What’s in a name? Networks and franchises

Since the liberalisation of the UK’s legal services market came into full effect, entrepreneurial law practices have been enticed to join a small - but growing - selection of legal services networks and franchises. These groups - many of which are still in their infancy - aim to replicate what financial services providers have so successfully achieved since that sector was opened up to greater competition: establish nationwide brands, and a high street presence in every major UK town and city to satisfy the needs of the local consumer and a small or growing business.

These legal franchises, networks, brands and licence models - the terminology changes from one organisation to the next - can provide several key benefits for members. For example, they can offer referrals from the website, independent financial advisers and other clients; as well as provide a nationally recognised brand to help boost members’ profiles. This does for law firms, so the argument goes, what Interflora does for florists: the goodwill that a firm has already built under its own name is protected, but it also has the opportunity to leverage a brand name that is advertised and known nationally, and that has a reputation for quality service and reliability.

Other benefits include offering members deals and benefits on professional indemnity insurance, for example, at cheaper rates than they could secure themselves through economies of scale, as well as providing training, regulatory compliance checks and strategy days to help improve marketing strategies.

Chris Marston, head of professional practices at Lloyds TSB Commercial, says that law firms and sole practitioners should seriously consider the benefits of joining a legal franchise or network: ‘Franchise businesses have a much higher survival rate than any other start-up business, and the economies of scale they can provide and professional support are added bonuses.’

Another reason, Marston argues, for opting for a franchise is that several carry out compliance reviews, due diligence, and professional training and development. ‘These all help to make the law firm more attractive to clients, and reassure banks - which may be approached for lending - that [the firm] is well run,’ he adds.

Linked up

The networks and franchises on offer vary considerably in terms of size, costs, benefits and scope. For example, 360 Legal Group provides consultancy services to law firms that want advice on how to manage and market their businesses. Members get a two-day strategic practice review, and discounts on services such as consultancy and marketing help, as well as conferences. Viv Williams, the organisation’s chief executive, says that 360 has around 780 members. Membership fees are ‘nominal’: £29.99 per month for sole practitioners and firms with up to three partners, to £49.99 per month for practices with 10 or more partners.

One of the longest-standing networks is LawNet, established on a mutual basis over 20 years ago to bring buying efficiencies to its mid-size, multi-disciplinary independent member firms. In recent years LawNet has positioned itself as a complete infrastructure package, covering quality, risk management, compliance, training, networking, business development and marketing. The network has 67 members with turnovers ranging from £2m to £15m. Membership costs are based on annual revenue, and members are said generally to recover their annual fee through group purchasing power, discounted services and free continuing professional development (CPD) training. LawNet currently places some £1.2bn worth of professional indemnity cover for members each year, which helps stabilise premiums for firms.

As well as turnover, membership is based on a strong risk profile, as all firms have to achieve and maintain the ISO 9001:2008 LawNet Quality Standard certification. Through a recently completed agreement with the Law Society (the first of its kind), LawNet firms can also secure and hold the Lexcel practice management standard through a simplified dual auditing process delivered through LawNet.

The sector’s growing compliance burden is a current priority, with a risk management portal to lead LawNet members through implementation of the Solicitors Regulation Authority Handbook and outcomes-focused regulation (OFR), backed up with training and risk management consultation. LawNet hopes to encourage other firms to join its ranks so that members can benefit from greater economies of scale. Recent research among the mid-size independents that make up LawNet showed that over 60% of member firms believed that, to cope with the changing market, they need to be at least a third bigger, with a further 24% looking towards at least doubling in size. In response, LawNet recently aligned with 360 Legal to draw in specialist knowledge in mergers and acquisitions. The co-operation is intended to share resources of value and is not indicative of any intention to merge the two disparate member bases.

‘Our members are leading independent firms who want to remain independent, but see the benefit of working together,’ John Thomas, LawNet’s chief executive, says.

Across the table

As to new entrants in the UK market, there are several. Face2face Solicitors was set up 15 months ago and currently has two franchisees that were part of a 12-month pilot scheme: John Burrowes in Shrewsbury, which does conveyancing and corporate work, and Ben Jenkins in Leeds, which does commercial, civil litigation and family work. All applicants are vetted on their experience and claims record.

According to managing director Ray Gordon, face2face Solicitors is looking for new franchisees to expand its geographic coverage: ‘We are looking for lawyers to join our franchise who are good at what they should be doing. We want to see lawyers with brilliant client service who are readily available and on hand to help.’ Face2face offers firms a number of key benefits, besides typical marketing support and branding, and website hosting. Franchisees can get help with SRA registration, professional indemnity insurance coverage at preferential rates, compliance with OFR, IT support, file audits and the comfort of knowing that the franchise’s processes exceed Lexcel 5 standards.

