“… how beneficial will consolidation into fewer, larger entities be for consumers? …”
A great deal of time and money have been spent preparing for the arrival of Alternative Business Structures (ABS) in October 2011.
The 2004 Clementi Report led the Ministry of Justice to formulate and pilot the Legal Services Bill through Parliament, and it passed into law in 2007. The Solicitors Regulation Authority (SRA) is currently working on a new “outcomes-focused” code of conduct, and the regulators of the different legal professions (of which there are eight – can you name them all?) will themselves be regulated (by the newly-formed Legal Services Board (LSB)).
Rather than the one-size fits all insurance policies, and the one set of rules for each profession, which have been the norm, insurers and regulators must now turn their minds to dealing with entities that will be offering the services of more than one profession. For example, one entity may do the conveyancing and the survey, and arrange the mortgage.
There has been debate as to whether different insurers should insure different activities within one entity. That may work 99.9% of the time, but there is bound to be the occasional coverage issue. For example, would a mistake by a patent attorney in legal advice on enforceability of a patent fall within the legal insurance or the patent attorney insurance? Equally, accountants advise on tax law, and lawyers advise on the efficacy of business structures.
And the battle of the regulators has yet to commence. For example, it does not appear likely that the Financial Services Authority (FSA) will cede authority to the SRA in respect of matters that are currently within the FSA’s remit. Regulation by two or more regulators could strangle many businesses at birth.
Issues such as this have taken up a vast amount of collective brainpower, as consultation paper after consultation paper have gone out to the professions and others for comment, and those comments have been considered and taken into account in the next round of policy-making and drafting.
I have wondered whether we are about to experience a faint pop rather than the massive explosion that many expect from what is admittedly potentially the most revolutionary change in the provision of professional services since the stock broking and insurance industries’ respective “Big Bangs” in the 80s and 90s. How far can one commoditise legal services beyond what has already been achieved? Yes, large organisations may want to enter the legal market and sweep up all of the will-writers or the factory conveyancers, but how beneficial will consolidation into fewer, larger entities be for consumers?
Will there really be “increased competition”. Many may regard solicitors as a profession with a monopoly, which leads to overcharging, but on the other hand there is so much competition in the domestic conveyancing arm of the profession that many firms have gone to the wall. Just as out-of-town supermarkets and bulk-buying practices have eliminated choice and local supply by driving the butcher, the baker and the candlestick maker out of business, could this not also happen in the legal profession? If you can still find a greengrocer, the vegetables are cheaper and the service more personal. When conducting the most important transaction of their life, do consumers really want to have to access a website to try to find the answer to their query in the FAQs, or deal with a twenty-year-old non-lawyer in an offshore call centre?
Some predict that the market will choose diversity, experience and real people with local knowledge. There will be a bit of new money around, and a fortunate minority of professionals with suitable businesses may be showered with cash in return for parting with their equity. But on the whole there may be no reason why there should be any more of a revolution in legal service provision than there has been in other professions which have been open to external investment for years (surveyors and accountants in particular). A few of the larger organisations took in external investment or even floated, and they are doing predominantly commercial work. Nothing else in those professions changed. There are still thousands of small practices in those professions collectively doing most of the consumer-facing/non-commercial work.
For decades members of the solicitors’ profession have gone into business with members of other professions. Witness the plethora of law firms bearing the same brand as large firms of accountants, that were so fashionable in the 80’s and 90’s, a model that has all but faded away with the demise of KLegal and Andersen Legal (though PwC Legal is still with us). Is the limited current take-up of that model because profit-sharing by solicitors is not allowed (probably not, as ways around that such as licensing agreements have always been available), or because the synergies and opportunities for cross-selling were not as great as had been imagined, and the danger of conflict of interest was ever-present? You can change the rules on profit-sharing, but does that make the cross-profession entity any more attractive as a business proposition?
Time will tell, but come October 2011 I am not expecting to have to insert earplugs and put on a tin hat.
