A couple of months from now, getting legal advice on everything from moving house to making wills could be as easy as ‘buying a can of beans’ if you believe the claims of ex-constitutional affairs minister, Bridget Prentice. The Legal Services Act, or ‘Tesco Law’ as it has become known (thanks largely to Ms Prentice’s remarks made at its inception), marks a major shift in the composition of the UK legal services market ushering in new providers, new forms of ownership and several new challenges for incumbent firms.
The 6th October sees the introduction of Alternative Business Structures (ABSs), essentially an opening up of the potential ownership of legal services firms and provision of legal advice to non-specialists – such as supermarket chains or other financial services providers – as well as permitting law firms new forms of investment, including raising capital through stock market flotation’s or private equity funding. Although Tesco has quickly become the short-hand for the law it is in fact smaller chains such as the Co-operative that have already signalled their intention to capitalise on the relaxation in regulation and many more are expected to follow suit in preparation for the Act.
The changes clearly have major repercussions for the sector causing many to compare it to the ‘Big Bang’ de-regulation of the City in the 1980s. But while the structural reforms are unlikely to become as widely adopted or deeply rooted as in the financial services market, the potential cultural implications of even a notional change in ownership could be far-reaching.
Medicine aside, the legal profession is perhaps the last of the traditional vocations to preserve a certain veil of ignorance over its practice and technicalities and, some would argue, has remained deliberately opaque and inaccessible to the layman. In theory ‘Tesco Law’ turns a dark art into a high street commodity freeing up access to legal information, but potentially downgrading the quality of advice and, ultimately, respect for the profession.
The ownership changes also have implications for the way in which firms incentivise and attract talent. If ownership is shared with external investors, law firms may lose the traditional promise of partnership status and a share of the profits that has helped motivate generations of junior solicitors risking a brain drain, both to other sectors and indeed internationally.
There is also the potentially polarising effect of de-regulation. More competition means larger firms will likely compete more on scale and breadth, and smaller firms on focus and expertise. Many fear the sector could crystallise into a medley of boutiques on the one hand and multi-service composites on the other, with sole practitioners and mid-tier firms struggling to carve a sustainable market share in the middle. Then again, there are of course some legal firms who have already built their business on the basis of effective marketing and direct communication with the consumer and so they, to some extent at least, remain insulated from the market changes.
And, perhaps the most interesting of all, are the ethical implications. Does permitting the greater involvement of commercial interests in the ownership and governance of legal services providers fundamentally compromise the impartiality and independence of the law itself? Put simply, will this new commercial environment mean ethics take a back seat to profits in future?
Like all the questions surrounding the introduction of ABSs, we don’t yet know how or if the changes will really take hold and, more importantly, over what timescale. Nor, despite the nervousness displayed by the sector, do the changes necessarily signal a straightforward shift from quality, specialist advice to cheap, commodity services. There are several potential benefits to the Act in terms of boosting competition, innovation and service levels, all of which should help, not hinder, sector profitability.
But, as with all groundbreaking reform, the potential for change will probably far outstrip the reality, at least in the short term. The prospect of walking into a local supermarket to broker an acrimonious divorce or sue for unfair dismissal is probably still a distant one, but law firms will still need to ready themselves for the changes that the spirit of the law will usher in, even if its full letter is not applied in practice.