LSB foresees increased turbulence in market as more firms enter, exit and merge

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9 December 2014

Closures: a fact of life for ABSs and traditional firms

There is set to be increased turbulence in the legal market, with more new entrants, consolidation and the exit of those who cannot adapt, the strategy director of the Legal Services Board has predicted.

Caroline Wallace also highlighted the role of competition and liberalisation in driving improvements for consumers of legal services.

Speaking in London last week, Ms Wallace said in the future “there is likely to be greater consolidation as providers seek to increase their competitiveness in a more crowded market place”.

Increased scale can drive increased cost effectiveness, she said, as well as enabling investment in technology and providing customers with access to a wider portfolio of related services and expertise.

She continued: “There are likely to be more providers exiting the market than in the past. This is an inevitable product of an increasingly competitive market place. Some new business models won’t work. Some decisions to scale up will result in failure. Some providers that are reliant on a declining flow of legal aid work will be unable to find alternative income streams.

“It is also probable that expansion of the regulated sector, including alternative business structures, will be at least matched – if not exceeded – by expansion of the unregulated sector where there are few barriers to entry and a lower (regulatory) cost base.”

Ms Wallace said that competition and new thinking will drive innovation. “For example, there are likely to be more legal and non-legal services provided under one roof, sometimes to the same individual as a package of broader professional services or business advice.

“There will also be more unbundling of services – with consumers and different providers combining their efforts to deal with different parts of the same case and more online services and greater use of technology.

“We also think the increasing use of non-adversarial legal processes such as alternative dispute resolution; and the simplification and digitalisation of parts of the court system and some state legal processes will see less need for and use of lawyers in certain areas.”

As it is, the introduction of alternative business structures has led to efforts by existing law firms to out-compete these new entrants, Ms Wallace said.

“Thus it is not just new entrants, but the process of rivalry itself, which drives improvements for consumers. The LSB has observed the extension of fixed fees for consumers, the creation of national franchises for legal services and the use of new technologies. Firms are using new ways of communicating with consumers and using technology to create legal documents. This is extending the possibilities for access to justice. Some lawyers are even opening on a Saturday.

“Regulation has not made this happen. Competition has, liberalisation has and innovation has.”

She noted the “delicate sprinkling of schadenfreude” that covers any of the difficulties faced by ABSs. “But there have always been failures of legal firms – failure is nothing new. Traditional firms fail and so will ABS. What matters is that, when this happens, regulation protects consumers and the regulatory objectives.”


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