The Tesco-ization of legal services was predicted two years ago when non-legal companies were given the opportunity to offer legal services to businesses and the public.
The changes have had an effect on the legal market in England and Wales. Ownership structures have changed in some sectors, that are probably not well understood by the general public. The unethical behaviour of some major companies in the financial sector has helped blur the public’s understanding of who is – and who is not – able to offer legal services. A number of companies have been playing fast and loose with legal names lately. First, Wonga was found to be inventing law firms to threaten reluctant payers. Then, we heard that Barclays, Lloyds, Halifax, RBS and HSBC had been producing letters that looked like they came from outside legal practices when they did not.
And increasingly brand names that have no historical link to the legal profession are offering legal services. You may already be dealing with a law firm operating under an ‘Alternative Business Structure’. The involvement of non-law firms has resulted in significant changes in some areas, with big brands using their reach and reputation to win new business.
Big brands in the legal game
The Automobile Association (AA) is the latest UK big brand to offer legal services. It has established an Alternative Business Structure licensed by the Solicitors Regulatory Authority in order to operate as a law firm.
A considerable proportion of new applicants for Alternative Business Structure licences had an involvement with the insurance sector. According to a report published by the SRA in May 2014, there are more than 300 ABS licensed companies and they account for around one third of the motor and the personal injury sectors’ legal work done in England and Wales.
Insurance companies say they applied for ABS licences because bringing legal work in-house would reduce costs and improve the service they could give to customers.
It is, of course, also an opportunity to up-sell to existing customers or to win new ones. The Direct Line insurance group focused initially on personal injury and insurance issues. In January 2014, it announced its intention to go beyond personal injury work into areas such as debt recovery, employment and contract work. British Telecom has also established an ABS in order to provide legal services to corporate customers.
For the AA its new ABS, AA Ventures, is an opportunity to expand into areas such as home conveyancing. The company already offers emergency home cover, home insurance and a wills service. “This is a logical development of the AA’s expanding range of home and legal services and a perfect fit with the AA’s ‘most trusted brand’ status”, according to its managing director, Mark Huggins.
Other ABS players include Saga, renowned for their conveyancing service alongside other support services and insurance schemes for the over 50s. With Saga’s service you are given a fixed price up front with no hidden fees or hourly charges. Both the AA and Saga also offer Mover Protection that could potentially reimburse costs should the deal fall through.
Many small ABS law firms
But it would be misleading to suggest that only major corporates are taking advantage of Alternative Business Structures. A very wide range of companies have taken up the opportunity. They include tiny rural legal practices. The attraction for a local solicitors’ office is that the ABS structure allows it to accept investment from non-legal sources and to place non-lawyers in business leadership positions. The ABS model is regulated by the Solicitors Regulation Authority, not the Law Society of England and Wales. Membership of the Law Society requires special indemnity insurance and a practising certificate, that add to overheads. Those can be avoided if the company goes down the ABS route.
Local authorities are setting up ABS firms that allow them to avoid complications associated with who they can legally represent – and to earn the local authorities some outside revenue.
However, outside of personal injury, ABS companies have not grabbed a major market share. In commercial property and planning, for instance, the market share of law firms with ABS structures is below 5%. In employment law it is around the 5% mark. In debt collection it is approximately 3%. ABS firms have a similarly tiny presence in the tax planning sector. (Perhaps consumer rights is an exception, where ABS firms account for about 20% of the market, and Social Welfare where it is approaching 15%.)
It seems that your local solicitor still sees advantages in remaining your local solicitor. Tesco-ization has not been delivered, yet.