Tag Archives: ABSs

The mirage of ownership

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This year has started with a flurry of activity and announcements that give the lie to any notion that ABSs will be a damp squib and of no consequence, or that external capital will not be interested in law firms. So far, so good. What I want to explore here is whether external capital should be interested (at least without deep and meaningful enquiry into its target).

In founder-led firms, ownership has real meaning and value. The founders are responsible for developing clients, running the business, and making sure work is performed at a profit. These businesses usually respect the role that everyone plays, and they present an exciting, challenging, and motivating environment. The connection between effort, investment and return is often close and evident.

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One more time: we are NOT deregulating

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Time and again I hear (or read) that the Legal Services Act is deregulating the legal services market.  It is not.  Everything that is currently regulated remains so.

It is true that people who are not authorised persons (shorthand = legally qualified) are able to offer legal services that are not reserved activities.  This was true before the Act, which makes no difference to this situation.  So no deregulation there.

It is true that the Act now gives the power for the reserved activities to be changed.  It would therefore be possible for something that is currently regulated through reservation to authorised persons to become deregulated if the activity ceases to be reserved.  But I have heard not a whisper that this is likely to happen.  So no deregulation there, either.

Now, an activity that is presently not reserved could become so (the Legal Services Board is just starting to look at will writing and estate administration).  But that would bring what is presently unregulated – if not done by authorised persons – within the regulatory framework.  So still no deregulation.

Existing regulators – or even new ones looking for approval – can apply to regulate more reserved activities, but that will bring their members within (or more firmly within) regulation.  Still no deregulation.

And finally, people who are not authorised persons can apply to become members of legal disciplinary practices (until the ABS licensing framework comes into play), or members of ABSs, or to be approved as Heads of Finance & Administration (or the SRA-equivalent of Compliance Officers for Finance & Administration), and ABSs as entities will need licences.  In other words, more people who are not currently regulated will have to become regulated in order to operate.  No deregulation.

For the life of me, I can’t find any deregulation.  Perhaps what the ‘deregulators’ are really griping about is the increase in regulated competition.  But that’s a gripe about competition, not deregulation.

I’m left with the feeling that the complaint is really about new regulated competitors who will do things differently.  For the detractors, the issue seems to be the supposed hordes of ‘pile-it-high, sell-it-cheap’ merchants who are going to swamp the market and who will ‘inevitably’ ignore professional standards and produce low-quality services.  To them, ‘different’ couldn’t possibly mean better, more client-friendly, or cost-effective (yes, alright, cheaper).  This difference could be described as ‘liberalisation’, but it’s not deregulation.

The fact is, it’s time to face up to three uncomfortable truths.  First, there is a risk that the future will see more unregulated providers offering non-reserved legal services.  However, that could always have happened, and is not a result of provisions of the Act or a form of deregulation.

Second, there is indeed a risk that the new regulated competitors might rip off their clients, provide poor service or behave unethically.  However, they will be regulated, so the response does not lie in barring their entry or shouting ‘foul’ about their scale or methods, but in the regulators doing their job and taking robust action against the transgressors.

Third, and perhaps most difficult, is accepting that the present regulated community has authorised persons who are not doing a good job.  Sadly, some of them are incompetent, unethical, engaging in criminal activity, misleading clients, overcharging, providing poor service, or running their businesses in ways which would, frankly, be laughable if they weren’t so serious in their consequences.

I know it’s not the majority of practitioners who behave in these reprehensible ways; but for professionals to adopt a ‘holier than thou’ stance, and assert that all new entrants are ‘bound’ to cut corners, behave unethically and sell cheap, low-quality services, hardly does them any favours.  It can only be interpreted as self-serving objection dressed up as concern for clients.  Unfortunately, those same professionals have for years defiantly ignored a mountain of evidence – and still mounting evidence – that they are not delivering what the market or clients really want.  This focus on concern for clients I’m afraid has a hollow ring to it.

Until the professions accept that they are not universally made up of competent, ethical, high-quality, individuals and firms who are of undoubted integrity AND that the new regulated competitors are not inevitably all unruly shysters and charlatans, they are not likely to gain much of a serious hearing about the effects of liberalisation.  After all, the Parliamentary intent is to liberalise.

So, please, no more talk of deregulation.  And because none of us knows how many unethical and poor quality providers there are in the currently regulated community, let’s stop taking cheap shots at new regulated entrants who are collectively likely to have no different a profile to the professions’.  It’s time to get on with the new world rather than seek to deny, defer or avoid it.

