ABSs: firms should guard against new market entrants by expanding now, speakers warn



Law firms are seen as 'excellent business models' in which to invest, a leading banker told the Law Society annual conference in London last week.



Adam Young, joint chief executive of ABN AMRO Bank, explained to a session on alternative business structures (ABSs) that legal practices were attractive for having good revenue streams and a loyal client base.



He said they have a mix of 'procyclical', 'anticyclical', and 'acyclical' income streams, examples being corporate, insolvency, and litigation and employment work, respectively.



Ian Luder, a partner at accountants Grant Thornton, cautioned that the threat of new market entrants once ABSs are introduced is not confined to 'commoditised' work.



He said it would be a natural extension of the work of a relocation company, for example, to offer to write employment contracts and share schemes, and so on by hiring specialist practitioners.



Equally, he said lawyers should consider what non-legal work they could bolt on to their practices, such as an employment firm moving into headhunting.



Other responses might include separating services into their component parts, he went on - a law firm could match a supermarket's will writing price, and also offer inheritance tax advice. They should also consider offering 'more skilled services', such as integrated EU-wide conveyancing.



Pointing out that new marketing concepts will also be required, he added: 'Branding or loyalty cards may be a way you have to look.'



Solicitor Simon Young, a law firm consultant, said those who wanted to take early advantage of the new provisions when introduced should form partnerships with other lawyers, as they will not technically be ABSs and so will not have to wait for the ABS licensing system to be launched.



He predicted that 'partnership is likely to be the least appropriate structure' for ABSs, as the collegiate atmosphere will be hard to maintain. The limited company may be the best form because shares could incentivise staff and external investors would be more comfortable with it.



Simon Young predicted that external investors will be looking for law firms with 'sustainable non-personal income streams' - although partners would be locked in for a period post-acquisition - company-style accounts, growth opportunities, professional management, quality standards and risk processes.



The new regime would allow solicitors to 'refocus their businesses along service lines' - for example, planning lawyers could team up with surveyors and town planners.



He also speculated that the consolidating legal IT industry may reach the stage where, rather than sell their systems, IT companies could hire lawyers to do the work and offer services direct to the public.



Neil Rose