Changing face of legal services

Lending Strategy Dec/Jan 2009

It is anticipated that by 2011 the implementation of the Legal Services Act will allow non-lawyers to invest in and acquire legal firms through the advent of so-called alternative business structures.

In the legal profession the response to this development has been muted. Some firms see it as irrelevant to their practice area, some consider it a sign of the decline in professional standards while a few view the change with interest, keenly aware their future will be subject to market forces devoid of the blanket of statutory protection.

The reluctance to embrace change by some elements in the profession is easy to understand - there’s often a conflict between what a client wants and what a lawyer wants.

The lawyer may prefer working with books and files, charging by the hour and pushing up the bill while the client may be used to a more systematic way of working to a fixed cost.

This is a significant tension that does not exist in, say, the retail sector, where the interests of consumers and producers are more closely aligned.

But it’s clear that any legal company that becomes as passionate as its clients about saving money and doing the job quickly and efficiently will have a competitive edge.

The primary reason for regulatory change is to boost competition and give consumers a better deal.

And whether lawyers like it or not, the post-2011 legal world may be subject to external influence by lenders or insurers using top-notch IT systems, consistent procedures, specialist manage- ment and high capital investment.

It seems improbable that investors will get behind traditional law firms which feature expensive premises, hourly rates and ill-defined management roles. It’s more likely they will use a more investor-friendly model such as a corporate entity incorporating a contemporary suite of management tools and techniques.

Nor is it correct to assume that investors will limit themselves to high-volume, low-margin work. Commercial firms will also be challenged for a good reason - fees.

Chief solicitors at big institutions are increasingly dissatisfied with the level of fees they pay to external firms, and more internal legal departments are being required to adopt the budgetary constraints of their employers.

Meanwhile, big deals are being broken down into their component parts to hive off elements to various firms. So loyalty to conventional companies will be questioned when new legal entities emerge.

It’s a sobering thought that the market for consumer-based legal services in the UK alone is worth over £11bn. And research indicates that 60% of consumers would prefer to get their legal services from high street brands such as building societies, banks and supermarkets rather than solicitors.

Putting these two elements together one must speculate for how long this lucrative market can remain untouched by external organisations, particularly when one considers how many financial institutions need legal services to complete some of their product offerings.

Financial institutions offering legal services could be the next logical step, and some lenders have already started this process.

But consumers will have to be reassured as to the quality of service provided and this may be best achieved, in the first instance, by an alliance with an appropriate legal firm.

Geography used to be important in the delivery of legal services but is less so now, and the expansion of the online market will open up a significant opportunity for trusted brands.

The use of the internet will also mean increasing consumer bargaining power, with more legal services becoming commoditised over time.

As I’ve said, some firms see the impending change with interest are investing in it for the benefit of their financial clients. This will provide a competitive edge but not a goldmine.

After all, you can work more efficiently but as unit costs fall the greatest benefit goes to clients. Then again, few things are better for business than that.