Are you an ABS optimist or pessimist?

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25 July 2011

Posted by Dan Bindman, associate editor, Legal Futures

As the ABS curtain prepares to go up, are you excited or frightened by the prospect?

I’ve been writing news stories about changes underway in the legal services market on and off for about a year now, and have been struck by the great variety of approaches to the significance of alternative business structures (ABSs), both among lawyers and legal commentators.

ABSs seem to represent a tsunami of change that will either undermine the ‘trusted professional’ status of lawyers, turning them into salesmen, or a long overdue market liberalisation; a boon to consumers bringing a much needed reality-check to a complacent profession – or something in between.

Among lawyers there seems to be a number of quite upbeat, generally younger, reformers, who perceive an opportunity to shake up a body of people badly in need of a good shaking. A bonus for them might be if it also loosens the grip of their senior colleagues on the speed and direction of change.

Also on the spectrum is another type of optimist: lawyers who cross their fingers that ABSs will turn out to have been over-hyped and won’t have too much impact on the profession’s usual stroll in the direction of modernity.

These optimists sleep comfortably, confident that their monopoly on reserved activities and list of satisfied clients will cushion them from future competition. They may or may not be aware that much of their firm’s income is likely to derive from non-reserved activities.

There are also glum, rather pessimistic souls, who believe the vital role lawyers play in maintaining stability and fairness in society is being eroded by government cuts and funding reforms, and that ABSs will weaken it further. They fear public-spirited lawyers who toil unsung to help vulnerable people will be lost to the profession amid the rush to provide legal services (cheaply) via telephone helplines and web-based advice.

Almost all legal commentators seem to view the apparent slowness of lawyers to effect radical change in their practices as unwise. High street solicitors who rest on their laurels will be swept away by the wave of change brought by Tesco or the Co-op, SAGA, Virgin, or other well-known brands entering the market, they predict.

The era in which lawyers can run successful practices with only a bare minimum of business acumen is over, they go on. Success or failure will hinge on how well you can meet the ‘more service for less money’ challenge, whether you open for business on a Saturday, and how swiftly you take a sledgehammer to your overheads and outsource your back office, whether offshore, onshore, or ‘in the cloud’.

If you listen to speeches by either of the seer professors, Richard Susskind or Stephen Mayson, you’ll quickly glean that legal practice as we have known it is over, kaput. Only ‘lawyers who dare’ will stand a chance of winning, they urge.

The phrase ‘learn to kill or become lunch yourself’ – or words to that effect – is often employed by legal futurologists. It neatly encapsulates how profound is the competition they are expecting.

Groupings of high street solicitors’ firms under single brand-names, hoping to exploit the precious months before ABSs come in to fix them in the minds of the public, are widely heralded as a shrewd response to the ABS onslaught. The success of QualitySolicitors in attracting members shows there are plenty of law firms who believe it can afford them protection.

But there are some who see consortia of solicitors as simplistic and that any attempt to force independent law firms into the straightjacket of a franchise model is headed for disaster, especially if they are doing the kind of ‘low end’ work they predict will be taken over lock, stock and barrel by the big-brand retailers.

One senior lawyer-innovator, who views collaboration with other kinds of professionals as a superior defensive tactic, told me that networks of high street firms “working to an old model” had no chance of competing with the retail giants and, worse, were “dragging down” the profession by attempting it.

However bleak things might look for certain classes of solicitors, they are quite possibly worse for barristers. Many live in hope that the sheer quality of their advocacy will insulate them from the market, and presumably also help them fend off the challenge from a rising tide of solicitor-advocates – around 4,500 already have higher audience rights in the criminal advocacy field alone.

The Bar Council is trying to encourage its members to adopt the infrastructure they need to contract with clients able to provide long-term income streams – such as local authorities, banks and so forth. Another prong of the Bar’s strategy is to push direct access, the scheme that enables to public to instruct barristers without the solicitor as middle man. It hopes to establish barristers as ‘high quality, low overhead’ alternative advisers.

So far relatively few barristers’ chambers appear to have appointed commercially minded chief executives or practice managers to drive change. And apart from the three or four chambers that to date have linked up with local solicitors’ firms – or are in the process of doing so – barristers seem to be in no hurry to ditch the antiquated chambers model, or abandon traditional fee structures.

In the words of one consultant involved in chambers’ reform, too many barristers see their workplace as “the university they never left”, or “somewhere they can have wine delivered to”. Such people a facing a rude awakening, he adds darkly.

So which players in the legal field have most to fear from ABSs? Most obviously are those whose daily work depends on the routine activities that new entrants might do faster and cheaper. Any such practices that also depend on publicly funded reserved activities will receive a double whammy as legal aid is cut back

Those who perhaps have the least to fear, at least in the short term, are established niche practices doing high-end work that requires advanced legal knowledge. Even they are likely to feel the heat of competition, from existing rivals looking to replace shortfalls created elsewhere in their operations, or expand to satisfy new investors, or international competitors looking to steal a slice of the UK’s legal services pie.

