Regional focus: Wales

OVER THE PAST three years Wales has, on paper, experienced the same growth in the legal services market as the rest of England and Wales. With 512 law firms it still has one of the smallest numbers in the country (the second lowest number after the North East) but this figure is roughly in line with the increase in the overall number of firms (see Wales by numbers table on page 10).

Most of this rise however is accounted for by the two-to-four partner segment (267 firms in 2007, up 39 from 2006). Combine these figures with those about the number of practising solicitors (from 3,442 in 2006 to 3,485 in 2007) and the emerging picture is one of a fragmenting supply base with very little consolidation taking place.

Hutchinson Thomas, a three-site, nine-partner firm based in Neath, was set up in 1999 as a result of the merger between Thomas & Sons and Hutchinson Morris & Harrett. The firm has doubled in size since the amalgamation and with 20 lawyers and 40 support staff it is one of only 54 firms in the five-to-10 partner bracket.

The firm is still physically on the high street but now sees itself as a regional rather than purely local practice. It recently relocated to a new site closer to the town centre which provides easier access to the M4 and the main line to London, to widen its catchment potential.

In search of cost-effectiveness

For all this however, conveyancing still represents a significant strand of the firm's business and managing partner Robert Williams says that they have made significant investments in technology to make the process more efficient and cost-effective, including case management systems and voice recognition software. Most of the personal injury work has likewise been streamlined using case flow and case management systems.

'We have invested heavily in training and in technology,' he says. 'All members of staff attend courses, more than the Law Society's recommended minimum requirements.'

But technology should be regarded as a tool and does not drive the process, according to Williams who is confident that quality of service and technical ability rather than price alone are critical in managing a conveyancing business.

Equally Williams says the advent of supermarket law should not be underestimated. 'We can't ignore the threat of what is described as Tesco's law but because we have a very loyal and stable client base we hope that by delivering a quality service clients will think of us first and not just look to price as a determining factor,' says Williams.

Should the firm not keep its pricing policy under review anyway? 'Very much so,' Williams continues. 'We are conscious that we must review our costs to drive them down to maintain the profits and become more competitive, but that would apply to all departments, whether private client, commercial or publicly funded.'

Investing in people is another powerful option to continue to deliver services at an affordable cost, in particular 'skilling up' administrative staff with an interest in getting involved in the law.

'We hold regular appraisals and it became apparent that some staff were interested in getting a legal qualification,' says Williams 'and one or two have gone from secretaries to becoming ILEX members or solicitors.' According to Williams while most of the firm's support staff had ambitions many were not able to undertake the additional training for either personal or financial reasons. After these initial ad hoc successes the firm has been promoting the idea that it would pay for the qualification process and the take-up has been positive among younger employees.

'This is part of our way forward,' continues Williams. 'There are numerous tasks that I or the other partners should not be doing but we do need people with suitable qualifications to do them.'

Already Williams says the firm has seen the benefits and this approach will equip them to compete and fend off the threat from Tesco.

Generalists and specialists

Half an hour's drive up the A48 to Carmarthen, Morris Roberts' managing partner John Lewis has very much the same view.

With 14 lawyers including five partners the firm, a merger in 1999 between Morris Lloyd and JC William Roberts, is also turning itself into a larger regional player. It has gradually moved away from the generalist model and departmentalised wherever possible, with specialisms in property, family, personal injury and crime.

According to Lewis however the attitude in many firms is still very traditional, particularly as one moves further west away from Swansea, and his is only one of the handful to have actively sought to grow, both in search of economies of scale and in an effort to prepare for the opening up of the market for legal services. 'There is a general feeling here that change will come but less quickly,' says Lewis 'but we need to make sure that we can adapt.'

Lewis also points out that competition is not a new concept for law firms. 'There has always been competition between firms, which the general public or the government have not appreciated. It is not a cosy cartel as some commentators suggested,' he says.

