Estate practitioners take on ABS challenge

29th September 2011

Alternative business structures have the potential to revolutionise the legal market. What will be the impact of intensified competition from new entrants on wills and probate practitioners, and how should they prepare for the challenge? Antony Collins reports

Alternative business structures (ABSs) are arguably the most significant – and controversial – change to the legal profession in living memory.

The provision for ABSs in the Legal Services Act 2007 was due to come into force on 6 October and (although it has been delayed for SRA-regulated businesses until early 2012) paves the way for any non-legal business, whether accountancy, insurance, banking, grocery or private equity, that fulfils professional obligations to provide reserved activities, including applying for the grant of probate or letters of administration.

While ABSs still wait in the wings, expectations and predictions are mounting. Rather than premium corporate work, it is widely thought that ABSs will go after consumer markets serviced by traditional legal practices in towns and cities across the country.

“ABSs are going to be an increasing challenge for high street practices as new players enter the market,” remarks Jeremy Black, a partner in Deloitte’s professional practices group. “While some solicitors may end up working for ABSs, there will be a reduction of the input needed from solicitors as the new players look to operate more efficiently.”

Probate work is one such area of interest for ABSs. The feeling is that the relatively straightforward wills and estates work, on a ‘one-case, one-fee’ basis, would be well-suited to the ABS model. There is little need for face-to-face meetings or frequent liaising and the service could be procured via many high street banks or shops.

Clive Sutton, honorary secretary of the Solicitor Sole Practitioners Group (SPG) and an outspoken critic of ABSs, is concerned that some ABSs will not provide independent advice to benefit clients but instead aim to deliver profits to the owner. “This could see people being pressured at the graveside by organisations saying ‘we’ve done your funeral and now we can do your probate’,” he adds.

Angst and opportunities
High street lawyers working on probate matters would undoubtedly bear the brunt of ABS challenges. Barry Matthews, a partner at Wilson Browne, believes that a certain group of high street solicitors – the sole practitioner up to the five-partner firm – needs to adapt ahead of the reforms.

“Most solicitors are already doing something in anticipation of the shifting market but a few lawyers still have their heads in the sand,” he states.

So, in light of a revamped marketplace, what could solicitors do to avoid losing probate work to aspiring ABSs? Quality is one suggestion. Glenn Fletcher, Director of Operations at Title Research and former Chief Operating Officer at KSB Law believes firms looking to compete will need to undertake a comprehensive review of their operations. "Whether competing as an ABS or traditional law firm, quality, efficiency and price are going to be key issues. If firms want to introduce alternative pricing methods, such as fixed fees, they will need a thorough understanding of their business processes to remain profitable," he states.

Will-writing is an appealing entry-level service for ABSs, whether or not it becomes a reserved legal activity (and it probably will). The approach of ABSs may well look to offer it at a cost that a traditional firm could not match, possibly as a loss-leader.

So rather than getting into a direct competition on costs that they are almost certainly going to lose, many lawyers feel that the key to success is enhancing the quality and speciality of the service. Patricia Wass, a consultant at south-west firm Foot Anstey who chairs the executive committee of the Law Society’s Private Client Section, thinks that private clients firms will be able to hold on to market share if they are able to aim their practices more towards complex probate matters.

So whereas will-writing could be easily commoditised by an ABS, bespoke private client services venture into an area that would be more time-consuming and costly for them. Firms then should look towards the upper-end of the practice for inspiration.

“There will be a need for more complicated advice on things like estate planning, inheritance tax and capacity matters,” Ms Wass continues.

Cradle to grave
Solicitors are reporting a growing demand for the on-going management of the estates of elderly clients and “cradle-to grave” services too. These are not legal solutions that easily fit into commoditised legal products with a quick and cheap turnaround model. Likewise, more firms are looking at providing a far broader service that covers a wide range of issues for families as a whole.

“Since the ABS idea came along, we realised there was a need to be more business-like and specialise in niches,” explains Mr Matthews. “We’ve set up teams in sectors such as trusts and care home advice, for both incumbents and owners/managers.”

Indeed, if anything, concentrating on more sophisticated matters could boost referrals from the very ABSs not keen on such work. Many companies, even those with strong in-house capacity, tend to farm out more complex work to law firm panels so, if practices are able to position themselves strategically, ABSs could become a source of additional high-end instructions, rather than simply nabbing lower-value mandates.

Embracing change
The issue for many high street firms remains that if the market becomes more consolidated, it could become harder to service clients as a smaller practice. As the profession evolves, more sophisticated infrastructure, IT and flexibility in terms of billing will be needed. Wilson Browne, for example, not only signed up to be part of the QualitySolicitors referral network but also provides quotes to handle the administration of estates (based on a set of assumptions) at a flat price rather than charge by the hour.

“High street firms need to look at the type of service they are providing and ask if they are able to compete,” Mr Black explains. “If they are not, the need to look at the other options, such as joining a network of firms, merging with other firms or even merging with other [ABS] organisations.”

Mr Sutton believes that ABSs may affect those firms that do volume work but many sole practitioners like working directly with people, which could spark resurgence in demand for independent advice. “I think there could be a fall-out from the changes and more people leave big firms to become sole practitioners,” he says.

The great unknown
The great unknown, however, remains the ABSs themselves. We know the Co-op intends to be in the first wave of ABSs, while other brands such as the AA and Saga currently offer legal services through websites offering online will packages, backed up by the law firm Cogent Law if contact with a lawyer is requested.

Saga recently promoted its probate service by suggesting that some lawyers and financial advisers may be exploiting bereaved families by overcharging for probate. It said “friends, relatives, charities and other benefactors are being deprived of up to 5% of their estate value, which could be around £7,200 for the average estate” – Saga charges as little as 1% and, as an alternative, offers a fixed-fee service to deal with the legal paperwork only, leaving the family free to handle the other aspects themselves.

But what strategy new entrants to the market will employ is unknown. Setting up a legal practice is a costly affair and the profits margins, especially for more basic work, remain tight. As such, it is likely that cross-selling from existing business streams, whether it is insurance, healthcare or funeral services, would be the primary strategy rather than taking on law firms pound-for-pound.

Just look at the Co-op. It revealed that its £25m legal services arm has recently been merged with its Life Planning service – which includes the funeral business – “to capitalise on the imminent opening up of the legal services market”.

It said the merger “will provide an opportunity to enhance our combined partner propositions, optimise our third-party B2B relationships and enable us to cross-sell our products and services more effectively”.

But Ms Wass reckons there has been “a lot of hype over ABSs and they may not prove to be the threat that many think they will be. We will have to see what happens”.

Whatever does happen, solo practitioners and small firms should be prepared for any eventuality. Doing nothing, Mr Black concludes, is not an option.

Antony Collins is a legal affairs journalist