And so, after a shaky start more than a decade ago, a handful of experienced, IT-savvy lawyers are leaving behind their traditional method of legal practice and embracing the brave new world of IT, which is advancing at break-neck speed, to operate in a far more flexible manner.

Take Lawbridge Solicitors, for example. Set up just over a year ago by Michael Pope, who spent 21 years as an employment partner in a traditional high street firm, Lawbridge is the result of a proactive response to what Pope recognised as the increasing pressures of the prevailing business and legal climate.

Pope owes the firm’s success thus far to the technology it uses: ‘We have been successful because the technology is suitable and reliable and we have been able to ensure that the level of service to the clients has been very good. The key challenge for virtual law firms is to make prospective clients aware both that the firms exist and of the benefits they offer when compared to traditional firms.’

The economic pressures on legal aid firms have proved particularly great, as Lucy Scott-Moncrieff, a former criminal partner at a legal aid firm in London, reflects. She is a founding partner of virtual firm Scott-Moncrieff, Harbour & Sinclair, which specialises in mental health and prison law and also takes on military claims.

She says: ‘Our virtual law firm has developed in line with all the changes in legal aid because it became obvious that money was going to be getting tighter and tighter.

‘Our way of working, (senior self-employed lawyers working from home) allows us to cut office overheads, so the consultants can earn a decent living and be well supported by us, on the very low rates now being paid for legal aid work.’

So how do these virtual firms work? Crucial to their success is an appropriate IT solution. Some firms use an internet-based practice management and case management system, while others have opted to run with a Virtual Private Network. Pope says a web-based system works well because it is designed for people working at different locations. ‘Also, they have the advantage of facilitating an interactive element to the firm’s website, so that clients can track their cases in a secure area, input information to detailed screen forms and so on,’ he says. Lawbridge has also configured its website to provide clients with different online fixed-fee advice services, which is proving a success with clients.

Other attributes of successful virtual firms include: remote telephone answering; hosted email and eFax; outsourced typing services; access to websites and resources such as Land Registry Direct (which particularly lends itself to a virtual set-up); and online legal precedents (Practical Law Company, for example).

Virtual law firms are still subject to the SRA in the same way as traditional law firms. As Woolley points out: ‘Of course, the [solicitors’] code requires proper systems of supervision and management for all firms. Why should firms surrounded by bricks be better-managed or supervised for that reason only?’

High street threat?
As to the question of whether these virtual firms pose a threat to the traditional model, Nigel Haddon, who heads the Law Society management committee, says: ‘Quite probably, but only one of many threats out there such as the entry of national brands into the market post-LSA; the increasing use of the internet as first port of call for ‘Generation Y’ consumers; consumers wanting more for less across the board, and so on – there are a host of threats out there. And a host of opportunities if your firm is well-managed and well-led.’

Mark Roberts heads Legality, which has two lawyers. He believes that, for ‘commodity’ legal services that can be readily packaged, such as wills and conveyancing, virtual law firms will threaten the traditional model. He says: ‘We are already starting to see the early signs of that change with the advent of “Tesco Law”. The important thing to bear in mind here is that a personal relationship is not necessary for such transactions to take place. Rather, consumers are purchasing largely based on price alone.’

Andrew Woolley says: ‘I haven’t set out to be a threat to anybody, but I am sure virtual firms are a threat and ours most certainly is. Before we existed, ordinary firms were doing the work we now do. We get about 80 new divorce clients per month, so that work has been removed from traditional firms. If the number of virtual firms increases then clearly they will remove more work from ordinary firms.’ But he believes it is because the firm is accessible, offers great customer service and is clear on costs that it is successful, rather than that it is ‘virtual’.

James Knight believes the legal profession is adapting to the prevailing climate. He explains: ‘The concept of the virtual firm has found favour because it is very well suited to the provision of legal advice. Virtual firms provide solicitors with an excellent work/life balance while enabling the delivery of a very personal, attentive service at a more affordable rate. However, there will always be solicitors and clients who prefer the concept of the traditional high street firm and we are not likely to see any dramatic changes overnight. What is highly likely is that the distinction between the virtual firm and the traditional high street firm will become blurred, as more high street solicitors opt to take advantage of technology to work part of their time from home.’

And working for a virtual law firm provides a unique opportunity for lawyers who don’t want to be caught up in the traditional career route. Scott-Moncrieff points out: ‘What’s emerging is a whole swathe of lawyers who are not catered for by the traditional high street firms – those who do not want to become partners, or managers, but also do not want to remain assistants or employees; they just want to be lawyers.’

The prospect of working with virtual firms is clearly proving attractive, with firms saying they are being approached directly by lawyers looking to join them. And with a stream of redundancies from the City and beyond, this is the ideal opportunity for virtual law firms to grow rapidly when there is no physical restriction to a firm’s expansion.

Nicola Laver is a freelance journalist