It is true that many firms are facing up to the implications of underperforming partners and beginning to grasp the nettle. But an inevitable consequence of this is that with fewer equity partners, law firms might find it more difficult to raise enough capital or debt to resource their practices.
Against this background litigation becomes an expensive service because the business vehicles for delivering dispute resolution services are themselves over laden with costs. Pages 1 & 2
The most likely to be affected by the reforms are the consumer and legal aid segments. The Clementi driven consumer reforms are likely to attract large nationally branded providers: retailers (e.g. Co-Op) and banks (e.g. HBoS) may develop own brand services that may be provided directly or white labelled through collaboration with law firms.
I suspect that private family and children work could remain relatively unscathed. There is rarely a winner in such disputes and national brands may not wish to risk their reputation on services that have such significant grudge purchase and negative connotations. Page 2
“There does appear to be interest from segments of the public for
It is generally expected that with the possibility of new ownership, the LDP and MDP forms will be particularly attractive for legal firms that are currently large and for large non-legal firms that wish to provide legal services. Public listing is also an attractive possibility for many legal firms. For example, a recent article in the Financial Times reported that 10 of the biggest 100 law firms indicated that they could seek a stock market floatation following a broadening of the ownership rules and permissible business structures. – Pages 7 & 8
Quotes Lawyer survey suggesting that half of Lawyer 100 may seek outside equity injection post LSA (page 25)
Two-thirds of the top 100 firms wish to admit non-lawyers as partners – page 16
Survey evidence of the demand for outside capital suggests that one in five of the top 100 law firms would seek outside investors and one in ten would list on the stock market – page 18.
How different sizes of firms may respond to ABS – pages 15-21
Reports on possible changes should be made to the chambers system in order to provide a better service to clients, with at least 1 in 5 barrister respondents highlighting provide some of services solicitors provide, Involvement from other professionals, Greater direct access for clients, Partnership/corporate structure – Pages 33-34
At the Bar there is no appetite at present for partnership because partnership brings forth the need to adhere to a much stricter version of the conflicts rule which applies to the business unit as a whole and not to the individual practitioner. In a set of Chambers the members do not share profits and losses so do not have a direct interest in the business success or failure of their colleagues. The report suggests that overall capacity of the Bar to provide even the services that it does today would be materially reduced. Informal soundings suggest that many sets could lose as much as 30-45% of their work if they went into partnership. The figure is less for London-based criminal defence sets where estimates suggest that partnership could result in a loss of 10-15% of work. Page 35
Reports on survey of 126 larger law firms – 4 from the UK
Discussion on likely accountancy/law mergers
Reports that their survey found that nearly half of respondents are interested in adopting an ABS and 37% expressed an interest in accessing external capital.
Identifies two routes to ABS:
1. Internal route – practitioners form different professions work together with professional managers and some non lawyer owners in the form of those who manage process or volume practices such as debt collection, uninsured loss recovery or housing repossession. It is suggested that these firms will grow organically from the consolidation of existing legal practices. This offers the attractions of career progression and owner interests to managers, and local consolidation of costs (e.g. office buildings).
2. External route – the external creation or acquisition of a legal practice by those who are not qualified or mainly in the legal business – such as membership organisations, financial institutions and retailers. Page 6
Research report looking at the potential impact of ABS on geographical access -
Interviews with 15 stakeholders (existing providers and potential new entrants).
Defines a reduction in geographical access to mean less physical locations (i.e. solicitors offices) and consumers finding delivery of services via internet/phone etc as inferior substitute to face to face advice, and providers unwilling to travel to deliver services.
Report concludes that whilst it is possible that some smaller firms may close in areas thinly served at present, the impact on consumers welfare could be mitigated through specific remedies such as facilitating visits by lawyers to the homes of elderly consumers. (see pages i to iv).
Highlights main economic effects of ABS as being access to capital and service bundling, meaning that physical access is an issues if economies of scale come into play- page 10
Reports findings of interviews showed that “ABS are likely to have a positive effect on the ability of more capital intensive, conglomerate (i.e. legal + non-legal), profit-driven firms to enter the legal services market. In addition many high-cost (principally small consumer facing) law firms are unlikely to be competitive on their current business model. Small firms are more vulnerable because legal advice can be provided via the Internet and telephone at lower cost, and these means of delivering legal advice are subject to greater economies of scale that traditional face-to-face provision. Small firms may find it difficult to raise capital.” Page 11
The interviews indicate that new entrants will offer low costs services, and utilise existing trusted brands, which will become a substitute for local firm names.
