David McGrady, President of ILEX on ABS's
16 November 2010
ABS's - Big Bang or Big Bust?
Vince Cable’s reducing regulation committee has given Alternative Business Structures (ABSs) the okay. Jonathan Djanogly the Justice Minister welcomes them and the Lord Chancellor, Ken Clarke says they are going to be the legal profession’s equivalent of the “Big Bang” that occurred in the financial sector in the 1980s.
It seems, therefore, that ABSs will be with us from 6th October 2011. Quite what they will mean for the legal profession outside of the pontifications of the politicians no one really knows. Quite what shape and form these ABSs will take is a matter of speculation although rumours of the “players” who may be involved and the areas in which they will dabble are rife.
When they were first conceived the Ministry of Justice thought that they would have the following four main benefits:-
- Increased access to finance.
- Integrate legal and other professional services.
- Improve the hiring and retention of high quality non-legal staff and reward them in equal terms as lawyers.
- Bring new providers into the marketplace leading to innovation and price reductions and affording more access to legal services.
What the Ministry of Justice hopes will come about and what the Legal Services Board (LSB) attempts to engineer is one thing. What the profession, the new providers and the public do maybe something entirely different!
In short ABSs are intended to allow non-lawyers to participate in the provision of legal services. At one level this may be a large supermarket chain providing legal services under its own brand. At another level it could be private equity investors buying up a share of an existing law firm for a return on that investment. At its simpler level it may mean a combining of professional service providers such as accountants and surveyors joining with lawyers to provide a multi-function one stop shop. Perhaps for my members of the Institute of Legal Executives it will mean that they can finally practice together independent of solicitors.
Only nearer or after 6th October 2011 will the picture become clearer. There are certainly indications that organisations already closely associated with the provision of legal services, say insurance companies, will be interested in the concept. Rumours abound of deals being struck in anticipation of 6th October 2011 with powerful equity investors coming into the market. Others have said that it is all a good idea but not something that they themselves are interested in. The market itself is valued at some at £15 billion. Perhaps some entities will simply wait and see what happens. There are historic examples of where large high street entities have not made a success of departures from their core business.
The advantages to customers are claimed to be cheaper legal services although in areas such as conveyancing the profession is already well used to “cut price merchants”. Ultimately individuals may not wish to see the most expensive “product” they will ever buy handled by those who give the cheapest quote or indeed are more experienced at selling baked beans. Some customers will not wish to receive the probable restricted on-line service that will be provided but prefer direct personal access on a face to face basis with the individual lawyer that they have chosen. For others new entities may simply not be prepared to provide a service in the complex legal fields they require and where the profit margins are either not attractive or the work does not lend itself so readily to economies of scale. There is of course the possibility of legal services “ghettos” building up when small high street firms lose out to the equivalent of the out of town legal supermarket and close up shop leaving those with limited access or mobility without recourse to a provider of legal services.
Of course those that are endeavouring to force this new system upon the legal profession insist that there are opportunities for it. The provision of new sources of investment is held out as a main benefit. To date, however, the large city firms have shown no interest and indicated that they are adequately funded thank you very much! Whether this is true or just bravado, we now have less than a year to find out. Certainly an alternative source of funds may prove attractive to the large middle strata of firms where “baby boomer” equity partners are now seeking retirement and may find new revenue sources attractive but which are unlikely to be the targets of the big investors. Small firms are already suffering from the downturn in the market and the withdrawal or retraction of public funding but are unlikely to find themselves the recipients of offers they cannot refuse. It is perhaps in these smaller firms where adaptable Legal Executives will be able to metamorphose into radically new entities, to take advantage of gaps created if solicitors’ current income streams head to the giant out of town retail parks.
Apologies if my crystal ball is not more revealing but perhaps the mists will clear as we approach 6th October 2011 and we can then appreciate whether the perceived “Big Bang” just turns out to be a “big bust”
David McGrady is a Fellow of the Institute of Legal Executives, a Civil Litigator with Wimbledon solicitors Gregsons and is currently President of the Institute of Legal Executives a professional membership and regulatory body with 22,000 members practising across the legal profession.