Wednesday, July 29, 2015
That's the headline from today's Law Society Gazette, the publication of record for solicitors in England and Wales. The UK is fairly far along in liberalization of its legal markets, progressing from the Clementi Report in 2004 to the Legal Services Act 2007 to the licensing of Alternative Business Structures in 2012. Now several hundred entities have obtained ABS status.
The Gazette article reports that accountants are poised to be large players in the ABA space:
Accountants will soon be competing directly with solicitor firms ‘on every high street in the country’, according to a leading financial advisor to the legal sector.
Ian Muirhead, chairman of Solicitors Independent Financial Advice, said he expects 750 accountancy firms – three times more than first envisaged – to move into probate work after securing an alternative business structure licence.
The Institute of Chartered Accountants in England & Wales has accredited 113 entities as an ABS since last October, having been accepted as an approved regulator almost a year ago. A further 34 applications are being processed.
Speaking at a Westminster Legal Policy, Muirhead said too many solicitor firms are ‘in denial’ about the threat from the accountancy profession.
‘Success will go to those who can manage businesses and I query whether that’s going to be the solicitors or whether solicitors are going to be the back room boys,’ he said.
Muirhead argued that law firms’ response so far has been focused on consolidation, mergers and acquisitions – but this risks playing into rivals’ hands.
‘[The response is] safety in numbers, more of the same, not thinking outside the legal silo, and therefore missing the opportunity of which many new ABSs are availing themselves, of providing a more diversified and holistic client service,’ he added. ...
Some U.S. lawyers believe that liberalization won't come to the U.S. because the legal industry is too balkanized by state bar authorities.
I think this view, however, is likely naive. The market can change because regulators change the rules (the UK). Alternatively, the market can change because clients change their buying habits in favor of nontraditional legal service providers that are financed by sophisticated nonlawyer investors (the US). See, e.g., Is Axiom the Bellwether for Disruption in the Legal Industry, LWB, Nov. 10, 2013.
In the US, it is probably true that regulators lack the stomach to initiate a regulatory action where the client ostensibly being protected is a Fortune 500 corporation. If the action ends up in federal court, the bar officials risk looking like protectors of the guild and have a decent chance of losing. The prohibition against nonlawyer investment (MR 5.4) is based on the assumption that the nonlawyer profit motive will compromise lawyer independence, thus harming the unwitting and unsophisticated legal consumer. But that does not describe IBM's or JP Morgan's relationships with sophisticated LPO or analytics shop (or any general counsel charged with stretching his or her legal dollar). As a result, the venture capital money flows in.
When liberalization is viewed in this light, there are probably more similarities between the US and UK than we might want to acknowledge.