But Lewis adds that his firm has been very cautious not to enter into an undercutting race with some of its more radical competitors and operate services as loss leaders. 'We develop the practice on the basis of quality of service and would not provide a service at a loss, but new providers will present us with a new challenge,' says Lewis.

For this reason, Morris Roberts has not been on a conveyancing panel, 'because we don't want to pay referral fees' but Lewis says that the days where lawyers would ignore calls from estate agents are gone. While his firm has no formal agreement nor pays any fee for referral work, it has developed a working relationship with estate agents and with other firms that are too small to undertake volume work or take on CFA work.

It has also joined the Welsh Injury Network, a loose structure set up by a group of nine firms doing personal injury work which runs a central calling base distributing the work on a geographical basis.

Technological advances

The growth in this type of work has been possible in part because of advances in technology. 'With ease of communications people now are happy instructing solicitors 30 miles away,' says Lewis. 'Some clients, in particular commercial clients, prefer to come to larger firms even if they are not in the same town, and we are now able to offer services to companies based further out.'

Similarly, the firm is about to revamp its website in an acknowledgment that younger, internet-savvy clients who have grown up with the web turn to online as the first place of contact.

Lewis however warns that technology can only be a means to an end and must be used judiciously. 'We are looking at rolling out case management systems, which involves an immediate cash investment, but that is not sufficient on its own; you also need to invest in staff training to make sure that the system is used to its full potential. Too often, too much stuff stays in the box.'

Alternative revenue

At the other end of Wales, Robert Salisbury, managing partner of Rhyl-based Gamlins, is equally concerned about commoditisation but believes it will not take lawyers out of the process. A more threatening problem according to Salisbury is the slow down in the property market. And with Wales being off the main track, there is little alternative work for conveyancers to turn to. 'Wales is on the fringes,' says Salisbury, 'there are none of the massive ups and downs of the cities but there is no doubt that conveyancing is drying up, with fewer builders starting new projects and instructing solicitors.'

As the largest firm in North Wales Gamlins is probably better off than smaller practices and if work diminishes in one area lawyers can be reallocated to other departments '“ probate being one of the more obvious ones.

Other protective measures usually include cutting down costs, through office consolidation in particular, although these are merely a patch on the financial wound inflicted by falling volumes of business. Salisbury continues: 'People say you could change horses but the trouble is there is no other horse to ride.'

And where growth prospects are reduced, the saying that 'people always need a solicitor' may lose all meaning as clients stay put or turn to cheaper providers.

Like Williams and Lewis, Salisbury anticipates that law supermarkets are likely to have an impact initially but he is more concerned about the mechanism they are likely to employ to roll out their strategy to conquer market shares. The likes of Tesco or the Halifax, he says, will take over local law firms which they will use as suppliers for the provision of legal services. 'They will take people's names and get kickbacks from us for servicing their clients while they do nothing. That's referral fees by another name. It will work for some firms but there is little in it for most of us.'

Salisbury remains optimistic despite the oncoming troubles and the firm is continuing to expand. His firm has recently recruited two new fee earners and acquired four smaller practices, bringing the firm's total number of offices in North Wales to eight.

'You can't sit still', he says, but acknowledges that firms should be prudent when choosing to acquire smaller or merge with other firms '“ a real risk when one considers that nearly 90 per cent of firms in Wales have four partners or less.

'We're all cherry-picking,' he adds while dismissing suggestions about the danger of paying too much for short-lived goodwill, before adding that the latest acquisitions give his firm an instant foothold in places where they would have to build presence from scratch otherwise.

Whether the trend towards fragmentation continues can only be a matter of time as small firms are becoming increasingly vulnerable to takeovers either by other firms or volume providers. Short of providing niche services, lawyers in Wales may have to accept that joining forces is a better option than terminally struggling to remain doggedly independent generalists. In a unstable economic climate, they may have no choice, and for some it may already be too late.