1 Oct 2012 01:59pm

To the power of one

The Legal Services Act has opened the door to the creation of alternative business structures, and it’s not just for the lawyers. Sandra Haurant looks at what it will mean for accountants

The Legal Services Act 2007 was billed as a seismic shift for the legal profession. The term “Tesco Law” was quickly coined, referring to the fact that the law effectively makes it possible to offer legal services in supermarkets, banks and other High-Street outlets and for the practices that are created to attract external capital. Many solicitors see the introduction of alternative business structures (ABS), which is supported by the Law Society, as an opportunity to be grasped.

But some in the legal domain are concerned that large companies could come in and scoop up smaller law firms to offer a one-stop-shop legal service, making small practices a thing of the past.

Of course the Act does not just affect lawyers. It was designed to shake up the legal services industry, to introduce greater competition and to provide a better deal for consumers. But there are two key sides to it, both with the potential to have a large impact on accountancy and other professional services.

The one that got most of the attention is the infamous Tesco Law element. This lets non-lawyers apply to own, invest in or become partners in law firms, and provide certain legal services. Its introduction will allow accountants to offer certain services that previously only lawyers could.

This change clearly has the potential to reshape the way professional services are offered, and the way in which accountants are employed within legal firms. For the first time accountants employed in law firms could become partners and have a stake in the company.
But the other, less high-profile side of the Act is perhaps even more significant for accountants and the way accountancy practices are run in the future. The Legal Services Act opens the door to ABS.

So for the first time it will be possible for multidisciplinary practices (MDP) to open and to offer a combination of services side by side. Accountants, estate agents, financial advisers, insurance brokers and lawyers could in theory all come together to provide a one-stop-shop for professional services.

“No one is under any illusion – this is potentially a major shake-up,” says Mark Stobbs, director of legal policy at the Law Society. And yet, in spite of the potential impact on accountancy, the Legal Services Act 2007 has been broadly overlooked and indeed ignored by many outside of the legal profession, according to Imelda Moffat, solicitor and manager at ICAEW.

“The problem is with its title,” observes Moffat. “Because it is called ‘the Legal Services Act’, a lot of the emphasis has been on lawyers. Nobody, within the legal profession or outside it, really thought about the other side of the story. If it had been called ‘the Professional Services Act’ I think its impact on other professions would have been far clearer. Because it’s not just about lawyers. I think the bigger story in the future is going to be multidisciplinary practices.”

ABS is still in its infancy and the first ABS firms were a mixed bunch, with the emphasis on legal services. There are currently only two licensing bodies dealing with ABS applications – the Council for Licensed Conveyancers (CLC) and the Solicitors Regulation Authority (SRA). The first ABS was licensed by the CLC in October 2011. The SRA began accepting applications in January 2012, and the first ABS were approved in March 2012.

The early adopters

Tesco is conspicuous by its absence from the current register of ABS firms, but in its place as a wide-reaching, well-known brand with fingers in many and varied pies is Co-operative Legal Services Ltd. Part of the Co-operative Group, Co-operative Legal Services was set up in 2006 offering legal advice and services limited to personal injury claims, will writing, probate and estate administration and employment law. Now that it has an ABS licence, granted in March, it plans to offer a full range of legal services, beginning with fixed-fee family law services later this year.

While Co-operative Legal Services is big – it hopes to create some 3,000 new jobs – another trailblazing ABS currently boasts a staff of two. Lawbridge, a Sidcup law firm run by husband and wife Michael and Alison Pope, applied to become an ABS as soon as applications were opened in January, and was licensed the day after the Co-op. Michael is a solicitor and Alison’s background is in accounting and tax. But currently there are no plans to include accountancy in their portfolio of services.

“Being an ABS makes us equal partners, and means that if we take on staff, I will have some status,” explains Alison. “But we will stay on the legal side. We won’t be going into accountancy.”

Flexible friends

Another ABS licensee, Oxford-based real estate solicitors Plainlaw, applied to become an ABS because of the potential flexibility it would bring the firm in the future.

“We were early adopters of Limited Liability Partnership status, and were also recently one of the first firms to achieve the Law Society’s Conveyancing Quality Scheme accreditation,” says Philip Horn, senior partner at Plainlaw. “We see our ABS licence as a similar opportunity, as it gives us additional flexibility in terms of structuring our business going forward. Our interest in the concept of ABS is driven more by the potential it offers us for the future than by our current circumstances, where we are not intending any immediate change.”

Currently, then, the intentions of the first ABS firms do not suggest a surge towards MDP or a desire to bring accountancy into the same room as legal services on a large scale, rather a wish to benefit from the greater flexibility the structure offers. But, warns Moffat, the possibility is there and it is one that should be taken seriously.

“Accountants and other non-lawyers are slightly behind solicitors on this,” she says. “But you have to be aware that perhaps the entrepreneurial solicitor down the High Street from you is planning on employing an accountant and offering accountancy services. And I think once a sizeable legal firm builds up its accountancy side, things could be very different. Accountants need to be aware of that.”

Positive change

The potential for change should not necessarily be seen as a threat, but as an opportunity. Which is part of the reason ICAEW is applying to the Legal Services Board (LSB) to become a licensing body for ABS, as well as a regulator of the reserved legal service of probate, says Claire Phillips, regulatory policy manager, professional standards, at ICAEW.

“It is about trying to anticipate and get into position,” she says. “With ABS, it is anybody’s guess how things will unfold but there is speculation that this could be a very big change. For smaller practitioners there may be benefits to be had in going into partnership with others. For example, a classic model might be teaming up a solicitor, an independent financial adviser and a chartered accountant.

“ABS opens many doors. Previously, a lawyer could be employed by a firm of accountants but could not be called a solicitor or work in a client-facing role. ABS changes all that, and could include estate agents, financial advisers and a whole range of other professional services.”

ICAEW consulted on its application between June and September. “It was a full public consultation and we were really keen to engage with members and stakeholders,” says Phillips. The consultation will be followed by a formal application to the LSB. However, she says, the LSB has warned that the application process could take up to 12 months. In the meantime members who are interested can contact ICAEW to discuss the opportunities of becoming an ABS.

The potential for change in the industry thanks to the introduction of ABS, and consequently the likely growth of MDP, may be significant. But for entrepreneurial accountants there are fresh opportunities that have never before been available.

The trick will be to find a way to benefit from them before competitors do the same, warns Moffat: “The Legal Services Act was the earthquake, but the real seismic shift will be in the aftershocks. It remains to be seen what will happen, but I think that in five years’ time the landscape for professional services will be very different indeed.”


Sandra Haurant