Posted by Neil Rose, Editor, Legal Futures
One of the toughest markets of them all
There will be plenty of lawyers crowing over the failure of In-Deed Online. Expect a lot of “I told you so-ing”. It will be used as evidence that alternative business structures (ABSs) are flawed and that the much-heralded change in the legal market will prove to be a bust.
But I wouldn’t be so quick to jump to those conclusions. In-Deed was a start-up with big ambitions built mainly on the reputations of those behind it, particularly Harry Hill, the founder of highly successful businesses like Countrywide and Rightmove. As I wrote at the time it launched, it seemed remarkable to a stock market naïf such as me that a new business could immediately list on AIM and enjoy a multi-million pound valuation before a transfer had been lodged at the Land Registry.
It entered with property sales on their knees and into what Mr Hill described as a “dysfunctional” conveyancing market, where some lawyers cut their own throats by paying large referral fees to introducers (a third do, according to recent Solicitors Regulation Authority research), and then each other’s throats with extremely low prices. His claim that most conveyancing firms are bust comes from having examined the accounts of a good number while looking at potential acquisitions.
Certainly conveyancing, surely one of the toughest parts of the legal market, has different dynamics to other areas of high street practice. Last week’s YouGov survey on behalf of the Legal Services Consumer Panel showed that conveyancing was the only one of eight typical services where cost was the primary factor in choosing a provider, and (presumably as a result) that this was the area where consumers were most likely to shop around. Ironically, In-Deed paid the price, if you’ll excuse the pun, for being transparent about the referral fee element of the fees and having them paid directly by the client, rather than the solicitor, pushing up the quotes it provided.
Then there is the complication of lender panels and mortgage fraud, while a quarter of conveyancing firms quizzed by the Solicitors Regulation Authority had received a negligence claim in the past two years. It is just behind family law as the most complained about area of law at the Legal Ombudsman, which has also expressed concern that the growth of conveyancing factories could add to the number of complaints it already receives.
As an ‘easily’ commoditised service, conveyancing has long been seen as one of the prime targets for new entrants – but there haven’t been any major new ABS players. That could in part be because external investment has been allowed in conveyancing for many years thanks to pre-ABS Council for Licensed Conveyancers rules; the biggest conveyancer in the land, Premier Property Lawyers, has had private equity funding since 2005 and it seems to be going from strength to strength to judge by its aggressive growth plans.
The thin margins, existing links between estate agents and volume players, and state of the property market may also have put people off.
What In-Deed’s experience tells us is that conveyancing is a tough market to get into from the ground up; though the company had a few million to spend, this never seemed enough to become a major player.
But does that mean alternative business structures are doomed to failure? Of course not. They’re a means to an end, not an end in themselves. As in any market, there are winners and losers (just think how many traditional law firms have gone under in recent times), and the risk of being a loser is surely heightened by trying something a bit different.
Friday’s announcement by In-Deed coincided with the between Minster Law and BGL Group, whose links are well known in the personal injury market. This is a major company buying a major law firm. The fate of In-Deed tells us nothing about its prospects for success.
But does it at least mean high street conveyancers can breathe easier? It may mean the status quo will continue for the time being, but that is nothing to crow about either.
Tags: ABS, Alternative business structures
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