Countdown to change

Is residential conveyancing about to become an endangered species with many firms questioning whether to continue to offer the service?

Recently it was considered a perfectly viable business decision of many firms of solicitors to cease providing criminal or matrimonial legal aid services, because of low profitability and the complex and time-consuming tendering requirements. Does the same now apply to residential conveyancing?

What is happening in this most competitive of legal market places and how are firms to act in this climate of change?

The residential conveyancing process has changed more in the past five years than in the past 80 years, with more fundamental changes to the process and market yet to come on during the next three years. These involve the incremental implementation of e-conveyancing, the possible introduction of HIPs on 1 August this year and a combination of other factors, which include:

• The Legal Services Bill: This proposes to open up residential conveyancing to non-lawyers through 'Alternative Business Structures' (ABS) which will allow the likes of Tesco, the Co-op, AA, RAC and Halifax to provide conveyancing services, as well as wills and probate and personal injury work. The White Paper even anticipated the 'falling by the wayside of small firms of solicitors, unable or unwilling to adapt'. These financial concerns are more interested in selling providing financial products to clients (mortgages and insurance policies) and can therefore provide subsidized legal services to gain this opportunity.

However whilst most high street firms see these proposals as a threat, some realise that they may be an opportunity, in that it is unlikely that each of these big financial concerns will set up their own in-house conveyancing teams and that they will probably outsource this work to the experts, such as firms of solicitors specialising in conveyancing.

Volume of conveyancing firms

The development of large volume conveyancing units has had a real impact on the work carried out by high street firms. Working in teams with extended hours and at weekends from centralised offices, they rarely see clients. These volume conveyancing firms are structured differently to high street firms to reduce overheads, improve efficiencies and more importantly increase productivity levels to provide the service required. Most remortgaging work is now carried out by 'panel firms' able to deal with large volumes of instructions and to work to strict service standards.

The payment of referral fees by these volume firms for instructions to be referred to them by lenders, national chains of estate agents and brokers has had a considerable impact on profitability levels and this has filtered down to the high street. More and more local independent agents now expect to be paid referral fees for work introduced to local solicitors.

• Panel Managers: (such as LMS, the Live Organisation, Simply Conveyancing and Synapse) are the intermediary between the work provider (the estate agent, broker or lender) and the law firms, managing and controlling the flow and the quality of the provision of the residential conveyancing legal services. They approach the work provider to obtain large volumes of instructions and then they act as a clearing-house distributing the instructions electronically among panels of law firms.

Panel management offers more flexibility for firms to cope with the ever-changing flow and volumes of work and provides access to market places elsewhere in the country, which may be more buoyant than their own. Downsides include the payment of referral fees and the limited security for the firms on panels relying too heavily upon one panel manager/referrer.

• Evolutionary change to the delivery of legal services: the profession needs to recognise that in respect of most legal services, solicitors no longer provide a 'bespoke' service, personalised with each transaction being treated as completely different to any other.

The standardisation of documentation and workflow, initially through word processors and now case management systems, means that they now provide standardised services.

Where a legal process follows a common pattern or route, with set stages, it can be 'commoditised' whereby a series of services are provided for a fixed fee. Conveyancing, wills and probate are typical examples of commoditised services, as referred to in the Legal Services Bill.

Packaged services take this concept a step further whereby a combined or 'blended service' is offered at set fee to deal with a high volume of similar instructions which may be resolved in a variety of (standard) ways. Typical examples are debt collection, repossessions and some aspects of personal injury claims.

Fees become cheaper per transaction the further down the evolutionary scale they are. Some firms even offer free services through the internet, providing access to draft employment contracts, as they prefer to act for clients in more complex (and costly) employment issues.

• Mergers: All aspects of business are amalgamating into much larger concerns with banks, building societies, insurers and accountants as the better-known examples. The same seems to apply to medium-and small-sized firms of solicitors. The burden of regulation, compliance and insurance is such that it is forcing smaller firms out of business, whether or not they provide an appropriate and satisfactory service to their clients.

However larger firms with bigger conveyancing departments must look for alternative work sources other than just relying on local work and they must change their work practices to remain profitable and to be attractive to volume work providers.

