Whither the solicitors' profession?

The entry into historically reserved legal activities by new and innovative players such as chartered accountants has given the legal market much to be concerned about, and the risk adverse nature of legal practitioners  does not put them in good stead to rise to the challenge, warns Ian Muirhead

Sir Nigel Knowles of DLA Piper wrote in June 2014: "Last year was supposed to be one of major upheaval for the legal services industry. This did not happen in any meaningful way, but do not be fooled - it has merely been given a stay of execution."

Another six months has now elapsed, so this may be an appropriate juncture at which to look back at 2014 and see to what extent the picture has changed.

In 2013 the overriding pre-occupation of the SRA and the firms which it regulates was financial stability. The recovery of the property market and the general up-tick in activity removed this concern for many high street firms. However the impact of LASPO and Jackson, and the ban on personal injury referral fees has been felt by many, and some will have experienced a sense of relief and possibly schadenfreude at the problems experienced by the Co-op Group. Co-op had been seen as a major potential competitor, though an even greater threat has now emerged in the shape of the Institute of Chartered Accountants England and Wales (ICAEW).

Accountants have played down the need for concern on the part of solicitors and suggested that there is no reason why the two professions should not continue to work together as in the past. But remarks made by the ICAEW and Sir Michael Synder, the senior partner of Kingston Smith, the first ICAEW-licensed ABS, make clear that accountants regard probate as a logical extension of their own existing suite of trust, tax and estate planning services.

The ICAEW expects 250 of its member firms to apply to be licensed to conduct probate business in the short term, and 750 in the longer term. The expectation is that by 2020 the ICAEW will be able to license the whole suite of reserved legal activities.

By contrast, solicitors have tended to regard the Legal Services Act as presenting a threat rather than an opportunity and have reacted by merging, on the basis that strength in numbers will equip them to face down the competition. The SRA, however, has been at pains to point out that the days when the professions have operated from disconnected silos are ending, and that the future lies in the provision of holistic advice.

The Legal Ombudsman has drawn attention to overlaps between legal, financial, property and claims management activities. The SRA is consulting on enabling solicitors to provide accountancy services, and IT provider Redbrick Solutions has commended closer links between conveyancers and estate agents, quoting research which showed that 48 per cent of housebuyers follow their estate agents' recommendations as to where to obtain legal advice.

The big question, however, is whether solicitors are sufficiently well organised and sufficiently enterprising to look beyond the challenge, and look at the opportunity. The SRA has itself recognised solicitors' transactional bias in suggesting that other professionals may be more likely to take the initiative: "A non-lawyer owned consultancy that currently provides wealth and asset management and tax advice services to clients might use solicitors or other lawyers to manage legal transactions and disputes, conveyance property or apply for probate on their behalf if they became an ABS."

Business success depends on the quality of management and willingness to take risk, whereas most solicitors are reluctant business managers and by instinct risk averse.

In relation, both to management and risk, the SRA's influence has been less than helpful. Risk control is the principal element in its approach to compliance and it has done little to implement the requirement for management systems and controls contained in principle 8 and chapter 7 of its Code of Conduct.

In this respect the SRA has failed to follow the example of the Financial Services Authority, on whose principles-based regulation the SRA Code is based. For the FSA (now the FCA), regulatory supervision starts and usually finishes with ensuring that firms have installed organisational structures, lines of authority and responsibility, common disciplines and audit trails. For too many law firms, these concepts are still alien.

Sir Nigel Knowles' phoney war looks set to continue in 2015. Overturning ingrained attitudes is a slow process, and solicitors would do well to heed the words of the US commentator F W Dupee: "Progress always involves risk."

Ian Muirhead is a director at Solicitors for Independent Financial Advice (SIFA)

Copyright & permissions