Newsletter – January 2021

The Legal Services Act 2007 did many things. Among them it created the Legal Services Board (LSB) – the oversight regulator for England and Wales’ (E&W) approved regulators. The LSB did not take on its powers until the start of 2010, with the Solicitors Regulation Authority starting to license alternative business structures (ABS) in early 2012. The interim was focused on creating and protecting independent regulators (unfinished business you might cry) and shifting regulators away from prescriptive rule making to a modern regulatory approach based on achieving outcomes for consumers and the public interest.

Ten years on, what has been achieved? That was one theme at the LSB’s recent summit where I was honoured to join a panel of illustrious speakers. This blog is a summary of what I covered with some additions for completeness and a nod towards my American friends. Let’s also ask why it matters to Costs Lawyers.

When I am talking to US State Bars and Supreme Courts, I am often asked what has changed since 2007. I always start by reminding them that passing legislation achieves very little – real change only started in 2012 once the SRA could licence ABS and that is just one part of a package of reforms that have been delivered since then. There is no magic solution to the developed world’s access to justice problems and the US, with its unauthorised practice of law regime, makes even a pre-Legal Services Act E&W look like a liberal fantasy. But what has changed in E&W since the Legal Services Act was implemented?

The elite law firms and high street still look much the same from the outside. It is easy to think nothing has changed but the reality is that traditional models have, overall, not been able to grow over the last ten or fifteen years like they did for 30 years before the Legal Services Act and while new entrants remain small, they are taking up the growth opportunities.

Our horizons are usually fairly limited; our dreams of the future are limited by our experience of the present. Yet look carefully and all of market has been touched by reform – not just the emergence of ABS that make up something like 1 in 10 firms now, but multi-disciplinary practices (MDPs), lawyers in unregulated firms and a resurgence of innovation in traditional law firms. From Axiom, United Lex, Elevate, Factor, Obelisk, LOD through to the Big Four, Aria Grace Law, The Legal Director, high street MDPs, retail legal services such as Rocket Lawyer, Legal Zoom and The Formations Company, Farewill, Hybrid Legal, Peninsula, F-LEX and so on. You may have other examples, but this list covers everything from writing a will, through small business services and on to complex corporate transactional and disputes activity.

What this means is that customers of all sorts have more choice, though they are a long way from consistently exercising that yet. Importantly, lawyers also have more choice – where they work and how they practice for example. And the Solicitors Qualifying Examination will expand that choice to how solicitors train – with many of the new entrants developing exciting new routes that increase opportunities. Can other parts of the legal profession keep up? What, for example, will the CLSB do about future qualification as a Costs Lawyer?

Overall, I think that there is a gradual restructuring happening in the market. Consolidation in personal injury is one example, investment in corporate firms such as DWF another. There is much more to come. I have blogged previously on the impact of the pandemic, but it strikes me that a strong balance sheet is increasingly important to support investment and scale. Firms without that are vulnerable to downturns and less able to take opportunities in recovery.

Recent growth has come predominantly from innovators. These are often new entrants like those listed above but they are not exclusively non-lawyer models. Traditional firms or solicitor-led ABS are also growing their service offering and building for the future – see Pinsent Masons, Bryan Cave Leighton Paisner, Keystone Law and Taylor Rose for examples of innovation in response to the changing market. That is competition in practice. And even magic circle firms increasingly have operations centres in Belfast, Sheffield, Manchester or elsewhere to develop competitive responses in growth markets.

Traditional firms are still the very best at handling seriously complicated stuff, but they seem to me to try to pretend that simple stuff is complicated, whereas new entrants are busy trying to make complicated stuff simpler and more predictable. That is often about multi-disciplinary approaches and technology rather than better lawyers. And the mass of unmet legal need is low level stuff which the traditional market has not focused on. What are the opportunities for growth for Costs Lawyers – more complexity or new ways to simplify and solve clients’ problems?

So while it is clear that some things have changed there remains much to be done. Competition remains weak, as evidenced by a lack of digitisation compared to the rest of the economy. Too much production still looks the same as in the 1980s, or even the 1950s. In fact far too many firms look just like all the others – named after men and run by them. Diversity equals diversity of thought and that is the foundation of innovation.

Consumers obviously need support to choose and use legal services, but we need more sophistication in how we apply that in different sectors. Given how hard it seems to navigate the legal market we should take comfort from the fact that those with serious issues do find their way to the criminal experts, the public law, family and divorce lawyers and to those capable of handling serious disputes. The challenge is the mass of problems that fester in the lives of ordinary people and small businesses. Or the run of the mill legal services that corporate clients have increasingly taken in-house because of their dissatisfaction with traditional city firms.

So how do we face the challenges? First, let’s not be despondent. I hope that I have illustrated just how much change has happened. That is the foundation for the way forward.

E&W has led the world but the world is catching up; not least in the US where ABS are now happening in Arizona and Utah. California, Florida, DC and Illinois may well follow and perhaps so even New York. The US will shift quite quickly because they have scale and tech/digital infrastructure that is ready to dominate the world’s legal market. Many of the legal businesses I listed above are from the US. They have learned a lot in E&W and will take it back to the US as it liberalises. So, E&W needs to move bigger and faster with more reform. This is not a time for retrenchment or timidity. A single independent regulator – as per Professor Mayson’s Independent Review of Legal Services Regulation – is obvious, though perhaps with a carve out for the genuinely elite referral bar (ie not the mass of family and criminal advocacy that solicitors’ firms do just as effectively) given that some fights will get reform stuck in the mud.

We need greater transparency of price, quality and service indicators and customer feedback. Firms like those within the LawNet group use a net promoter score and many digital services use Trustpilot or similar. Some such as Fullers Family Law use Google reviews. While my preference is for a market solution perhaps there is now a case for making these things compulsory? Perhaps the LSB and Legal Services Consumer Panel should be taking this forward given the most recent report from the Competition and Markets Authority (CMA)?

What does it all mean for Costs Lawyers? In line with the title, it means everything and nothing. I am sure that most Costs Lawyers can continue to do what they do now without much change and get through to retirement. But for the profession overall, the changes are more fundamental. Changes to legal regulation have happened alongside a whole host of other changes and the pandemic might just be turbo charging some of them. Here are a few to consider:

• The growth of fixed fees across commercial disputes
• Increasing use of arbitration clauses to avoid litigation and courts
• Alternative legal services providers taking a greater role in supporting and even undertaking litigation brings a stronger focus on costs management
• Growth of litigation funders that look at cases as assets to be managed
• Development of analytics tools to drive litigation decisions
• No fault divorce reducing family law disputes
• Online courts that open up bulk cases to even more standardisation
• Expansion of fixed costs and fast track in civil courts

Readers may identify different or more changes. They may place more or less focus on each of them. They may debate the importance of each change and the impact on Costs Lawyers in the short term. But I doubt many will think that their role in the legal market will be unchanged in 20 years’ time. The interesting question is how we all respond: hunker down and look forward to retirement or see the opportunities to do things differently and grow the business.

The industrial revolution took over 60 years so revolution in the legal market was never going to be overnight. Real change is happening and there is more to come – but there is no room for complacency. The CMA needs to hold regulators’ feet to the fire to do more faster. Government needs to support that. And the profession needs to embrace it so it can grow its way out of the pandemic. That applies to Costs Lawyers as much as any others.

Crispin Passmore, Passmore Consulting