What is the actual impact of ABS on traditional models of legal services, negatives and positives and the possible future of ABS practices?
In January 2012, Alternative Business Structure ( ‘ABS’) licensing came into play as the Legal Services Act 2007 (‘Act’) paved way for novel and economical alternatives to traditional legal service models in the United Kingdom.1 The passage of ABS was aimed at ensuring that legal services were available for consumers at an affordable rate and this implied removal of unduly restrictive rules that have negative implications for consumers2. In addition, ABS’s were considered as an option of promoting competition in the legal industry that will stand to benefit the legal services consumer. ABS has already been in existence in Australia since 2001 and both the Hong Kong Law Society and American Bar Association are considering adoption of a similar system.
The Act has sanctioned significant changes in the legal services arena by introduction of ABS. An ABS offering legal services can be owned by non-lawyers and the opportunity to receive external investment has also been provided. As a result of this, even supermarkets or investment banks can venture into offering legal services. There are licensing obligations imposed on ABS’s which aim to regulate the provision of legal services and new entrants taking the ABS route. Owing to the numerous benefits associated with ABS for the consumer and the legal services provider, the logical question to be answered is whether the introduction of ABS has led to the demise of traditional law firm practice.
In the following essay, we will strive to understand the actual impact of ABS on traditional models of legal services, negatives associated with ABS which help in retaining traditional models, and discuss the possible future of ABS practices.
Has ABS affected Traditional Legal Practice Models?
Multi-Disciplinary Practices type ABS
One of the significant advantages for introducing ABS was the possibility of enabling multi- disciplinary type practices (MDP) to offer legal services. From the perspective of the consumer, these types of practices have the advantage of offering a wide array of services, including legal assistance as a one-stop shop. As legal services were only offered by law firms, the introduction of ABS in MDPs would imply that new entrants and established entities may also eye at entering the legal services industry, thus affecting the traditional law practice models. In addition, law firms will also try to provide other services beyond their legal domain to existing clients and will eye at the bigger picture.
In spite of having these advantages, the emergence of MDPs taking the ABS route and offering legal services has been limited. The SRA’s authority and regulation over MDPs taking the ABS route has been seen as a disincentive and cited as the reason for the slow emergence of ABS practices.3 The regulation of SRA in this juncture is essential to ensure that access to legal advice and access to justice go hand in hand. Merely, commoditizing the legal services practices will not aid the layman in obtaining justice, and regulating ABS entrants is important in this regard.
Recently, the SRA has approved ICAEW as the regulator to license accountants to offer probate services. While it may be argued that this will result in reduction of probate work reaching traditional legal practices but only time will ascertain the reality.4
Conflict of Interest Concerns
As per the rules prescribed by the SRA, every Solicitor is under an obligation to keep information that has been shared by a client confidential.5 Traditional legal practice models had the advantage of ensuring that confidential information disclosed by a client was kept secure. In the case of ABS there is opportunity for conflict of interest issues to arise as the disclosures of information to the legal wing of a MDP should not even be involuntarily shared to non-legal parts of the practice.6 For instance, a solicitor is under a professional duty not to disclose and an auditor is under a professional obligation to disclose and this can raise conflict of interest issues in an ABS which is an MDP offering both these services.7 In order to deal with the conflict of interest issues in ABS’s, there have been numerous recommendations including ring fencing the legal practice in an ABS and appointment of Head of Legal Practice8 and Head of Finance and Administration9 imposed with the duty of ensuring conflict of interest issues are properly addressed. However, the practical difficulties in running an ABS and addressing conflict of interest issues are yet to be dealt in entirety.
Quality of legal advice in ABS
While there are numerous advantages associated with ABS, the quality of legal advice to be provided has always been a concern. It can be argued that bringing in external investors via ABS will result in a profit-driven practice wherein client satisfaction can take a backseat. Unlike traditional law firms which bank solely on their reputation and focus on providing quality legal advice, in the case of MDPs which are ABS’s and offer numerous services, the legal practice may not obtain undivided attention, and in addition the ABS can ride on the reputation of its established company/brand name (for example: Tesco) and quality of legal services will be a concern.