Michael Porter, its director, says: ‘Face2face Solicitors is a franchise in the true sense with a formal franchise agreement.’ As a franchise, face2face trains all franchisees on client service with transparent and clear, and whenever possible fixed, pricing. Service levels, Porter says, are strictly controlled and monitored. ‘Solicitors have continually told us that they were not trained to run a business. Our franchise addresses this issue directly in two ways: by monthly one-on-one business mentoring in their office, and through telephone support at all times,’ he adds.

Franchisees operate in all areas of the law and will have their individual areas of speciality written into their franchise agreement. No franchisee may accept work that it is not qualified to do, and they are encouraged to pass work to other franchisees if they cannot carry out the work themselves. Joint bids between members are also encouraged. Some franchisees with certain niche specialties will become ‘centres of excellence’, regionally or nationally, so that franchisees will not have to turn such specialist work away.

The franchise fee is £25,000 plus a charge of 8% of fee income payable monthly. There are separate charges for the operating system incorporating compliance and legal cashiering based on the number of users. Porter’s plan is to have at least 10 franchisees operating this year to embed all face2face’s systems and ‘prove them in real time’. The franchise then plans to embark on significant growth. ‘We see the opportunity to establish at least 477 franchisees across the country in the next few years,’ he adds, although he declined to elaborate at this stage.

Legal franchise and network HighStreetLawyers was set up 18 months ago, but fully launched this year after a test phase. It has 12 law firms as members across the country in London, Newcastle, Sheffield, Manchester, Bedford, Leicester and West Bromwich. Managing director Gary Yantin says: ‘From a lawyer’s perspective, we are an umbrella group that gives members a support network. We are focused on becoming a leading legal brand. We believe the key to the consumer market is fixed pricing and consistency of service anywhere in the country.’

Members are a mix of sole practitioners and small firms of 3-4 partners. They tend to carry out a mix of will-writing, conveyancing and probate work. ‘While they are good at what they do, they just need someone else to improve their marketing and help them compete more effectively,’ Yantin says. To become a member, candidates go through an application and due diligence process, which looks at issues such as whether they have a clean claims history. Firms are then sent a service level agreement. ‘We are looking for firms who are prepared to commit to membership for three to five years to realise the benefits,’ Yantin says.

‘There is no joining fee. We charge a modest average fee of between £300-£400 per month rather than a percentage of turnover, depending on the size of the law firm and its location, the capacity of work in the area and the different kinds of services it provides. This process is flexible at the moment.’ Yantin says that member firms can and do share work with each other as each firm has particular specialisms. He adds: ‘We are already the exclusive or preferred provider for various third-party sites and referrers.’

For entrepreneurs

Penina Shepherd, founder and managing director at Acumen Business Law, launched her licence model a few years ago. It is called Acumen Business Law Enterprise, which allows business law solicitors to own their own law practices and retain 85% of their fees. Acumen’s goal is to be a dedicated network of business law firms providing expertise in a range of commercial legal services (such as employment law, commercial property, commercial litigation and intellectual property) with ultimately a national presence, though it is concentrating on attracting firms in the south-east. It does not carry out private client work.

The model allows one firm within a given geographic area exclusivity to provide a particular legal service in that locality under the Acumen banner, using fixed fees rather than an hourly rate. The hope is that Acumen can attract four firms per area to work as part of its network with each providing a particular legal service, so that customers can get a full range of the key business services they will need under one roof.

By joining Acumen, Shepherd claims, lawyers can own their own practice, increase their earning potential, and gain support on ‘soft issues’ such as business development, marketing, sales processes and PR. They can also benefit from having back-up support for all their regulatory, compliance, case management and accounts requirements using intranet facilities that would be too expensive to purchase on their own. Membership involves an interview and due diligence process. Candidates are invited to an informal interview and screening process to find out what their areas of expertise are, which is followed by a legal entrepreneur’s meeting which provides more details on how the business model works. There is then a formal assessment to check suitability (psychometric testing is also used) and to test the candidate’s legal knowledge.

So far, Acumen has received 50 applications from aspiring joiners and has met five.

‘We want to find people who have the drive and ambition to run their own business,’ says Shepherd. ‘We will provide support to help with marketing and sales techniques, but it is down to the individual partners to find work. We are also looking for a five-year commitment,’ she adds. There is a ‘one-off’ joining fee which varies between £5,500 to £9,500, depending on where the lawyer is based: the higher the earning potential in a given area, the higher the membership fee.

