This is the first of a series of posts on the plethora of events in the legal services arena currently. There is a lot of hype and misinformation - having reviewed the numbers - the following (in no particular order of priority) are the headline (for some - uncomfortable) findings:
1. October 2011 will be a whimper, not a bang. The bag was 10 years ago but just as GCs are not fussed about the Legal Services Act now, no private practice lawyers were listening then. The latest reforms aim to empower solicitors to compete in a wider legal services market at the cost of minimal concessions to other professional interest bodies.
2. Personal injury work will not become legally aided, but when an access to justice issue is side tracked into automated cost arbitraging, even the MoJ has to act. Jackson reforms are a lamppost that generates more support than light in terms of the access to justice high ground.
3. Competition between regulators is unlikely to reduce the costs of regulation on qualified lawyers. It could even increase it. Forcing other legal services providers to take on the overheads of lawyers in the name of competition – levelling costs up in effect – is nonsensical. They will find other ways to disintermediate or marginalise the “reserved” lawyers, who will simply get more uneconomic.
4. As long as non-lawyer entrants to the market are forced to first get a licence through one of their competitors’ regulators, the impact of deregulation will be essentially protectionist rather than deregulatory. This allows legal lobbyists to claim increased competition and economic forces on prices, etc while delivering anything but.
5. Direct access to the Bar is a tipping point for commercial work. Barristers approving ABS’, and especially Licensed conveyancers offering this will be seminal moves, but restricted rights to conduct litigation are typical of the noise without substance that characterises this debate. Had the Bar Standards Board allowed commercial barristers rights of conduct, tanks would have been parking on lawns, but access to pupillage remains heavily constrained.
6. ABS’ from outside the profession are already thriving - not “in waiting”. Rights of audience are not as precious as lawyers think. Lawyers will not become ABS empowered entrepreneurs overnight.
7. Legal Aid is structurally unsound. 17% cuts are unlikely to fix the core problem: the £2bn budget is twice as large or half as effective as it should be. This source of legal work will not increase and will be forced to consolidate and improve efficiencies.
8. Better training, higher entry restrictions and continuous professional education – in effect all the core activities of the regulatory bodies have been ineffective in either building “consumer” confidence or equipping lawyers to deal with “unreserved” legal services competitors. Increasing the costs of being a lawyer is not synonymous with being a “good” lawyer.
9. Some firms will see listing as a viable route, but this it is not likely to come from the most lucrative end of the legal market which has no need of external equity. The track record of listed consolidators in professional services in the UK is not good.
10. Most law firms are simply not much greater than the sum of their parts (or partners). The fact that key partners can and do move firm is both a strength and a weakness. It means establishing an equity value in any given agglomeration of partners is elusive – a weakness. It also means acquiring firms is largely unnecessary when acquiring their key partners or fee earners can be a cheaper, simpler route. By now it should be clear that VCs will not be beationg a path to equity partners’ doors.
11. A mid-market consolidator is not contingent on ABS’ to emerge, although one may yet see this as a reason to try. They are much more likely to fail than to make any serious dent in the magic circle global positions.
12. ABS’ may be a useful route for firms hedging consumer focused legal services risk. Competing within a fickle government regulator environment, while relying heavily on automated scale based systems and self interested insurance drivers makes limited liability and speed of decision making essential.
13. The real debate should be the sustainability, pace and scale of fewer partners using technology and increased fee earner support ratios to maintain or enhance profits per partner.
14. A protectionist approach to restricted entry to the professions is economically illiterate and achieving the exact opposite of the intended preservation of exclusivity. Global firms circumvent it, mid-market firms are weighed down by the cost of it, and clients have access to a growing pool of talent with which they can devise their own cheaper solutions.
15. There is no shortage of entrepreneurial and clever lawyers – industry internal rivalry is keen and focused. Lawyers are not good at inter-industry rivalry and are being progressively disintermediated – cut “out of the money”.
16. Talk about the reforms being for the benefit of “consumers” is disingenuous. Legal lobbyists who do not differentiate between solutions for consumer and commercial clients, but persist with an “us” and “them” view lose the trust and confidence of both constituencies.
Private practice lawyers risk putting themselves deeper into the position of claiming to be the protector of consumers who resent being protected in that way or even by them at all – and certainly not at that cost.
Data behind the above will be spelt out in forthcoming blogs covering:
- Change in In Who’s Name?
- Reserved Activities and Restrictive Practices
- Access to Justice and Legal Aid
- Consumers, Confidence and LeO
- Jackson & Insurance Costs
- Regulatory Competition
- Consolidation
- The Problem with VCs and Listing
- Fixed Fees and Disintermediation
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