I’m not normally a superstitious person. Friday 13th generally doesn’t hold any concern for me. But the developments in the legal world this week, may lead me to revising my thinking. Could this Friday 13th go down as one of the unluckiest days ever for lawyers and the old school legal regime?
In particular, I’m talking about the double whammy of news this week. Firstly that the SRA have (finally) opened their doors to ABS applicants, and in less than a fortnight the reports are that more than 50 applications have been received. Many, of course will be keen to capitalise on the early adopter advantage, but this is still a significant number. Any observers who thought ABS would not attract a large take up were wrong. We can expect to feel their impact sooner rather than later. Existing lawyers need to have a clear vision of their strategic response to the new entrants now.
The other news this week which is of particular concern to high street practitioners is that HSBC have set up a panel of just 40 lawyers to be dealing with their purchase conveyancing for their mortgage customers.
If the other major lenders follow suit then the residential conveyancing industry as we know it in England and Wales will effectively come to and end. Whether conveyancing in its current form is fit for purpose is a debate for another day, but be aware if HSBC’s stance becomes industry norm,then this will mean job losses in the thousands for existing conveyancers, and the diminishing of the “bread and butter” income from conveyancing which supports the cashflow of firms up and down the country. This is very serious news and I’m afraid to say that the Law Society’s response, “raising concerns” about HSBC’s move, is nowhere near robust enough and will do nothing to protect their members.
Lawyers, today of all days, I strongly urge you not to be walking under any ladders, and avoid at all costs magpies and broken mirror: at least until midnight has passed.
So we have the news today that referral fees in PI cases will be no more, and by Easter 2012. Not long for the workarounds to get underway.
Just what will the impact be, for the existing claims managers, the PI lawyers currently at the end of the foodchain, and the wider legal industry?
Well, primarily referral fees have existed, nay flourished under a ban before, and it is hard to think that some redefining and slight shifts in services provided won’t mean that they will still be with us, in one guise or another well after the ban is in place. Also, quite how regulators will police this ban effectively under an outcomes focussed regime, which should see a move away from the previous i-dotting and t-crossing, remains to be seen. Significant resource will be required, and I’m not sure its there.
The nettle of banning claims management companies per say, has not (yet) been grasped, so they and their employees are going to have to find something to do. Of course, the next obvious step for the Claims Managers is to bring the only bit of the legal process they can’t do (the reserved element), in house, and do it themselves. So lawyers who are rubbing their hands together this morning with glee at the demise of the referral fee, may also wish to pause to consider that this may also mean the end of their sources of work, if the claims managers look to create ABSs and do the work legal themselves.
Canny law firms have already been in discussion with their referrers to see how they can be working with ABS claims managers in the post-ABS world; whether that is under JVs, mergers or providing white labelled services. Expect these conversations to be hotting up.
The wider implications for the rest of the legal, and parallel legal services industry will also no doubt be causing heated debate in board rooms and partners meetings up and down the country. As Legal Futures have reported, there is not “currently” an apetite from the Government to seek to ban referral fees in the conveyancing industry as well, but it has to be said, housing affordability, the state of the market and the disarray the mortgage market continues to wallow in, means that securing peoples homes has the makings of becoming just as much a political hot potato as PI (and surely the government will have more appetite for cutting out costs from the middlemen, rather than reducing revenue from stamp duty). Once again, the threat which the withdrawal of referral fees present to the existing business models of many panel managers, estate agents, licensed conveyancers and solicitors must surely be considered, and plans made accordingly. Perhaps the lead may be taken from the lenders here, and we may see emerge a new wave of “compliance fees” being charged by the front end suppliers of work to their panel solicitors.
Creativity and innovation in the delivery of legal services was one of the aims of the Legal Services Act, and if nothing else, I think the referral fee ban will certainly expedite that.
So just what is going to happen to the legal services industry (and in particular the retail end of the market) once ABSs are with us at the end of this year?
