How firms can take advantage of the rise of alternative finance
Peer-to-peer lending has provided opportunities for lawyers to increase their value by assisting clients with financial matters, explains Louis Mathers
The legal profession was once steeped in the tradition of being at the centre of commerce. Critical to that union of the interests of the client and the interests of the mercantile world was the ability for lawyers to know how '“ where and when relevant '“ to source and provide financial assistance through their network. This ranged from referring clients to accommodating banks and merchant banks to marrying other commercial interests together.
The legal profession was at the centre of that relationship. The last few decades has seen this stripped away as the banks resume their relentless centralisation programme and their desire to 'own the client'. Often banks make it impossible for the client to use their traditional solicitor and work is duplicated in other parts of the profession at the cost of the borrower. It is the classic case where the muscle of large banks have allowed them free rein to prevent clients from using the legal profession in the way they used to.
Parnalls has a 300-year-long history of enabling the business owners to arrange private mortgages. Often this was merely documenting a relationship that already existed or by opening doors for clients. The key element was always that the lawyer was relevant and that if you rip out financial matters from a client's affairs, you are left with a less relevant relationship with that client.
Peer-to-peer lending (P2P) has provided opportunities for lawyers to reclaim some of that ground. While modest at the moment, P2P is here to stay and here to grow. £8bn in loans made since 2005 reinforces that view.
Mark Parnall and I created our own P2P business, Folk2Folk, and harnessed the latent demand we had in our community. This has now been launched throughout the UK and you may have seen local or regional announcements.
Broadly, if a solicitor is to fit into this growing sector, there must be familiarity and associations with P2P providers. This comes from investing time in those relationships, which will show reward for the lawyer in creating value and relevance for their client. With Folk2Folk this often starts with the firm becoming a legal panel member. Folk2Folk relies on lawyers to carry out the security work in their area.
Many clients have difficulties accessing finance and lawyers stepping up to assist them is a worthwhile piece of husbandry and client investment. If you do that to present it to a bank, which then effectively removes the legal work from you with centralised panels, this not only stretches your patience but also that of the client, who will be sorely tested in the process of accessing the finance. The end result will be that you will have gained little new relevance with your clients.
The P2P industry works closely and quickly with professionals. Speed and simplicity for clients is more often than not their key demand when accessing finance. Of course, it is not always the cheapest, and for that reason the banks continue to hold the high ground in respect of being able to provide 'cheap' rates. However, often those rates are not so cheap as regards cash flow when you take into account some pretty stringent capital repayment schemes which may make it unaffordable for the client.
A lawyer should understand this and work closely with the client's accountant to build business communities and financial resourcing to ensure both the high-street lawyer and the City lawyer remain at the centre of the client's activities.
Brexit has arguably provided a boost to small businesses '“ whether this is perceived or real we do not yet know, but if there is to be a period when things are up in the air, it is for lawyers to step up and help make client aspirations a reality.