Riding the wave

When legal disciplinary practices (LDPs) came into effect on 31 March, managing partner of Birmingham-based firm Blakemores, Guy Barnett, wasted little time in seizing the opportunity to bring non-lawyer partners into the structure.

He promoted operational manager of the conveyancing department, Justine Matthews, to the partnership, along with the firm's finance manager, practice manager and HR & compliance manager (see solicitorsjournal.com, 29 May 2009). Their skill sets, he says, are 'different, but nonetheless vital to running a consumerist firm'.

Converting to an LDP had the further advantage of bringing extra funds into the firm '“ the staff he promoted paid to come into the partnership. 'Becoming an LDP was a useful tool for me, as it enabled me to inject new capital into the firm as we were going into recession,' he says. 'So from a practical point of view it has enabled me to engage in business development projects that I would be unable to do otherwise.'

A shrewd move, then. But what vision does he have of the next step up from LDPs: alternative business structures (ABS)?

'Some are saying it's going to be radical, different, that we will have to change the way we think and act. Others are saying no, it's not going to happen; but this is real head-in-the-sand mentality.'

He thinks that with the rise of ABS, the legal profession will effectively be taken over. 'What you're going to have entering the market is a massive force. We've got this situation where new entrants can come into the market '“ like Asda, the AA, Virgin etc. '“ which are substantially funded, can inject enormous amounts of capital into the business, have long-term objectives and are looking for reinvestment. They have management teams properly educated in what consumerism means. How will legally managed businesses react to that competition?'

Barnett feels that many solicitors are simply not aware of the real change that ABS will bring. 'It is going to open up the market place to people with better skill sets for dealing with the service. Many solicitors just won't come to terms with that; they can't understand the difference between managing the restaurant and being the chef. And they won't be able to compete with the injection of new funding that will come from a variety of sources.'

Promoting someone else's brand

'ABS will compound the effect of removing conveyancing work from traditional high street firms,' says Andrew Lund, senior partner at Wolverhampton high street firm, Rees Page. This is why, he says, his firm has in a sense created its own form of ABS '“ by opening its own estate agency.

'It really boils down to who has the first point of contact with prospective clients,' says Lund. 'Those firms which are prepared to pay referral fees are losing some of their margin and effectively promoting someone else's brand.'

With the estate agency incorporated into the business under the same brand, his firm doesn't have to pay referral fees, and, when the clients come in the door, it can sell other services to them too. 'It's a way of establishing long-term relationships with a whole new client base,' says Lund. 'And in marketing terms, we're putting our brand in people's front gardens, so to speak. Two hundred 'For sale' boards with your name on reminds people you are there.

'Solicitors have fallen into the trap of living off the introducers' brands,' he continues. 'Take Halifax for example; that is a panelled-out product. You've got someone who farms that work and distributes it among the firms, but all it is doing really is raising the profile of Halifax.'

Dumbing down

At Forsters, which does leasehold conveyancing work mainly in central London, head of the three-partner residential property team Paul Neville is concerned about the 'dumbing down of the whole conveyancing system', a problem he thinks will be exacerbated by allowing non-qualified people to own and manage conveyancing businesses.

'I think you need qualified people involved in the majority of the process or you might be opening yourself up to claims. Our clients usually want an experienced solicitor at the other end of the phone, rather than an unqualified paralegal.' It is no coincidence, he says, that the majority of insurance claims are in residential property.

Neville worries that with ABS, people are liable not to take conveyancing seriously enough. 'In conveyancing it is very easy to get things wrong '“ it's not just about box ticking. There is a huge amount of law and practice involved, for example. I fail to see how you can convey a lease without knowing how enfranchisement works.'

He is also concerned that, while ABS may be all very well when there are high volumes of work in the market, 'when that slows down '“ as it has in the current recession '“ it will not be sustainable.

'We have already seen that factory conveyancing has not worked '“ just look at Hammonds Direct. When there's a downturn they can't cope with it.'

Muscling in

Sarah Ambrose, partner and head of residential property at Barlow Robbins, feels that the over-commoditisation of conveyancing is over-simplifying the process, and that where there is a lack of availability of a qualified conveyancer this is potentially harmful both for clients and practitioners.

