ABS one year on: rushing headlong, slowly

Here we are, then, one year into alternative business structures (ABSs). For those who were expecting a revolution, the start to ABSs has been, well, muted. But was revolution ever a reasonable expectation? The statutory timetable envisages a licensing process that could take up to nine months. The SRA has also ensured that the timetable doesn’t start to run with the submission of a stage 1 application, so its nine-month timeline hasn’t been reached yet. The question is: does 36 ABS licences (ignoring the multiple licences issued to Irwin Mitchell) in the first year represent a good outcome, slow take-up by the market, or slow processing by the regulators? Has the whole thing – as many opponents of ABS would like us to believe – been a damp squib, an unnecessary and expensive addition to the regulatory terrain?

My assessment is that the outcome has been good, despite slow regulatory processing. The opponents of ABS were either clever (knowing that there could not be an initial rush) or lucky (that the regulators have been so thorough). Being able to point to ‘only 36’ ABSs in the first year, they can claim that there really was no substantial interest in or need for these structures. After all, that’s 36 in the context of around 11,000 other firms regulated by the SRA and CLC – ‘hardly earth-shattering, surely?’. But in my view there was never any possibility of an avalanche of licensing approvals (though there are another 200 applications in the pipeline, which hardly demonstrates a total lack of interest). If anything, it says more about the regulators’ speed of processing, and there is no doubt in my mind that the SRA is in some instances being a little over-zealous and anti-risk in its ‘risk-based’ assessments.

However, the real issue is not how many licences are issued, but what sort of licences and to whom. On that score, a number of the early licences have been significant: Premier Property Lawyers (with private equity backing, and which operates under 20 trading names); Co-operative Legal Services (looking to create a further 3,000 jobs); Slater & Gordon’s acquisition of Russell Jones & Walker (showing the interest of internationally and publicly quoted businesses, and incorporating Claims Direct and Your Legal Rights); Parabis (already with Duke Street’s substantial private equity backing, and operating as Plexus Law, Cogent Law and Acumen); Irwin Mitchell (with an intention to seek external investment); Crabtree (creating the first licensed MDP) … to name but a few. Many of these licences have been earlier and bolder than many of us would have anticipated at the beginning of 2012.

Nor is it just a question of ABS licences issued. ABSs are important, but only one part of the Clementi-inspired legal services reforms. Equally important, therefore, are other developments that make a real difference in the market without using the ABS framework. QualitySolicitors (as a claims management company with private equity investment from Palamon Capital) in their links with WH Smith and LegalZoom is significant; so, too, is Riverview Law for its targeting of large, medium and small commercial clients (confounding expectations that this was all about consumers and ‘High Street’ law firms). Not to mention Stobart Barristers, and Rocket Lawyer.

And then there are the licensing applications we already know about (and many more that we don’t). These include James Caan’s private equity company, Hamilton Bradshaw, and its investment in law firm Knights*; AIM-listed Quindell Portfolio’s acquisition of law firm Silverbeck Rymer (alongside its other acquisitions of Ai Claim Solutions, Intelligent Claims Management, and Mobile Doctors); Kent County Council and Geldards; AIM-listed Abbey Protection; BT Claims Ltd; and the AA and Saga.

To pretend that these developments don’t matter, or won’t make any difference to the buying of legal services, is plain nonsense. I well remember the initial reactions to legal process outsourcing: ‘irrelevant’, ‘won’t catch on’, ‘clients don’t want it’, ‘won’t affect us’, and the like. Not only did it catch on, but general counsel often go direct to LPOs without passing through a law firm; and global LPO turnover now exceeds $1 billion, which is rather a lot of money for law firms to lose in turnover. If law firms were really delivering what clients wanted and valued, that opportunity and volume of leakage to LPOs would not have been possible. I wouldn’t bet on the same not being true for ABSs over a similar period. Another billion gone?

It is worth noting that many of the early ABSs are focused on the personal injury market (as well as some of those already mentioned, licences have also been approved for Accident Advice Solicitors, Amelans, Bott & Co, NewLaw, and Strata Solicitors). Others have gone for conveyancing, wills and probate (including, of course, all seven of the CLC-issued licences). Combine all of the ABS initiatives we are aware of with changes to legal aid and civil litigation, and the traditional income of law firms is undoubtedly under threat. How much more needs to be snatched from under lawyers’ noses before they recognise the blindingly obvious? Now that the horse has bolted and the stable door is firmly closed, it seems pointless to argue that this should never have been allowed to happen – and worse still to believe that, even though it has happened, it won’t make any difference.

This is not the time to resist, deny or challenge; it is time to reinvent the delivery of legal services. Not just changing a few of the moving parts, but fundamentally re-thinking what lawyers and law firms do, why they do it, where it comes from, who they do it with, where and how they do it, and how they charge for it, as well as the ownership and financing structures. There is a vast market still out there – and one which I remain convinced will continue to grow. But it is not one which is just going to walk through the doors of law firms because they have always been there or because of some vague notion that they are somehow ‘better’.

The squib is not damp; far from it. In fact, if anything, it is bone-dry and primed to cause widespread damage to the traditional legal landscape. It doesn’t matter whether anyone thinks this is a good, or bad, thing. It is going to happen. Moving a few deckchairs around might make some lawyers feel that they have ‘done something’. But it will not make a noticeable difference to the direction of this particular ship.

4 thoughts on “ABS one year on: rushing headlong, slowly

  1. Stephen is right, it is not just about ABSs. Hardly a day goes by without an announcement of merger talks (or sadly even a small firm closure), the latest possible merger being Freeth Cartwright and Henmans. There can be little doubt that change is happening and gathering pace.

  2. Well put Stephen. Personally I find one ABS registered every 10 days in the first year with 200 waiting in the wings akin to an avalanche. Given the inbuilt conservatism of the legal profession and the reluctance of ‘Brits’ to be early adopters I take the view a great number of lawyers are seeking an alternative. This should be embraced. As with all change it will be a while before some preferred ‘models’ emerge which, when it occurs, is likely to provide stimulus to the even larger number who must be wondering what next in the evolutionary process..

  3. Pingback: Hunger Games | The Red Files

  4. Pingback: An interesting view on the way the ABS Market is moving. | Cardinal Partnership

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