Looking at how the conveyancing industry has evolved over the course of the last decade provides a clear blueprint. This arena has already been largely commoditised. Volume providers now dominate the industry. They all have in common increased use of IT workflows, offshore outsourcing, commercial management team structures and lawyer displacement.
The reason for the development of volume models in conveyancing is not because it is a simple process (ask any conveyancing solicitor), but mostly because ABSs have been around for some time in the conveyancing world.
The Council for Licensed Conveyancers have allowed external ownership and investment in law firms for over a decade (and so have a head start over the SRA in regulating ABSs – they already have experience of what that needs to look like and what the “coal face” challenges are).
And the impact has been astonishing. Out of the top 10 volume providers 1/3 are licensed conveyancing practices, despite the fact the that CLC practices make up less than 2% of the overall number of regulated legal practices.
But its not just financial advantages which externally funded law firms have over traditional solicitors. More of a challenge is that they generally form part of larger groups which can generate a constant flow of work into the legal arm of the business – the Countrywide model. How law firms compete with this remains to be seen. A good start for all legal practices is to ring-fence their existing client database. Communication, communication, communication being the key.
So do we need a crystal ball to see what the future holds? I think not. I would confidently predict that volume legal brands with existing access to sources of work (or databases to create work) from other parts of the group will come to dominate retail legal provision within the next 5 – 10 years. There, I’ve said it. Anyone fancy a fiver on it?
ABSs will mean many new challenges for law firms. A considerable threat is that existing sources of work may disappear, as current referrers of work decide to have a go at bringing the reserved worktypes in house and to stop sending cases out to lawyers. Legal Edge has already been asked to scope out several such ABS projects for organisations which currently refer work to solicitors.
When we’re asked to consult with law firms, our advice is to clearly understand where their work is coming from, and whether there is any risk of it disappearing in the post ABS world. Having this information to hand will allow for an informed strategy to ensure new instructions are retained, and can be developed. A healthy mix of B2B and B2C is always a good start, and within each worktype. If work is received from a single source for any worktype, then it is at risk. Simple. If there are contracts in place for the referral of work, do they contain guaranteed volumes? In most cases, this is unlikely. Again, a risk.
Another option for law firms is to offer white labelled services to the new potential ABSs. Whilst the ABS might be eying up the more straightforward cases they refer out, they may still have requirements for parts of the process, or the more complex cases to be outsourced. Starting to have these conversations now with referrers is vital. Don’t wait for the work to dry up, or for someone else to do it.
Its not just the looming ABS threat which is having an impact on the types of jobs cropping up in law firms these days. There has been a steady creep of roles borrowed from the commercial world into legal practices over the course of the last decade plus. Business Development roles for example are commonplace, and even on the high street, there are few practices without a practice manager. Of course, how long these posts will be described as support functions once we are well and truly in the world of ABSs is a moot point (but that’s a debate for another day).
One role which is vital for legal practices, and which is missing in most, is a business process improvement manager.
Why? Well to be frank, most law firms have never spent time analysing the way they do their work. The practice of law is, if you like, the ultimate legacy system. Changes to process are, in general reactionary (to a change in the law, or a new protocol for instance), rather than proactive. As the commericalisation of law continues, however, this approach has to change. Simply relying on the next release from their case management provider will not be enough for most legal firms.
Be assured that the new ABS entrants will not be constrained at all by how law has been done in the past. They will have the luxury of taking a blank sheet approach – quite literally reinventing the wheel. And their business savvy approach will mean that what is done and how it is processed will need to justify its existence in any legal process moving forwards.
And this is good news for existing lawyers looking to diversify away from fee earning. The most effective legal business process redesigners must have a strong technical and “coal face” understanding of the processes in question. Working closely with IT departments and suppliers is imperative, along with key stakeholders in the industry, plus clients and suppliers. The rewards for firms embracing the proposition that they can (always) improve how they deliver law, are not only internal savings and efficiencies, but real differentiators from their competitors.
Legal Futures has reported today on their sneaky peak of the new SRA Handbook, due for publication on 6th April.