If there comes a time when there’s incontrovertible evidence that regulated practitioners and firms have failed in their obligations (rather than just assertions and assumptions that they surely will), and when there’s incontrovertible evidence that the regulators have failed in their duties of identifying and dealing with transgressors (rather than just assertions and assumptions that they surely will), then that will be the time to create a fuss – and, believe me, someone will.

Until then, let’s get on with it, instead of wasting time and energy misdescribing the inevitable.

Postscript: There is also an excellent post by Richard Moorhead on this topic: The Deregulation Debate – My Twopennyworth.

Anti-lock braking system on the ABS juggernaut?

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The Law Society council has at last decided to approve the SRA applying to become a licensing authority for ABSs (see http://www.legalfutures.co.uk/latest-news/law-society-council-gives-green-light-to-sra-regulating-abss).  But we might still see moves to derail the application – the Sole Practitioners Group or others could yet press for a special general meeting (see http://www.legalfutures.co.uk/latest-news/anti-abs-group-could-decide-as-soon-as-tomorrow-on-calling-law-society-sgm).  So let me get a few things off my chest…

I am broadly supportive of ABSs, though not uncritically so.  We have had more than six years since Sir David Clementi first proposed them.  They are not a new idea; and it’s not as if no-one has spent any time thinking about both the principles and the detail since then.  It’s therefore disturbing to hear a suggestion that a special general meeting vote would ensure that “those members of the profession who up to now have little knowledge of ABS will be made aware of its implications”.

Where have these members been for the past six years?  Do they not read the national and legal press?  What message does such a claim send to the public and clients about the regulatory and commercial awareness of their advisers if supposedly well-informed and up-to-date professionals have missed (or not yet started thinking seriously about) something so fundamental to their businesses?

Such gaps in knowledge or appreciation do not, of course, make the policy behind the introduction of ABSs inherently right.  There are certainly risks with ABSs: the Legal Services Act and the licensing rules recognise and address them.  ABSs will not be an unalloyed blessing for consumers, either.  But that does not make them inherently wrong.  The Legal Services Act was not party political legislation, so trying to persuade the new Government or MPs to stop the introduction of ABSs might not garner much political support.  It’s also difficult to see votes or further savings to the public purse from such a move.  Personally, I don’t think we’ll hear the screech of tyres as the juggernaut is brought to a halt.

Generally, protestations by lawyers trying to stop developments that would encourage or force them to act differently are met with (at best) wry smiles.  Too few people outside the rarefied atmosphere of legal practice believe that only lawyers can be trusted with legal issues.  Lawyers might be right in suggesting that their input would be better for the client.  But that argument is far from being taken for granted by anyone else.

It also flies somewhat in the face of other evidence that lawyers are not as good or as accessible as they think they are – such as the volume of unresolved legal needs of clients who are not aware they have a legal problem, or who are but choose not to take it to a lawyer; the number of complaints against a supposedly high-quality and ethical profession; and the views of professional indemnity insurers.  Each of these suggests that competition has a role to play in improving the accessibility, efficiency and value (and even, dare I say it, the quality) of legal services for the ordinary consumer.

It is not the job of regulation or regulators to protect providers from competition.  It is their job to provide an effective regulatory framework that supports fair competition.  Parliament has decided that ABSs are to be part of this regulatory and competitive landscape.

So it’s unlikely that the juggernaut can be stopped.  Could it be slowed down?  I’m all for having a better system than a rushed one.  But, to repeat, the ABS framework has been worked on for six years.  Spending more time and more resource will not make it perfect – that’s an ideal that will never be attained, as we know from every other regulatory system.  Nor will any framework, however robust, prevent unethical, inefficient or anti-competitive behaviour.  Not all solicitors are ethical and high quality; not all owners or managers of ABSs will be unethical and poor quality.  So, yes, it could be slowed down; but it shouldn’t be.

Subject the necessary Parliamentary timetable to complete the process for licensing ABSs, it’s now difficult to see great benefit in seeking to delay their introduction.  Indeed, many would-be entrants (and even, to be fair, a good number of lawyers who relish the opportunity to be in business in a different way) could argue that they have already waited long enough.  Everyone has had enough time to prepare.  Some have taken advantage of the six-years’ notice; others have not.  If that time was wasted, it’s hardly appealing to ask politicians to intervene or regulators to think again.

With the Law Society’s decision to allow the SRA to seek licensing approval for ABSs, the momentum is likely to gather pace.  Now is not the time for the drivers to hit the brakes … or the detractors to lie in the road.