International legal practice and ABS restrictions
ABS does seem like the way to move forward for law practices in the United Kingdom owing to its inherent benefits. However, there may be restrictions outside the United Kingdom, which law practices having an international presence have to consider. International law firms that have a presence in both United Kingdom and the United States of America cannot take the ABS structure as the American Bar Association (ABA) has clear norms which prevent UK law firm counterparts from choosing an ABS structure.10 Upon failure to abide by this, the international law firm can come under the risk of being barred. As a result of this, many international law firms, especially those having a significant presence in the USA are apprehensive and prefer to follow their traditional models of legal services.11
ABS can grow existing legal Practice
Traditional law firms which take the ABS route can attract external investment and go beyond the restraint of receiving contributions only by way of partnership. Once traditional law practices are entitled to go public, they can expand as witnessed in Australia’s Slater & Gordon which became the first publicly traded law firm in the world in 2007.12 This inflow of capital has aided in acquiring a U.K. firm and has increased S&G to reach a global strength of 1600 lawyers.
ABS cannot impact entire legal practice arena
It is logical that external investors eyeing to enter the legal services arena via the ABS route will only focus on legal sectors wherein large business and profits can be generated. Owing to the complex nature of legal services arena and its intricacy it can be stated that only certain sections of legal practice can be undertaken by MDPs. For instance, the personal injury and consumer claims legal practice arena has seen the intervention of ABS. Preservation and survival of traditional legal services models is possible as a result of this.
ABS supported by Solicitors
ABS has been regarded as a negative from the perspective of functioning law firms as competition will increase. However, for solicitors ABS will imply numerous benefits which include broader options in career progress and provide alternate routes of climbing up the ladder in a legal practice.
Initially, there was a general belief that ABS would redefine traditional models of legal services. There were widespread concerns that various law practices will get affected and traditional models of legal services will have to be altered to be in line with ABS practices. However, this has not occurred yet and we can derive an example from Australia wherein ABS did not lead to the demise of traditional law firms. Another reason attributable to the slow growth of ABS was the lack of a regulator for almost 4 years after the passage of the Act. 13This has resulted in ABS’s and traditional legal service practices to function together in a coherent way. The large hype that was created around ‘Tesco Law’14 sometime in the past has not brought about drastic changes in the legal services sector.
Lord Hunt has mentioned that: “Successful ABS will not be those firms that look and behave least like traditional law firms; they will be those that demonstrate the most admirable qualities of current practices”. This implies that the aim for introduction of ABS is not the demise of traditional models of legal services, but their alteration to better benefit the public at large.15 Traditional legal services models have been successful and can be regarded as time tested. Given this, the demise of traditional legal services models cannot happen in its entirety. In the implementation of ABS in the legal services arena, the core values of the legal profession are to be kept in mind.
1 Stephen Mayson, ‘Alternative Business Structures: One Year On’, L.C.B. 2012, 22 (Nov), 3-5
2 Kerry Underwood, The Guardian, ‘Alternative business structures mean consumers will lose out’, http://www.theguardian.com/law/2011/jan/26/alternative-business-structures- consumers-lose
3 Stuart Bushell, Practice Notes- ABS Regulation, ‘Multi-disciplinary practices: friend or foe?’
5 SRA- Code of Conduct- Rule 4: Confidentiality and Disclosure
6 Zahida Mansoor, Legal Services Ombudsman, Joint Committee on Legal Services Bill: First Report’
7 The Law Society, ‘Alternative Business Structures: Practice Notes’ http://www.lawsociety.org.uk/advice/practice-notes/alternative-business-structures/
8 Section 91 of LSA, 2007.
10 Rule 5.4 of the American Bar Association’s Model Rules of Professional Conduct
11 Global LPO Conference, ‘U.K. Legal Services Act Opens Doors for Supermarkets, Banks, Other Non-Law Corporations to Own, Manage Law Firms’, http://www.globallpoconference.com/uk/component/lyftenbloggie/2011/02/26/23-uk-legal- services-act-opens-doors-for-supermarkets-banks-other-non-law-corporations-to-own-manage- law-firms-.html
12 Mike Feehan, Chief Operating Officer, Slater & Gordon, Australia, ‘Roundtable: Alternative Business Structures’, M.P. 2010, 12(10), 12-13
13 Kerry Underwood, ‘Dead on Arrival: Nobody is Interested in Alternative Business Structure’, S.J. 2011, 155 (43), 11
14 BBC, ‘Tesco Law allows legal services in supermarkets’ http://www.bbc.com/news/uk- 17538006
15 Robert Hesslet, The Guardian, ‘What alternative business structures mean for the legal profession’, http://www.theguardian.com/law/2010/jun/09/alternative-business-structures