A new dawn, a new day?
Mark Briegal, Partner at national law firm Ralli, examines the implications of the Legal Services Act 2007- 2010 and major changes to be introduced by the Solicitors Regulation Authority in October next year.
As the profession knows, big and irreversible changes are afoot.
Next autumn, a number of new law service providers will spring up around the country and online. The legal press has referred to this in shorthand as ‘Tesco Law’. The names will be familiar to the public at large but, rather than Tesco, they are more likely to be: MORE TH>N, RBS, the Co-op, HBOS, NatWest, DAS, Allianz and Santander et al.
They will all seek to provide a faster, cheaper, commoditised, computerised alternative legal service covering many of the functions now provided by small/medium law practices.
If industry experts such as Professor Stephen Mayson from the College of Law are to be believed, as many as 3,000 high street law firms, 35 per cent of the total, may disappear in the subsequent upheaval.
In short, the internet digital revolution is about to overtake the business of practicing law. Those with the slightest doubt about the magnitude of the change need look no further than publishing and book retailing, the news gathering industry, trade in second hand goods and cars, the music industry or banking to draw conclusions. Virtually all British households have computer access. The public spends more time at some form of computer screen than watching TV.
In a sense, the change has already happened. The law ‘industry’ has simply been, for the most part, a bit more ponderous and circumspect about catching up.
So, whether we like it or not, the age of virtually instant, online, digital processing of routine legal matters is already upon us.
From the point of view of the public-at-large, who perhaps only use a solicitor half a dozen times in their lives, adjusting to this change of providers will be painless and seamless. They’ve adapted to eBay, e-mail and online shopping and social networking with ease, even enthusiasm. The provision of services, especially bespoke services, is more tricky than selling boxed goods or books, but it is happening in any event.
Many smaller practitioners will face rather more difficulty competing with such aggressive, ubiquitous and pervasive competition.
The orchestrators of change
The new era will begin with new regulations and the authorisation of the first new Alternative Business Structures on 6 October 2011 (or such date to be agreed). One-stop shops for a mix of legal and other related services will become an inescapable reality thereafter.
The objective, it seems, is to increase competition in the legal profession through wider ownership and thus to improve the public’s access to fairly-priced legal services. It is envisaged that more IT will be used to help deliver this.
The effect of the reforms and the introduction of legal technology will be to allow progressive firms to carve out an increasing share of the market. Others will succumb to increased market pressures.
The new entrants to this market will have greater experience of operating in a mass market than smaller traditional firms and will have a greater understanding of all manner of business tools; branding, data processing, customer satisfaction and product development.
Both the new and more progressive (and more aggressive) law firms will be providing legal services in a very different way to traditional high street firms. Bespoke drafting and hourly billing will be replaced by cutting edge workflow and knowledge management systems to bring significant economies of scale.
The aim is to use document processing technology along with paralegals and unqualified administrative staff to replace costly qualified lawyers, thus reducing costs. The challenge will be to retain the quality that a skilled professional can give in a complex scenario. This may also be the way that existing firms can hold onto their niche, by offering a bespoke, face to face service, but at additional cost.
The body charged with the task of bringing these changes about is eminently capable of doing so.
The Solicitors Regulation Authority (the SRA) has some 600 employees and an annual budget of £48,741,331. As the independent regulatory body of the Law Society in England and Wales, it operates within the regulatory provisions of the Legal Services Act, authorising law firms to practice.
Historically the SRA had a risk-based approach to regulation and developed something of a reputation for being inflexible, over-zealous and at times draconian. This was seen by some to be an anachronistic stance.
However, with this in mind, a long and thorough reappraisal of the organisation’s objectives and methods has been taking place. Roadshows have been rolled out across the country, extensive consultations have taken place and there have been deep and detailed deliberations.
Its ‘risk-based’ focus will be changing to an ‘outcomes-focused’ approach. The aim is to give law firms much more ‘freedom to practice’ in a way which suits their business and clients, providing they adhere to revised rules.
The SRA will strive to become ‘an ever more effective regulator: acknowledged by the sector and other partners for setting high professional standards, for our fair and transparent outcomes and delivery of service excellence’.
It will do so by introducing;
- a new Set of Principles which define professional legal standards;
- a new Code of Conduct; and
- an updated Handbook which brings together all regulatory requirements for the first time.
Many solicitors are apprehensive about the scope of these changes, worried that competition will destroy the viability of their practice. Wider access to justice and an environment more attuned to developing innovative and cost effective legal services and products is all very well, they say, but allowing non-lawyers to own law firms is a step too far. Solicitors have an overarching duty to their clients, whereas outside owners have a duty to their shareholders. However, research undertaken in 2006 found almost 50 per cent of consumers would be receptive to new providers of legal services. In a subsequent ‘Which’ survey 75 per cent of consumers were very receptive to the idea of new entrants entering the legal services field.
Ongoing dialogue
The SRA will emerge re-born, it hopes, as ‘the regulator of choice’ for those providing legal services. It will aim to deliver regulation more quickly, more effectively and with a friendly smile on its face, embracing an upgraded IT-based infrastructure to meet the demands of the future.
