Dynamic market analysisBarriers to service provision
The RIR found no research or analysis looking specifically at entry and exit barriers for changing service provison. That providers do change services they offer is apparent from a range of different sources, including:
- A 2010 survey of sole practitioner solicitors found that 30% had added new services and 45% had trained in new areas of law1. However it is not clear what these services are or which new categories of work they have taken on.
- Repeated observations that solicitors legal practices and barristers are withdrawing from legal aid work, due to perceived low rates of pay2 but no information as to which areas of work they move into.
- 2009 research suggesting very large firms are refocusing on highly profitable practice area to maintain high PEP figures.3
- A 2009 survey highlighted that barristers tended to leave the private bar because of uncertainty over future income.4
Possible entry and exit barriers to changing service provision are summarised below.
Clearly reservation of some activities acts as a regulatory barrier to entry into some parts of the market, such as conveyancing, though different types of authorised persons are within these barriers. This has been reported to be a significant reduction in the traditional barriers to entry into providing legal services5.
However there are no regulatory barriers to offering unreserved legal services. These are unregulated, where they are not covered by statute and are not undertaken by an authorised person. This has been described as “a ‘regulatory gap’, where clients who procure activities which are not reserved or regulated, from providers who are not regulated as qualified or licensed practitioners, are left without any protection. Activities that currently fall into this gap include some that could potentially seriously affect the lives of the people involved and of others around them (such as the preparation of wills, or advice about mental health).6“
In other areas quasi regulation acts as a barrier to entry. For example in deliverying legal aid services, barriers to entry are achieving the appropriate quality assurance standard, and securing a contract to deliver legal aid via a bid round process.
Exit barriers arising from regulation include run off cover, successor practice rules and file recording requirements.
Education and expertise
It has been reported that lawyers tend to grow up in families of above average income7 and the need to develop specialist knowledge means that individuals tend to develop specialism in specific areas of law.
What research that has been undertaken in this area is limited to legal aid which suggests that technical expertise as a possible barrier to changing services for solicitors. A report into the legal aid market concluded that “there are distinct economic markets for legal services concerning criminal versus civil law, where civil law includes family law. It is less clear whether there are distinct markets within civil law, although this may be the case for the areas of law requiring specialist skills, such as Mental Health and Clinical Negligence”. This was because survey respondents considered it easiest to switch between private and publicly funded work and most difficult between criminal and civil work.8
However for barristers there is some flexibility in changing services, with barristers reportedly responding to reductions in legal aid funding of criminal work by:
- “Chambers diversifying out of crime work, encouraging new tenants to undertake civil and commercial work and with chambers increasing the proportion of civil and non publically funded work undertaken.
- Decline in number of pupillages offered.
- Cost reduction using IT and downsizing physical space. Some criminal sets out of London have cost structures whereby only 10-17% of overall Chambers‘ fee income goes in central Chambers‘ costs.
- Expanding direct access to clients.
- Merging on the basis that a larger set has greater flexibility: to employ practice managers and support staff; to invest in ProcureCo type vehicles; to improve and renovate buildings; to invest in IT; to organise seminars and marketing etc9.”
The RIR found no other published information on other types of authorised persons.
It has been reported that “Economies of scale arise when the unit costs of production fall and that requires scaleable products and services. In law not all services are scaleable . Many aspects of publicly funded advice relate to highly technical areas of law, applied to some of the most vulnerable in society. The technicalities of many aspects of social welfare and immigration law and their application to specific client circumstances are not yet susceptible to commoditisation and processes – they are not scaleable and could not deliver economies of scale.10”
In 2010, there were extra costs of operating in some markets coming from the impact of referral fees. However, these have not been reported as a barrier to entry with a recent survey reporting that ‘firms either accept the additional cost or try and reduce other costs to the firm by changing the way they work through new technology and employing less qualified staff to increase the volumes of cases they can manage.11
Channels to market
While the RIR found no specific information on this area, a key barrier to changing services offered is considered to be channels to consumers. To expand into new services an enterprise must have some certainty of volume of work to cover costs. Therefore there is some economic value to legal enterprises in securing access to a channel to market. Examples include:
- In criminal legal aid, police station cases are distributed via a rota system with each rota slot having value both in terms of access to a guaranteed volume of cases, and an expectation that these cases will lead to further work in the Magistrates and potentially Crown Court, or through repeat clients.
- Payment of referral fees in areas such as conveyancing, personal injury, and advocacy, because of the value to the enterprise of increasing the amount of billed time. This is a function of having relatively static fixed costs, such as salaries12. SRA data13 shows that in 2008/9 8,341 different ‘introducers’ sourced 11,320 clients for solicitors legal practices. These arrangements were most common in conveyancing. The average referral fee paid was £287.82
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