Solicitors’ market “wide open to competition” from national brands, says LSB

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High street: solicitors still vulnerable to big brand ABS

Most aspects of legal services can be delivered nationally and there is still “significant potential” for big brands to come in and provide large-scale, lower-cost services, according to a major report into competition in the solicitors’ market.

The Legal Services Board (LSB) research into competition and Solicitors Regulation Authority-regulated bodies also confirmed that new business structures – legal disciplinary partnerships (LDPs) and ABSs – were more productive and innovative than traditional law firms, as Legal Futures reported it would last month.

The research found that ABS’s were having an impact on segments of the legal market. By June 2013 – when there were around three-quarters as many ABSs as there are now – it reported that they accounted for 20% of the personal injury market, split evenly between new entrant ABSs and existing firms that had converted.

By contrast, in employment law ABSs had a market share of just 3.5%.

The survey speculated that the referral fee ban was behind the PI figures. It also found that ABSs were more likely to use IT to deliver services and to service businesses than individual consumers.

While LDPs – which have been permitted since 2009 and if they have non-lawyer partners will have to switch to ABS status – made up just 5% of the total number of firms in 2012/13, they took a 14% market share, the LSB report observed.

ABSs were vastly more innovative than ordinary SRA-regulated firms, the report concluded. Some 13% of ABSs had introduced an innovation not related to their structure, compared to just 1% of the others.

It remarked that as well as being more productive and innovative, ABSs had a better record of resolving complaints. ABSs resolved 11 complaints for every one referred to the Legal Ombudsman, while LDPs resolved five and other solicitors’ firms four. Proportional to turnover, LDPs received the lowest number of complaints.

The research found that most market segments were either national or had the potential to be, and that there were “no barriers to services delivered nationwide”. This was most obvious with conveyancing and least obvious in areas of law requiring a court appearance.

Consumers were mainly confined to instructing firms within their region due to “the challenge of comparing providers”, the report said. But this was surmountable and “could be overcome through advertising on price, and the establishment of brands and advertising, making searching and comparing providers easier.”

It concluded: “We believe the potential for brands in both the regulated and unregulated sector to change this situation is significant. Bigger markets offer greater economies of scale and ultimately lower cost services.”

Around four out of ten of SRA-regulated ABSs viewed regulation, access to capital, and the traditional partnership model as a barrier to growth and innovation in legal services, while nearly half cited uncertainty over future laws and regulation.

The report drew on a number of sources to back its findings, including a survey to which a third of ABS licence holders responded.

It also found that only half of all firms had grown turnover, but levels of unmet need remained similar for individuals and small businesses; and that new business structures had increased market share over the past three years.

LSB chief executive Chris Kenny said: “Reports such as [this]… have a fundamental role to play in enhancing everyone’s understanding about how the legal services market is developing and about how the 2007 reforms are bedding in. The results, although early and somewhat tentative, already show that real benefits are being delivered for the public.”