Such new structures offer a host of opportunities for innovation and greater competition in the public interest. As we all hope, innovation and greater competition should lead to a reduction in litigation cost. Equally, they should lead to greater access to justice through broadening the availability of quality advocates via an increase in direct access, or access via Procurecos – Page 2
External investment could also, for instance, lead to the expansion of law firms
Survey of 284 STEP members from across the UK found showed:
– a slim majority thought ABSs will create more awareness and hence more custom for private client practitioners across the price spectrum.
- strongly felt that ABSs will revolutionise the way services are delivered and that a collision of differing cultures
and regulatory regimes will provide challenges.
- the market will polarise between those competing
on price and those offering bespoke services and that clients will be more ready than they have been historically
to move from one service provider to another.
- fewer TEPs would offer will drafting services as a loss-leader.
- Demand for the multi-disciplinary approach will result
in the increased use of outsourcing by firms and that those adopting the multi-disciplinary approach will see increases in efficiency as a result.
- It was agreed that services in the middle end of the market will be dominated by a commoditised
approach, but members were unsure as to whether increasing commoditisation would lead to growth in the private client market as a whole.
- members agreed that the industry was moving towards the
One of the principal aims in establishing CLS was to deliver the vision of greater consumer confidence and choice that was set out in the Government’s White Paper published in 2005 The Future of Legal Services: Putting Consumers First. – Page 2
The positive reasons for pushing on with the formulation of the regulatory framework for ABS?s are well rehearsed and established. Principally it is driven by consumer interest. The emergence of new entrants with better resources, modern structures and customer focused business practices will greatly enhance consumer choice, service, value and confidence. Access to justice will be greatly enhanced. The secondary driver is that it is in the interests of the profession, particularly those currently entering the profession for whom partnership in private practice is not necessarily the be-all-and-end-all of their professional aspirations. The opportunity to embark on a career with an ABS is equally, if not more, appealing to many aspirant lawyers and other professionals. Page 4
CLS believes that many traditional solicitor practices have their heads in the sand over the changes that are imminent in the legal market. That said CLS does not envisage a huge rush from non-solicitor organisations to get licensed as ABS?s on day one of a new regime. Only a few organisations like CLS have openly expressed an interest in the market. As the market develops both ABS and traditional firms will consolidate through merger and acquisition which should lead to greater levels of investment and efficiency which will be to the direct benefit of the end users of legal services. Page 5
Survey of over 100 solicitors and barristers reports that:
Solicitors firms considering non lawyer partner- 13% actively pursuing, 27% considering, 36% not considering, 24% wouldn’t consider. – Page 3
Range of possible future business models – LDP plus, externally owned ABS branded, externally owned ABS cross selling, MDP one stop shop, Co op model, Private Equity investment, Floated company, Hub & Spoke back office with regulated frontline services, NfP organisations providing solicitor services, In house teams expanding into the market. – Page 4
8% of solicitors firms would consider having an outside investor, 46% were open to the idea, 34% definitely not, and 12% were uncertain. Page 11.
Reports on views within the insurance and claims management companies sector that since solicitors can still make a profit when they pay referral fees, they will move to bring legal services in house post October 2011. Page 19
Reports that 17% of barristers plan to incorporate, 8% are considering, and 67% will are not planning to do so. Page 23
Potential new entrants include Cooperative Legal Services, Halifax Legal Solutions and the Automobile Association.
To the extent that qualified lawyers are used in such new entrant firms it is likely that fewer of them will hold a major ownership share, and there involvement will be confined to reserved activities. Thus a new entrant can establish its own internal legal capacity with a lower cost base than the traditional law firm. While it is highly unlikely that these providers will ever internalise their entire need for legal services, it would be reasonable to surmise that they will make less use of external law firms and the self employed Bar.
