How legal services reforms will affect high street firms

A glimpse of the future can be found in unlikely places. Nigel Haddon, chairman of the Law Society’s Law Management Section (LMS), caught one in a local supermarket. And he heard it, too.

Haddon was at his local Co-op when he was ‘surprised to hear advertising for Co-op Legal Services, instead of musak, when pushing my trolley around’. Haddon also noted that his chip and PIN terminal prompted him about legal services.

Haddon’s experience was of course an early manifestation of the ‘Tesco law’ phenomenon, which legal research company Jures described in November 2009 as ‘shorthand for ongoing liberalisation …including the entry of retailers into legal services’, following the Legal Services Act (LSA). David Furst, chairman of accountants Horwath Clark Whitehill, predicts: ‘In the same way that retail shopping habits have changed from specialist shops, the provision of legal services will also change.’

Jures’ report found that 50% of respondents considered that ‘Tesco Law’ would be good for the consumer, but 42% were concerned about the marketing budgets that big brand entrants had at their disposal.

Haddon’s message is simple – be prepared. ‘All law firms need to revisit their strategies before the impending arrival of alternative business structures [in] October next year,’ he says. Yet he is surprised that ‘some local Law Society members haven’t started thinking about it’.

The Law Management Section is gearing up through the provision of special events on ABSs, and a forthcoming issue of its magazine, Managing for Success, will be entirely devoted to the subject.

t this stage the outlook remains uncertain. A survey of managing partners by business advisory group Vantis found that almost all agreed that ABSs will be popular - but not one said their own firm is considering them.

Smaller firms suggested that larger firms would be the first to change, while larger firms thought that boutiques would be more interested. As Michael Bailey, head of professional services at Vantis, says: ‘Most firms are adopting a "watch-and-wait" attitude to see how others get on with it first.’

Some solicitors, noted one partner, will be ‘too busy, or too recalcitrant, to consider it further, particularly if one is busy at the coalface’.

Life at the coalfaceThe view from that coalface is far from uniformly positive. Ian Lithman, a former chairman of the Sole Practitioners Group (SPG), told Jures that ‘the whole concept’ of ABS is ‘wrong’, for example.

The SPG is currently surveying its members to see if they believe the act’s ABS provisions should be repealed, because (among other things) they give ‘commercial interests too great a control over the legal profession’.

There is, it must be said, no sign that the new coalition government is minded to consider such a step. Also concerned is the City of Westminster and Holborn Law Society president, Peter Adams. He suggested that EU debates on modernisation showed ‘a real scepticism about the way in which the Legal Services Act puts consumer interests first… a scepticism that… is shared by many of us’.

The reforms were discussed at the presidents and secretaries conference in May in a debate led by Regulatory Affairs Board chair, Helen Davies – herself a partner in a small firm. But what of the wider grassroots?

Vigorous discussion on the Gazette’s LinkedIn page revealed a diverse range of opinion, with a clear awareness of risks by some – and a level of ignorance among others.

Some, like Andrew Woolley, a specialist family law practitioner, suggested that most ‘smaller firms will finish within five years maximum’ through mergers. Woolley feels that ‘the majority of smaller firms are doing nothing whatsoever about what is happening, or are just talking, and not doing’.

Paul Bennett, a specialist employment lawyer, thought such words were ‘chilling and common’. Firms leaving it too late may find ‘the market [has] moved on and destroyed their business’.

Another lawyer encapsulated the views of many: ‘The type of "generalist" high street practice that I started in… is in grave danger.’

Others stress that ABS-modelled law firms present an investment opportunity for the likes of Co-op and the AA, offering them ‘a chance to enter the market as full-blooded providers, as opposed to simply offering a branded referral service’, as one commenter put it.

However, sole practitioner Tom Rogers believes that ‘clients have a complex set of perceptions about solicitors, and are more favourably disposed to us than is commonly believed’. He added: ‘The natural and automatic response to any problem of a legal nature is: "I need a solicitor to sort this".’

In the same vein, Jures’ research suggested that, even on straightforward legal matters, such as a house move or a will, consumers want to see their lawyers in person.

Opposition and eruditionLegal business guru Stephen Mayson, director of the Legal Policy Institute, clearly sees no room for complacency. He comes across ‘too many practitioners who affect not to know anything about the LSA, and still less believe that it has any relevance to them’. If change does come, ‘it won’t be difficult to find the weak and vulnerable’.