'Although conveyancing is a highly transactional activity that is considered to be very much a commodity, you have to be mindful that people think it's easy and that it can be done by anyone,' she says. 'It is very easy to make it sound simplistic, but it often involves highly complex legal matters. Often an individual with experience and legal knowledge is required to find a solution.'

But this is not likely to stop the bulk conveyancers from muscling in and trying to steal the market share. So, says Ambrose, 'it is important for us to add value and cross-sell if LLPs are going to compete successfully. For example, on top of the conveyancing transaction we should also be offering additional legal services that others can't provide. It's about using our broader knowledge to greater advantage.'

While conveyancing is good for cash recovery, on profit margins it can be very tight, 'so firms must be more commercial than ever before and keep a close eye on their cost base', says Ambrose. 'Stack-it-high and sell-it-cheap can be a good model but this approach is not always successful. The owners of LLP organisations need to think about more than just doing the work.'

Bulk this, bulk that

Paul Bibby, managing partner and head of property at MSB Solicitors, thinks the main threat posed by ABS to traditional conveyancing work comes from very large companies, because they are the best cross-sellers in all of this. 'They have the capacity to directly market to all of their client database and bombard them with advertising offering their services. Solicitors cannot hope to compete with this.'

On the upside, he thinks that 'history in the longer term has shown that remote conveyancing has not led to increased service provision and increased customer satisfaction; it has led to the opposite.

'People are fed up with call centres, and bulk conveyancing is a flawed business model, particularly if that business is not adaptable enough to take into account economic trends,' he says, referring to the demise of several bulk conveyancers over the last 12 months.

'People are growing sick and tired of bulk this, bulk that. So what is perceived to be a threat can be turned into an opportunity '“ to market your personal service.'

The big shake up

David Bridge, managing director of Dorchester-based conveyancers BPL Solicitors Limited, which became a limited company on 3 January 2005, thinks that before the recession kicked in everyone had a fairly clear idea as to how conveyancing would be done in future, but he thinks that people are perhaps not so sure any more. 'I don't think the shake up has stopped in terms of how things are going to look in the future with ABS.'

What he does think however is that with fewer restrictions on who can own a law firm, 'ABS will allow firms to be more commercial and give them a chance to compete with the likes of 'Tesco Law'.

'There will be firms that will make sure they are lined up for the Legal Services Act. But those that haven't yet positioned themselves are going to have to start thinking about it in the next 12 months if they are going to ride the wave.

'If ABS coincides with the take up in the property market again, it will give firms a unique way of expansion and of getting good staff.'

Well positioned

There has certainly been a lot written in the legal press about how firms need to be thinking about gearing up for the Legal Services Act now. But Andrew Lund thinks that, with ABS, 'the horse bolted months, if not years ago.

'With personal injury, for example, if you look at the font and layout of a Direct Line letterhead, and compare it with, for example, Cogent Law [part of the multi-disciplinary organisation Parabis Group], you'll find remarkable similarities, from which you can draw your own conclusions. Direct Line is of course part of RBS. I've said to Cogents that I am looking forward to ABS going above board '“ and they must be too, as then they will be able to write to clients on RBS letterheads!'

Essentially he feels that 'the big players in the market already positioned themselves to take advantage of ABS some time ago, so in that sense it's a done deal'. But, he says, this hasn't happened at high street level. He thinks that here, while we may start seeing more combined estate agencies and law firms like his own, 'what you will actually get is more loose associations and networks forming'.

Only the brave

Whatever firms are doing to gear up '“ or not '“ for ABS, Guy Barnett thinks the change is going to have 'a radical effect' on the market place in provision of legal services to consumers and that 'only the firms that embrace these changes and adopt new management, business development and consumer services are going to survive'.

Despite feelings among many that mergers and consolidation are the way forward, he does not think this is the answer. 'A lot of firms are really suffering with this recession and are panicking as to how to cope, so you get lots of crazy mergers going on. But getting bigger isn't the key to survival. It's like drowning swimmers clinging to one another.'

Yes, he says, the changes brought about by the Legal Services Act are going to be difficult, 'but there will also be opportunities, and if you're brave and approach it with the right mind set, there is substantial money to be made'.