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Doubts over external investor interest in alternative business structures

20 September 2010

Alternative business structures are intended to open up the market, fill a gap in client needs, and offer legal services in a different way – but doubts were cast last week about whether they were an attractive investment vehicle for non-lawyers.

Professor Stephen Mayson, the government adviser on public legal education, said he would not invest his pension in an ABS but wished good luck to anybody who did.

Meanwhile, the head of Royal Bank of Scotland’s Mentor Services, John Muncey, said his organisation was “unlikely to be trailblazing in legal services” when the market opens to non-lawyers on 6 October 2011. Instead, he said, the banking group would stick to its existing offering which only covers employment law and health and safety advice.

Separately, Legal Services Board chief executive Chris Kenny said his organisation did not anticipate much interest for ABSs among the top 50 law firms.

And Tim Oliver, managing partner at defendant insurance firm Plexus Law, also said large commercial firms were unlikely to join the ABS crowd because their financing model was fundamentally different.

All four were among the headline speakers at the ‘Future shape of the legal services market’ seminar organised by Epoq, the outsourced solution company.

Their comments were echoed by other observers who said legal services were more likely to be offered as an extension to core services, such as insurance or banking. The panel’s message was nevertheless that lawyers should not underestimate the power of the Legal Services Act to revolutionise the delivery of legal services and upset the existing order.

Epoq’s founder, solicitor Richard Cohen, rang the alarm bell, saying that, short of the emerging QualitySolicitor network, there was no recognisable legal brand that could resist the arrival of Tesco or the Co-op.

But so far, he said, lawyers have not been innovative enough: they have not invested in front-office technology, nor are they usually open at times suitable for clients, such as early morning and late afternoon, with some still closing for lunch. “That’s just not sustainable,” he said.

Paradoxically Cohen said law firms tended to have good brand recognition locally and small and medium-size firms have showed that they can adapt quickly, which suggests that getting a foot into the legal market “would not be plain sailing for new entrants”.

“Although this time,” he said, referring to the Legal Services Act, “it’s going to be different.”

Cohen pointed to LegalZoom, the US legal brand for consumers, which he said was started with assistance from venture capitalist Polaris which injected $25m into the business.

“They’re now turning over $100m a year, but because they charge on average a third of the fees charged by lawyers, you could say this is a market equivalent to $300m,” he said.

The English legal services market, according to Cohen, could move in a similar direction, although initially legal services may be as an add-on to core services.

“The Co-op’s legal services are turning over about £30m, offering wills and probate feeding off their funerals service,” he said.

Managing partner Tim Oliver also warned lawyers about the new market order.

“ABSs will affect you,” he said, with areas such as personal injury, wills and probate, employment law and conveyancing first in line as new delivery models including online, virtual firms and commoditisation would change the shape of the market.

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