Alternative business structures (ABSs) are not a simple solution to circumvent the impending ban on referral fees, but referrers are starting to see real opportunities to enter the legal market themselves, a leading adviser has said.
George Bull, head of professional practices at accountants Baker Tilly, said he expects to see many ABSs created to replace former panel arrangements, together with more formal alliances between law firms and their erstwhile referrers.
These would take advantage of the ABS rules to provide a one-stop client service without breaching the ban on referral fees in personal injury (PI) contained in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO).
“Unfortunately there is a perception by some law firms and referrers that an ABS is a simple solution to the referral fee ban, initially suggesting approaches that simply try to circumvent the ban,” he said. “We don’t think this ‘work around’ mentality will provide a model that meets the requirements of outcomes-focused regulation and is likely to be at least problematic and potentially even rejected by the Solicitors Regulation Authority.”
Mr Bull said there has been a marked change in the stance of many referrers in recent months. “To begin with there was dialogue between law firms and referrers trying to establish ways of maintain the status quo in terms of protecting revenue streams for the referrer and maintaining case flow for the law firm. At that time ABSs were seen as a logical route.
“However, referrers have now started to appreciate that, rather than passing on their clients for a fee, the Legal Service Act has presented them with the ability to provide legal services to their clients. Further, through the use of an ABS, they will now not just be able to handle their client’s PI claim, but also the opportunity to provide a much wider range of legal services.”
Mr Bull gave examples of two clients with whom Baker Tilly is working. One, a law firm with a substantial defendant PI department, was approached by one of its insurance clients with a view to providing all claimant PI services in place of their existing panel. Part of its advice was on the possible acquisition of an existing claimant PI firm to provide the manpower, systems and expertise, rather than creating its own claimant department from scratch.
The other client is a large referrer with a substantial client base to whom it currently provides a range of financial services. “Currently, when one of its customers reports an accident, our client is able to refer the matter to one of a panel of law firms. Although the referral fees received from the law firms comprise a part of our client’s income that will be lost following the implementation of LASPO, our client was more interested in the new opportunity created by ABS which, prior to the LASPO changes, they had not contemplated.
“We advised that, regardless of the ban, it may be more advantageous for our client and its customers if it were to provide legal services directly to its customers through an ABS. They are excited by the prospect of providing their clients with a seamless holistic service in relation to accidents as well as offering other legal services.”
The model it has gone for will see the creation of a new entity under the ABS regime that outsources some of the legal and business functions to an existing law firm.