At the bottom of the legal food chain, paralegals are likely to grow in number and maybe status too, since they will provide the skilled labour force powering ABSs. Yet they are vulnerable to overseas legal process outsourcing.

Legal executives may also enjoy career opportunities, especially if applications lodged with the Legal Services Board to undertake reserved activities in their own right are successful. More immediately, though, their employment by high street solicitors is likely to be in jeopardy.

How smoothly ABSs will fit into the evolving regulatory landscape, nobody knows. Another imponderable is: will the oversight regime set up by the Legal Services Act be up to the challenge of regulating dynamic and ruthlessly profit-driven new entrants to the market?

The various legal services regulators have certainly worked hard to anticipate problems and place the interests of consumers at centre stage. But it also seems probable behaviours will emerge that they won’t have predicted.

One thing is certain: the new entrants will have little regard for broader notions of access to justice, or the social value of having an independent legal profession to police the three-way interface between the state, the market and the individual.

From the practitioner’s point of view, the small area of coverage currently provided to lawyers by the reserved activities umbrella may seem like very poor protection in the stormy conditions that could be almost upon us.

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7 Responses to “Are you an ABS optimist or pessimist?”

  1. “One thing is certain: the new entrants will have little regard for broader notions of access to justice, or the social value of having an independent legal profession to police the three-way interface between the state, the market and the individual.”

    Why is this certain? Tesco, Co-op et al have achieved their market positions exactly by having an informed understanding of the bigger market picture and by offering superior products at lower prices, with better service than the corner shops they supplanted. They have active social engagement / CSR programmes that support their local communities and even the most rampant monopolist recognises that they need a Competition Commission, formal regulator or similar to keep the playing field reasonably open and even.

  2. Sceptical on July 25th, 2011 at 10:13 am
  3. Dan Bindman’s article poses the right questions. But I quarrel strongly with his assertion that new entrants will “have little regard for broader notions of access to justice”. Why will they not? Many of the most ambitious and innovative lawyers operating in the present marketplace have a very high commitment to this fundamental cause. My belief is that extending the ability of citizens to secure affordable legal advice from new forms of law firms (which will be in the main run by lawyers and properly regulated by regulators for whom access to justice is an underlying principle) will enhance access to justice, not diminish it.

  4. David Edmonds on July 25th, 2011 at 11:21 am
  5. Bit bored by the old “they will mess up access to justice” argument. So does charging £200 ph plus!

    I suspect larger providers will mainly mop up what they should–the legal stuff that can be systemised. That will leave the more complex, thinking, advising stuff for the more traditional firms. Then £200 ph will be properly justified.

    Incidentally, ABSs are not the issue. Many law firms will be ABSs as they’ll involve their office managers in their law firms thus have to be an ABS.

    The issue is: are we giving the public what they want, when they want it, at an agreed and fair price? If you are then you’ve got nothing to worry about no matter the competition.

  6. Andrew Woolley on July 25th, 2011 at 3:15 pm
  7. I wouldn’t argue that there won’t be access to justice benefits deriving from greater competition in the legal services market, or that there won’t be lawyers within the new entities who have regard for the social justice dimension of their work.

    But I’d have no more faith in a retail business to protect the interests of social justice in a meaningful way than I would have faith in a supermarket to safeguard the country’s long-term food security needs when screwing down farmers over milk prices.

  8. Dan Bindman on July 25th, 2011 at 5:02 pm
  9. As one of this “new breed” of firm (I employ solicitors, but am not one myself) I am intrigued by the potential threat that ABS are seen to “traditional” law firms.

    We specialise in providing a personal service directly from solicitors, and yet, there are many areas (such as risk management, sales, AML and file opening) where a laywer really is not best suited. Whilst I do not subscribe to the view that the law can be completely systematised, I thknk that the firms that will succeed will be those that understand where to place their resources most effectively.

    As an example; do we REALLY want solicitors producing completion statements, or isn’t it more appropriate to ensure that all the finance data is captured correctly through the process, and train a qualified finance manager to produce these?

    Peter Ambrose
    The Partnership

  10. Peter Ambrose on July 25th, 2011 at 5:57 pm
  11. I agree with Andrew on where things are going, although I don’t believe systemising is the dumbing down lawyers think it will be.

    The problem with this whole debate and others like it is that you are seeing things from the perspective of lawyers or legal commentary. That’s fair enough but a bit of a jaded view.

    Who cares what the lawyers think? They are just there to do the technical lawyer/legal bit not run the show. There are far more bits to this ‘show’ than just lawyering.