This will mean transforming its regulatory approach, shifting the emphasis from prescriptive, rigid rules to a flexible, outcomes-focused core philosophy. It says it will exercise control by successfully embedding outcomes-focused regulation.
Many solicitors will be sceptical about the SRA’s ability to do this. They should not be sceptical about the Coalition’s desire to drive through changes to the legal system.
The Legal Services Act
The Legal Services Act creates a markedly different landscape. It is the first attempt to bring the entire legal services market under one regulatory framework and departs significantly from the previous structure of the profession.
The Act maintains the status quo in relation to “reserved activities”, i.e. advocacy, conducting litigation, conveyancing and probate. It does not, at present, attempt to regulate unreserved legal activities, i.e. will writing, employment advice and health and safety advice
However, the Act does give the ability quickly to apply regulation to these unreserved activities. Before the Act was brought into law, there were already many situations in which non-lawyers could deliver legal services. The Act has not changed this but extends the opportunities further.
Opportunities
Commoditisation and IT will shape and characterise 21st century legal service. The future belongs to law firms which learn how to use Internet technology to offer clients (who may become mere customers) an experience which is both low cost and of high quality.
For all players the key is investment in systems which will in turn allow users to trawl the mass market and drive down the internal cost of production. This will drive commoditisation because once legal services can be highly automated internally using IT, it is a very short, inevitable jump to providing is service directly to customers via the Internet.
The ‘multiple outlet’ organisations entering the legal services market will be interested in working with firms who can meet their service standards and deliver a standardised legal product to their large customer base at low cost. This should enable the firms to pick up the more complex and lucrative work. For firms who can meet the standards of these new entrants and would be willing to work in collaborative relationships with them, the possibilities are limitless.
It is now clear the Legal Services Act will usher in a ‘brave new world’ in which existing business practices will be swept aside by the entry of these new providers. But the LSA will also be a catalyst for change amongst traditional providers. It will offer scope for some real innovation, affording law firms the opportunity to build relationships with these thrusting mass marketers who are expert at generating new revenue streams by growth in latent markets. Those prepared to move with the times can look forward to the reforms: those who are not have every reason to be worried.
So where does the Bar come into this equation?
Trust
Barristers will, of course, still have the right to continue to practice as a member of a traditional set of chambers, if they so choose.
The door is now open, however, for those who wish to enter alliances, partnerships or other contractual arrangements with, say, accountancy, banking, insurance or financial services firms or members of other professions including solicitors.
A barrister could team up with a solicitor, veterinary surgeon, equine dentist and pharmacist, for example, in some corporate guise to provide comprehensive advice to a specialist sector of the market; in this example a large producer of veterinary pharmaceuticals.
The prospect is not being welcomed by many at the Bar. Being either an appendage at an enlarged IT-centric firm of solicitors or employed by a profit-driven commercial corporate entity seems be at variance with the values of their calling. The compromise, politics and team ethic of partnerships or corporate life will by no means suit them all.
If a significant proportion of the 65 per cent of small law firms who survive the changes find it necessary to recruit a ‘tame’ barrister as one of their ABS partners, the ‘chambers’ ethos’ in it’s entirety will come under threat.
Rubbing shoulders too closely with solicitors might have wider implications. The public perception of barristers, as being drawn from among the brightest, most academic, most able of their generation, could be irreparably damaged. Will damage to this perception ultimately diminish the wider public’s belief in the integrity of the British judiciary?
Is risking the diminution of their belief in access to justice too high a price to pay for computerised and more efficient bulk access to legal services for the man in the street?
Is the judicial process itself to be commoditised, computerised and made more cost-efficient?
Perhaps not.
In ‘post-October 2011’ language, barristers will continue to play the role of highly-specialised consultants, brought in by law firms (multiple retailers and online insurers included) to act as advocates in presenting cases at court or in providing specialist advice on complex areas of law. The profession will face increasing competition from newly de-regulated solicitors/advocates and ‘in-house’ barristers but it is anticipated their efforts will largely be directed toward high-volume routine cases. An in-house specialist in, for example, insurance fraud is unlikely to asked to advise on the finer points of intellectual property or commercial tenancy.
The great majority of instructions which now flows to barristers in chambers though substantial law firms, from clients such as business corporations, high net worth individuals, commercial entities, public authorities, insurers, the CPS and government departments, will continue to do so. The quantum shift will be in the market for volume access to law for everyman, not specialist advice of the highest quality for these clients, bodies and institutions.
Previous attempts at multi-disciplinary partnerships, including the failed tie up between Andersen’s and Garretts did not work. The market has changed now and it may work. IT is crucial as highly-paid, skilled solicitors will prefer to remain in partnership where they keep all the profits rather than pay dividends to an outside investor. Such an investor will have to offer access to profitable work they cannot generate or internal systems they cannot afford.
The question remains as to whether the volume access should also be of the highest quality. Partnership disputes for example do require specialist and high quality advice and a commoditised service may not be adequate. It may work for conveyancing, but a raft of expensive insurance claims against commoditised conveyancers may cause a problem in the future.
The choice remains. If they are so inclined, barristers and solicitors can venture into the brave new world of ‘Tesco law’ or simply sit tight in their offices and await the consequences of the change to outcome-focused regulation.