Delivering services

In this new climate, focus must now be on how to deliver services, with new charging structures, offering a fixed baseline fee but with additional fees for supplemental services provided. Legal service providers must be able to deliver such services in an accessible way and under pressure to deal with issues almost immediately.

With the proposed introduction of ABS, not only will the legal profession lose its conveyancing monopoly but such organisations as Tesco will approach the delivery of legal services in a completely different way to traditional high street lawyers. The increased availability of access to such services through well-known brand names and perceived cheaper fees, will be very attractive to many clients.

Therefore a major risk to many firms of solicitors is the failure to recognise that the way in which legal services are delivered is undergoing a dramatic change and that high street firms of solicitors will loose many clients to their more progressive competitors. Firms may choose not to become a volume conveyancing firm but they will still have to focus very clearly on where their conveyancing clientele will come from in the future, especially if ABS take a significant share of the market place. Halifax and the Co-op already offer their members such services with Halifax charging £389 or conveyancing transactions between £250,000 and £500,000.00 (plus their £89 membership fees).

While the introduction of home information packs becomes more watered down or possibly a non-event, the impact of e-conveyancing remains far greater for the high street conveyancer. The Land Registry continues to introduce incremental changes to conveyancing procedures, with the fundamental nature of conveyancing changing from a paper-based process to an electronic process driven event. This is an enormous step change. The aims of electronic conveyancing are:

• To be paperless, with electronic/biometric signatures and all data being transferred electronically;
• To remove the 'registration gap' between completion and registration by creating a 'notional register' via the cumulative Chain Matrix entries made by the conveyancers to each transaction;
• To allow for chain transparency to provide parties with more information regarding their own and other related transactions through the Chain and Completion Matrices. Firms' individual case tracking services will become less relevant;
• To provide a permanent electronic connection between the Land Registry and conveyancers (CeS - Central e-conveyancing System), which will only be really effective through automated updates from case management systems to ensure that 'live time' data is provided; and
• To cater for automatic, simultaneous money transfers (electronic funds transfer) on completion through a centralised bank.

Administrative function

E-conveyancing is likely to become compulsory by 2010. Put quite simply, if solicitors do not have a computer with a case management system and broadband access to the internet and email they will not be able to undertake residential conveyancing work, whether it is in volume or high street levels.

Therefore in response to the changes outlined above, increasing numbers of high street firms have adopted some of the volume conveyancers work practices and team structures and have streamlined their procedures. They recognise that much of what they do is merely an administrative function and does not require legal input, except at certain points in the transaction.

Instead of small departments where all the work is carried out by expert senior lawyers, many firms now have larger conveyancing teams where more junior legal staff deal with the bulk of the work and the senior lawyers only handle part of the transaction or the more complex matters.The lawyers attend to the legal work, supervision and quality control and leave the processing to others. The ratio of qualified staff to support staff is considerably lower than in traditional firms.

Higher productivity

Profitability levels will be at risk because of the likelihood of paying referral fees and because of greater investment in technology. Therefore higher productivity levels will be essential and can be achieved by adopting team structures for proper gearing and task allocation between qualified and non-qualified staff. Introducing clear work practices, delegating non-legal procedures and processes to the support staff and using an effective case management system may enable a fee-earner to handle more than double their existing caseload, without jeopardising the quality of service provided to clients.

So much can be standardised and automated, and yet personalised at the same time, to ensure that the service provided is customer focused and still cost effective. Managing clients' expectations is an important part of client care and staff must be trained to cope with this aspect of their work. All this may however call for a radical change in the culture of the firm.

It is essential for firms to explore all options and take action now, not to wait and see. So much is changing and firms need to be alive to the new challenges to see how it may affect the success of their conveyancing business.

Even if the decision is made to withdraw from conveyancing this should be managed in a more effective way than just ignoring it until the fateful day. Investigate creating a 'partnership' with another firm so that conveyancing clients can be recommended to them with confidence, and even on a reciprocal basis for another work type.

However there are many opportunities for those firms who have the appetite and stamina to adapt and change. Now is the time for conveyancing to be undertaken differently and more efficiently.