Furst agrees: ‘Firms that do not adjust to a new era may well find it difficult to survive…. many small firms, often run by ageing partners, with no succession plans, are struggling.’

Of course some challenges are already familiar, as Mayson notes – notably the provision of legal services by volume providers, with new approaches to delivery and resourcing. ‘To pretend that these [challenges] will not be exacerbated by ABSs… does not ring true. How small firms will be affected by these developments depends on how much pain they are prepared to bear,’ he adds.

Should have gone to….The Legal Services Board’s work on ABSs drew an analogy with opticians, notably Specsavers, as did the Jures research. Such comparisons on branding sit ill with the SPG; the group considered it ‘facile’ to compare ‘such an important issue and the English legal system… with the provision of spectacles’.

But Craig Holt, chief executive of QualitySolicitors, a network of more than 100 law firms ‘formed as the legal profession’s answer to the growing threat posed by supermarkets and banks’, believes the comparison is apposite.

‘Some seek to deny the power of branding in the legal market, as if somehow normal basic economic and commercial rules don’t apply,’ he observes.

For Holt, ‘the economies of scale that brands bring to the market are immense’ and cannot fail to have a significant impact. Moreover, they will be attractive to a public who – on the whole – remain ‘apprehensive about using law firms’.

Although there are differences, the opticians’ market is for Holt the most relevant indicator of how legal services might evolve: ‘Independent opticians remain, but they now compete for the 10% of the market that is not controlled by national brands.’ Holt is practising what he preaches. QualitySolicitors plans to establish at least 250 branches before the October 2011 launch date for ABSs. He is confident the network will be ‘the first "household name" legal brand in the UK’, which will ’inevitably impact upon high street firms’.

Grace Brass, Law Society council member for junior lawyers, believes ‘the consumer will welcome greater competition from new styles of business model such as QualitySolicitors, which will be easily accessible in central shopping locations, and open on Saturdays, when people are normally trying to organise their personal affairs’.

For Brass, ABSs will offer a choice of career path for those passionate about working in the legal profession. She believes change can only be supported and encouraged by the Junior Lawyers Division, given the ‘enormous number of junior lawyers made redundant or unable to find training contracts, or newly qualified jobs’.

For Peter Garry, head of professional partnerships at Cripps Harries Hall, ‘QualitySolicitors will appeal to a particular segment of the population in the legal services context’.

He adds: ‘Different types of marketing will appeal to different types of people. Some high street firms may need this sort of innovative, marketing-led approach.’

Holt is more emphatic: ‘Do people really believe that the likes of Co-op, Virgin, Tesco, and Halifax will not be attractive to the general consumer?’

However, research for another Jures report, Shopping Around, suggested precisely this: consumers of legal services did not consider familiar high street brands to be compelling. The most popular of the big names was Marks & Spencer (14%), but more than half of consumers were not persuaded by the attraction of a familiar name in the legal services market.

Taking advantageThe Law Society says it favours choice, open markets and competition, but has stressed that ABSs should only be introduced if issues are resolved concerning: ‘fitness to own’; the obligation to assess the impact on access to justice of granting an ABS licence; and any rule conflicts.

It added: ‘There should be a level playing field and the rules that apply to ABS firms should be the same as those which apply to traditional practice models. Existing firms need to be aware that the new regime is coming and to consider how it will affect them.’

Chancery Lane is planning a series of ABS-related events in the coming months which will ‘provide help with emphasis on both business and practical strategies… to help enable solicitors to take full advantage of the changing marketplace’. President Robert Heslett believes the profession will take time to adapt, but does not believe there will be a stampede to invest in law firms. The president has cited the Australian example. In New South Wales, where external investment is permitted, ‘the great majority of firms which have chosen to incorporate have been SME, with only a handful of multi-disciplinary practices’, he said recently.

From the SRA’s perspective, chairman Charles Plant commented: ‘We are transforming the way solicitors and their firms are regulated for the benefit of consumers. A simplified rulebook and freedom to practise innovatively will be good for clients and solicitors’ firms alike, as it will provide the flexibility needed to do new and better things.’