Like some of the other franchises and networks, Acumen’s licence model encourages co-operation between member firms and referrals. ‘As our licence model is with each lawyer individually operating as a self-employed partner of one firm, we encourage referrals between the various disciplines,’ says Shepherd. ‘For example, if you are the employment solicitor in Maidstone and your client asks you to draft a property lease for her, you will refer it to your colleague in Maidstone who specialises in commercial property. As you are both partners of the same firm, you can also be remunerated for the referral, in the same way that employees of a law firm can be,’ she adds.

Shepherd also says that firms in the franchise can jointly bid for the work. ‘One of the advantages of joining the enterprise is that you are not alone. You are not a sole practitioner. You can have major presence by bidding, together with your colleagues, for work where such a joint approach is relevant,’ she says. Perhaps the most high-profile legal services franchise on the market at present is QualitySolicitors (QS), which launched in May 2010 with law firms in 15 locations around the UK. Since then, it has grown so that there is now a QS lawyer in over 350 locations. Group turnover has reached £500m, it claims.

Member firms are typically larger than those hunted by other franchises, with average turnovers of between £3m-£5m. QS charges an annual membership fee that is paid monthly. This varies depending on the size of the law firm and its location.

The QS strategy - according to its chief executive Craig Holt - is to target the most successful firm in a given geographical area as a way of improving brand recognition: ‘If we can persuade a successful high street law firm to join our network, we get greater brand recognition. Similarly, this firm benefits from being a part of a nationally recognised legal services franchise: it’s a win-win situation.’

QS’s target market bridges an ABC1 consumer demographic and the SME market, the latter being a particular focus for 2012. ‘Our emphasis is high-quality, local, legal services with exceptional customer service - not the volume/low margin/process-driven end of the market,’ Holt explains. ‘QS firms are required to offer all major types of law to individuals and businesses as a pre-requisite for applying to join,’ he adds. Holt says that QS is already the largest provider of legal services in the UK by group and it hopes to have cornered around 10% of market share by the end of the year. ‘We want to be the UK’s leading household name for legal services and for our members to have a 30% share of the market,’ says Holt.

‘The key benefits for law firms that join our network all come down to economies of scale,’ Holt adds. ‘Once real scale is achieved - and this is where QualitySolicitors currently stands alone given our size - the benefits are very significant. This is probably most pronounced in marketing, but applies across all areas.’

QS, he recounts, now has over 100 specialists in marketing, IT, internet search engine optimisation, design, procurement, compliance, ‘finance and so on’, that work exclusively for one firm in each area. ‘The same expertise and marketing reach would cost an individual firm millions of pounds,’ Holt argues. ‘Yet our firms are able to benefit from all this for a relatively much more modest investment due to being able to leverage economies of scale alongside other QS firms.’

QS runs a cross-referral scheme called ‘Mutuality’ which aims to ensure that the network leverages the best specialism for each case from within the group. ‘Mutuality is our system for work-sharing between QS firms,’ says Holt. ‘If one QS firm by reason of conflict, expertise or geography can’t undertake a particular case then they share it with another QS firm - that firm sharing an element of fees with the firm providing the work. We retain a database of every lawyer in QS and their areas of specialism, as well as details of particular niche areas of law that particular firms have expertise in, which assists this process.’
Holt also allows and encourages joint bids for work among members. ‘We present QS as a “ready-made” panel to a number of brands and organisations. With over 350 locations we are uniquely placed to service work nationally and locally. We are also looking at more ambitious bids and tender plans as a group across a range of work types.’

Is one enough?

The introduction of alternative business structures is also an important factor in the development of the accessibility of quality legal services. ‘It would be foolish of any network or franchise, or law firm, to fail to respond to the likes of the Co-op, Slater & Gordon or LawVest,’ Holt says. ‘That said, QS is not a “come to us if you’re scared of Tesco law”. Our focus is on the positive opportunity for a group of our size and scale.’

Experts largely tend to believe that legal networks and franchises are set to grow. And Lloyds TSB’s Marston says that there is no reason why firms cannot be members of more than one network or franchise, thereby enabling some to take advantage of the enormous marketing budgets and expertise of some of the larger memberships, and their brand presence.

Marston says: ‘Law firms should consider joining more than one of these groups. This would increase their exposure, improve their marketing, and provide more professional and administrative support.’ He concludes: ‘The more savvy firms could benefit from double or even triple memberships.

Neil Hodge is a freelance financial journalist