    Retail brands; again, it’s not important what lawyers think of them. What is important is whether they deliver what is needed, in a way that it is wanted, at a price that can be afforded etc.

    Brands invest enormous sums in building trust and delivering quality service. Shame lawyers have not done the same…then we wouldn’t need ABS. Many of us couldnt conceive of buying our car insurance from Tesco 15+ years ago. Now, for many it is their first port of call. So I always find the ‘brands won’t deliver the service/justice/need/trust that we can’ frankly a bit arrogant.

    I also continually see this classic ‘judge the future by the present’ argument. Just take a look around you, see how the world is changing. We continually have to build solutions to problems that the market hasn’t thought of yet because solutions take time to build.

    My other add is where I see ABS going initially,

    1. Big firms, raising capital to buy other firms (although teams would be cheaper) and make national super firms,
    2. Small, fit switched on firms hooking up with say local accountants/IFA’s to create a local accessible professional service ecosystems.
    3. Not many of these, but brands exploiting their existing infrastructures and high trust value levels, eg Coop
    4. Maybe some form of panel, not sure on that one, vulnerable to too many chiefs so I would want to see more evidence of how that one works out in practice as opposed to marketing hyperbole.

    Where does that leave the rest? Hmm not good, market conditions, 2-5 years (could be accelerated by technology), will sort it all out.

    I am neither optimistic or pessimistic, it’s not my problem, but for those who are switched on you have loads of opportunity.

  12. Jon Busby on July 25th, 2011 at 9:24 pm
  13. As the founder of the UK’s first claims marketing company in 1991, I have worked with thousands of solicitors over the past 20 years and must declare that the ABS path is one of the most foolish governmental endeavors I have ever seen.

    It is very true that the previous protective system needed some reform to make it less profitable to be a dumb lawyer stuck in the dark ages, but my encounters with so many wonderful professionals who actually care about their clients and provide invaluable services to their communities underpin a belief in the legal proffession that is not often heard from CMC owners.

    It is these individuals who now need protecting as their business cannot survive in the new format where there will be no time to consider the needs of clients in a successful business model.

    The financial pressure on new law suppliers will be so immense due to reduced pricing structures and high end marketing strategies that your high street caring solicitors must undergo a culture change to survive.

    That culture change is the real devil in the detail of the new systems that will be on offer. Our legal system, flawed as it is, allows layers to be honest and true to their ethical and moral foundations, although not all solicitors act in this way, and all the experience we have of access to justice around the world tells us that when you replace ethics with need for profit from any industry you put everyone at risk, most of all the trusting public who have signed loan and insurance agreements in the street within my industry (only to lose all their money) because the firm was “on TV”.

    The power of advertising is immense and lawyers simply cannot compete with high street, multi- billion pound retailers, so it poses a death knoll to local independants and even those who exist beyond the first couple of years will nothing like the wonderful professionals that have so impressed me over the years.

    I have met many lawyers with whom I would not leave my wife, money or children in the same room for even a minute, and it is these that will most likely succeed in the future,

    Greedy, unethical, uncaring but very large smiles, that are great qualifications for a used car sales person but not who I would wish my 70 year old mother would encounter when she needs some legal advice.

    Only a fool will think that the high street retailers and current CMCs who launch legal services arms will consider clients needs above their own profits, it is simply not in their mindset and once firms of smaller independent solicitors have all been killed off, there is no chance to go back.

    Large international practices trading in the UK at present do not offer the type of personal service offered by small local firms as the solicitors working under the intense revenue development pressure of larger city firms see clients more as invoices and less as people.

    I have a decision to make myself, and the obvious choice would be to establish an ABS and process all claims ourselves, but no matter how profitable that may be, I cannot be part of the witch hunt against the small independant law firms that have fed me for 2 decades so I will be supporting them by spending 10 million promoting the benefits of using high street lawyers rather than risk using a supermarket’s part time shelf stackers to make their claim for justice.

    Referral fees need to be reduced and ATE policies need to be replaced by a general insurance fund against the very rare case being lost or the governments removal of Legal Aid for accident victims will have ultimately resulted in the removal of fair access to justice as so many will refuse to claim if there is any risk of having to pay 3rd party costs.

    I am supportive of any method of reducing fraudulent claims and false medical reports but as the vast majority of fraudulant claims are made by criminals from the minority population it is unlikely that any government will have the guts to make any realistic challenges to this activity, the first of which should be a national identity system.

    Lawyers need a kick up the behind, but not to the extent where they must make a choice between ethics and bankruptcy as this poses many dangers to our way of life.

    This foolish plan must be halted to protect the honesty and integrity of our local solicitors and ultimately to protect our fellow countrymen.

  14. Mark Sampson on August 4th, 2011 at 1:36 pm

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