SRA chief executive Antony Townsend stresses that the regulator is engaged in a programme of extensive consultation about the shift to ‘outcomes-focused regulation’, with ‘events in major centres where solicitors will be able to learn more about ABSs and question senior SRA people’. The authority is also consulting key practitioner groups and ‘will work with a sample of firms to test how our new approach to regulation will work’.

The rules governing ABSs will be published in a new SRA Handbook in April 2011. This leaves six months for dissemination and education before the licensing of the first ABSs from 6 October.

The Legal Services Board, meanwhile, is certainly not blind to the difficulties that face grassroots law firms but is adamant the profession will benefit from the reforms.

Chief executive Chris Kenny says: ‘High street practices are finding the current climate extremely difficult, with the economic downturn being compounded by tougher purchasing decisions by the Legal Services Commission, the weak housing market and a challenging indemnity insurance regime.’

He adds: ‘ABSs have been about taking down barriers to lawyers operating more flexibly in different types of business model – including coming together into networks that can better withstand these multiple pressures. The opportunities to innovate and form synergies with other professional service providers could be the lifeline that high street practices need.’

Slowing down For Robert Heslett, however, the pace of change is worrying and Chancery Lane has called for more haste and less speed. In a keynote speech last month, the Law Society president described the LSB’s timetable for implementation as ‘to say the least, ambitious if not frightening’.

As the Gazette reported last week, the legal services reforms are among a raft of measures currently being reviewed by business secretary Vince Cable’s Reducing Regulation Committee. But it seems highly unlikely they will be significantly amended or scrapped. As Craig Holt puts it: ‘The vain hope that Vince Cable's review is likely to lead to the repeal of any element of the LSA relating to ABSs is exactly that.’

Justice minister Jonathan Djanogly told the media recently it was ‘important that the legal profession engages with the concept of ABSs to look to see how they’re going to apply them to their own situations’, but indicated he was prepared to listen to arguments that the pace of reform should be moderated.

Djanogly might do well to ponder the LSB chairman’s comments in Jures’ first report, where David Edmonds said: ‘The Legal Services Act gives me a set of duties and responsibilities which might well mean me changing 800 years of history.’

• To join our LinkedIn debate: ‘How will high street firms be affected by alternative business structures?’, go to www.LinkedIn.com and join the Gazette group.

The ABS reforms have the potential to ‘blow apart the established conventions of legal practice’, according to the recent report Shopping Around, written by Jon Robins, director of legal research company Jures. Post recession, fees are inevitably going to come under intense scrutiny by most clients. The most frequently used word that consumers associate with solicitors is ‘expense’ or ‘expensive’, the report found.

Consumers do not automatically gravitate to the perceived security of high street brands, however. In fact the ‘reassurance’ of a familiar name was not identified as a compelling reason for choosing a lawyer. Quality and the promise of fixed prices were viewed as far more important.

And there lies the rub; if almost half of clients felt their experience of lawyers represented poor value for money, as the report found, then a cheaper option is going to look attractive in prospect.

For Peter McCormick, senior partner of Harrogate-based McCormicks Solicitors, the reforms are ‘something of a curate’s egg; good in places and bad in others’. In one sense he agrees with Robins: ‘For the general public, price is crucial. And when the price is fixed it does afford comfort and a degree of reassurance.’

McCormick adds a cautionary note however: ‘It’s the oldest saying in the book – you get what you pay for. Everything will be cut right down to the bone; it will be computerised, impersonal service. Where is the job satisfaction for the lawyers? The inevitable outcome is a drop in quality’.

Household names linked with ‘Tesco law’ have included the RAC and the AA, as well as the Co-op. A spokesperson for the AA was reluctant to comment, saying only: ‘We are undecided about the course we are going to take… for the moment we are keeping our powder dry.’

The Co-op is much more bullish, and recently launched a high-profile campaign to promote its legal services to shoppers in its food stores.

The Co-op’s large audience of loyal shoppers were left in no doubt of what the company offered, as it bombarded them with in-store radio and animated till screen displays. Eddie Ryan, managing director of Bristol-based Co-operative Legal Services, commented: ‘The shoppers in our 3,000-plus food stores represent a huge market for us, so we were delighted that during a similar campaign last year, awareness levels of CLS jumped by more than five per cent. It is the first time we have promoted our legal services to the enlarged food estate following the acquisition of Somerfield last year.’

Ben Rigby and Anastasia Hancock are freelance journalists