New Entrants target legal services include conveyancing, personal injury, wills and probate, and employment; because of negative brand association they are less likely to be interested in crime and family work. Uncertainty, lack of control and the spiralling costs associated with dispute resolution also suggest that these volume businesses will take commercial decisions to litigate less (or not at all) and the associated need for advocacy could also decline. Page 4
Table 3: Likelihood to join an ABS by depth of understanding of new business structures under the Act – Page 37
Figure 13: Likelihood to join an ABS regulated by a body other than the BSB
Figure 14: Percentage likely or very likely to join an ABS (regardless of regulator) by barrister type
As with LDPs, two thirds (67 per cent) would want to work in a dual capacity, employed by or managing an ABS but continuing to carry out some work in self-employed practice. 17 per cent would want to work solely within the ABS. Page 40
Figure 15: Additional percentage of barristers likely to join BSB regulated ABS if litigation is included
Figure 16: Net difference between the importance placed on business factors for barristers likely to join a new business structure (regardless of type) and their colleagues who are unlikely to
Figure 17: Net difference between the importance placed on business factors for barristers likely to
join a BOE and their colleagues that are unlikely to
Figure 28: If you were considering becoming a manager of any new business structure, what other categories of professional would you be interested in becoming a manger or owner with?
Over three quarters of barristers interested in LDPs would consider working in partnership with solicitors (76 per cent), 71 per cent are interested in working with other barristers and over half (53 per cent) would consider working with other legal professionals;
73 per cent of barristers interested in working within an ABS would like to work in partnership with other barristers, they are also the most likely group to be interested in working with other non-legal professionals (46 per cent) and clerks or practice managers (40 per cent);
Logically, barristers interested in BOE structures are most interested in working with other barristers (69 per cent), although this group also express an interest in working in partnership with solicitors (61 per cent) or other legal professionals (34 per cent).
Barristers practising commercial / chancery law are less likely than average to work with any other professional. Most notably, only 40 per cent want to work in a new business structure with their barrister colleagues, unlike those practising common law who are particularly likely to show an interest in working with other barristers (54 per cent);
Barristers working in Public Law are particularly enthusiastic about the prospect of working in partnership with others. 40 per cent are interested in working with other legal professionals, 31 per cent with other non-legal
professionals and 49 per cent in working with solicitors;
Barristers employed by authorised persons, working predominantly with public clients, or that are male are also more likely to be interested in each professional for potential partnership;
There are no significant differences when looking at barristers by length of time at the Bar, number of barristers sharing chambers, whether they have children, a disability or are from an ethnic minority.
- Page 64
Pre legislation report into roles of LSB
The beneficial socio-economic impact Law Centres have on the community they serve may lead us to conclude there is a need for one-stop shops
Prediction from Baker Tilly that no more than 5 firms will list in the 5 years post 2011, and these will be consolidations of around 20-30 existing high street practices. Between 10-20 firms will be the recipient of private equity in the first phase. page 15
Areas that are low risk, diverse client base and reasonable volumes are likely to be attractive to external investment, such as conveyancing – page 16 – or personal injury with external investment used to promote lawyers services as an alternative to claims management companies – page 17
External investors interested in the legal services market because of its size and fragmentation and poor value for customers – Lyceum capital. Two areas of interest are retail legal market where consolidation and systemisation would lower costs and increase brand awareness – and middle level city firms. page 22
Range of Private Equity funds looking at in vesting in the Up legal services market. Most attractive are low value high volume work for example conveyancing, and the approach is likely to be minority stakes in big firms. page 23
Potential New Entrants Case studies – Co-Op, Halifax, A4e, Which, DAS pages 31-36
Tony Williams – Jomati Consultants LLP – Reports that because external investors will be looking for a higher rate of return, firms need to have a clear plan fro use of capital – pages 12
They will need, on a continuous basis, to re-examine the market they operate in, the processes they use, their pricing models and their cash flow and profitability forecasts. Such an approach is common in many businesses but relatively rare within law firms who up to now have generated relatively high financial returns often in spite of themselves. Linked to this is the whole concept of accountability across the organisation, including partners. Clear job descriptions, operational targets and metrics will need to be established with consequences for both success and failure. Page 13