Unregulated legal services providers are generally cheaper and more innovative than regulated law firms, but consumers need to understand the risks of using them, Legal Services Board (LSB) research has found.
The conclusion of its research into the unregulated market was that small scale of the problems it caused meant the oversight regulator would not take steps to introduce regulation.
Though overall only around 5% of providers from whom paid advice was sought were unregulated – which is smaller than expected – they have gained “significant” market share in some sectors, particularly divorce and property, the LSB said.
It estimated that five online providers, along with fee-charging McKenzie Friends, have 10-13% of the divorce market, while landlord advice and tenant eviction services have claimed 10-11% of the property market.
Unregulated wills, trust and probate providers, and intellectual property advisers, have around 8% of their segments.
Research commissioned from consultancy Economics Insight (EI) as part of the project found that unregulated providers offered lower prices compared to regulated providers, higher levels of transparency in pricing – publishing their prices – and higher levels of innovation and service differentiation.
“For consumers to realise these benefits, they must be able to make informed choices between regulated and unregulated providers,” it continued. “Without such an awareness, consumers may be exposed to risks.”
These included differences in consumer protections and a lack of transparency about services. EI said: “We have seen evidence that suggests providers are not always transparent enough for clients to fully understand the services they are buying, particularly within divorce and intellectual property. We have also seen examples of potentially misleading claims on provider websites.”
It found that a significant proportion of consumers were unaware of the regulatory status of their provider – and indeed EI said that in conducting the research it found it difficult, on occasion, to determine whether a provider was regulated.
At the same time, EI said the evidence suggested that on the whole “consumers are receiving good levels of client services” – it did not seek to assess the technical quality of the advice – but it did also “observe evidence of poor quality services. This included loss of confidential information and poor communication with the client”.
Consumer satisfaction levels were on a par with those recorded for regulated providers.
The LSB said that based on the evidence of the benefits and risks to consumers, and limited potential market for voluntary regulation beyond existing trade associations, it would continue to monitor developments in the unregulated market but not seek to introduce a voluntary regulatory regime as allowed under the Legal Services Act.
Legal Services Board chairman Sir Michael Pitt said: “This is an important piece of work. We hear too much anecdote about the unregulated parts of the legal sector and alleged problems associated with such providers.
“This new research suggests that the unregulated sector is neither as big nor as problematic as some have suggested. The research provides a balanced view of this part of the legal services market and allows us a better understanding as to why consumers might use it.
“It is, however, very important that consumers make informed decisions to use unregulated providers. They will receive less protection than if using a regulated provider and it is of concern if they are accepting this without realising the lack of consumer protection.
“Our research found that although most consumers check whether their provider is regulated, a significant minority do not, many simply assuming they would be. It is important that consumers weigh up the potential benefits and risks.”
Bar Council chairman Chantal-Aimee Doerries QC warned that unregulated firms were set to take more market share as the full impact of legal aid cuts took hold.
She said: “It is a matter of concern that between 23,000 and 30,000 people, according to the LSB report, are using unregulated online providers when going through a divorce. Using unqualified and insufficiently insured providers of advice in family matters, which will often involve children, instead of using the services of properly regulated professional lawyers, carries considerable risk for all concerned.
“Legal regulators must do more to warn consumers about the risks of using the wrong type of legal service provider – unregulated, not properly qualified or insured.”