We already know a great deal about what to expect, including the new concept of “indicative behaviours”. That is to say non mandatory actions by solicitors which will indicate whether or not they are achieving the outcomes required under the new outcomes focussed regulation regime. As they are non mandatory, if solicitors choose not to follow them, they may do so, but will have to present a compelling case to the SRA as to why their new systems and processes deliver the required outcome.
Of course outcomes focussed regulation, by its very definition means ambiguity. Not a concept that sits naturally with lawyers. Legal Edge is aware that many solicitors’ approach to the new regime, ironically will involve tightening up, rather than relaxing their processes and systems. Why? Well at least with the old rule book, lawyers knew that so long as they followed the code then they were ticking all the proverbial boxes. The new “well its up to you to interpret the rules as you see fit” regime is all well and good until that does not fit with the SRA’s interpretation. This is not a risk many lawyers are prepared to take. Expect to see a lengthening in client care letters rather than shortening: at least until a bank of precedents begins to appear from the SRA demonstrating what their interpretation of the outcomes should look like.
Of course new entrant ABSs will be less constrained by these new regulations, having not being exposed to the previous SRA regime. Ironically their approach is likely to be much more in line with the original ambitions of OFR, that is to say a customer centric approach to the delivery of legal services.
So whilst OFR is a boon to all the potential ABS wannabes out there, it will likely be tying up existing practitioners in knots trying to decipher how ambiguity and compliance have become bedfellows. Our advice to solicitors – skill up as much as possible on the new regime. The SRA are running roadshows over the coming months, which should be a must on practitioners’ calendars.
Linda Lee, the Law Society’s president, announced last week that that there is chance that the Law Society may vote to block the SRA from their application to become an ABS licensing authority at their council meeting next month.
This should not prevent the roll out of ABSs as the LSB remain committed to the October “go live” date, however, this does nothing to assist the organisations that are currently planning to become early adopted ABSs.
And whilst the Law Society’s uncomfortableness with the impact of external investment and management is perhaps a valid argument for solicitors to stand separate from other legal service providers, it might have been helpful for them to communicate this stance more effectively to their members at an earlier date.
So what are the options for ABS wannabes? Well it has to be said, as there is scant information available at present as to what an LSB ABS licence will require, that the Council for Licensed Conveyancers becomes a more and more attractive proposition for the new world legal service providers. They remain committed to October go live, and once they add litigation and advocacy into their fold (which they would be well advised to prioritise) then they may start to look like the only viable option.
We continue to watch this space….
We hear a lot in legal marketing about the importance of becoming more accessible to potential clients. Many see the web, and specifically web 2.0 as one tool to facilitate this. The aim is to remove as many barriers as possible to providing the client with what they want - that is to say the solution to their problem. We blogged last year about expert-answers, who had set up a website with this goal in mind. Simply typing in an answer and waiting for a reply from an on-line qualified expert was the premise, and their model is going from strength to strength; with wannabe organisations quickly jumping on this bandwagon.
What’s next? An even faster, free service it seems, in the guise of @thelegaloracle on Twitter. For you twitterati out there, you’ll know that twitter limits updates to just 140 characters, and is expected to hit 200,000,000 users worldwide in 2011. The potential to directly access new clients is phenomenal.
There are plenty of lawyers out there signed up with a twitter account already, so what’s new about @thelegaloracle? Social media strategies are evolving all the time, but it seems that @thelegaloracle has stolen the lead on the market. Rather than providing dry updates on the practice, or answers to hypothetical legal issues (which are common) @thelegaloracle is cutting to the chase and providing direct, bite-size chunks of legal advice, answering clients actual, real life queries. Nick Jervis is the face behind @thelegaloracle. He says,
“I have always felt that the law should be made more easily accessible to people of all backgrounds. Twitter provides a quick and easy method of communication between people, which is exactly what I wanted in the interest of making the law more widely available. Unlike Facebook, you don’t even have to be a member of Twitter to view the posts of others. Alongside this, Twitter limits you to 140 characters in your Tweets, proving that the law doesn’t have to be complicated, and many who were put off seeking legal advice before may be encouraged to do so now”