Small firms will be ‘resilient’ in the face of ABSs

Small law firms are likely to be ‘resilient’ to the impact of alternative business structures, research has suggested.

A report by consultants Oxera, commissioned by the Law Society, also concluded that ABSs are unlikely to be detrimental to geographic access to justice for consumers.

The research found that existing ‘commodity’ legal providers, such as bulk conveyancing firms, could find it ‘hard to compete’ with an ABS firm that is built on a trusted brand. It said that many such firms may opt to merge with a branded provider seeking to enter the market.

However, the report noted that many small firms had already withstood competition from large centralised firms. It said that while a shift away from ‘small-provider, face-to-face advice’ was expected, solicitors interviewed for the report had suggested that small firms would be able to differentiate themselves by finding a specialised area of the market that is not suitable for high-volume, remote access legal advice.

Some interviewees believed that, in order to remain viable, small firms may need to specialise in clients who value face-to-face contact, such as the elderly, disabled or high-net-worth individuals, or areas of the law that involve more bespoke advice, such as child custody or divorce.

While solicitors generally considered that ABSs would exclude small firms from the market, the report noted that none of those interviewed thought their own firm would be pushed out. This was either because of their focus on certain customer segments such as elderly clients, or a belief that the firm’s strong local branding would ‘insulate them from larger firms offering a more remote service’.

The report found there was a strong density of law firm offices across the country compared with other services such as bank and post office branches, pharmacies and GP surgeries. It said that a ‘moderate reduction’ in the number of law firms would not have ‘a large adverse effect on geographic access to justice’, although the impact might be more significant in particular areas of advice or in rural locations.

The report said that customer welfare overall was expected to be higher as a result of ABSs.

Oxera’s report was based on analysis of existing data and interviews it conducted with 15 businesses, including high street and legal factory firms, and three potential new entrants to the legal services market.

Law Society chief executive Desmond Hudson said the report made a ‘useful contribution’ to understanding the impact of ABSs.

But he stressed that, while some ABS firms may enhance access to justice overall, it will be important to tease out the circumstances in which granting an ABS licence may have an adverse effect, and ensure that regulators put in place necessary safeguards.

He added: ‘It would be massively imprudent for any regulator to leave the concept of access to justice to the vagaries of a market experiment.’