Is it really consumers who are benefitting from the simplification of legal services?

3 February 2014

beansIn 2012 it was announced that non-traditional legal firms could apply for a licence to offer legal services through what is called and Alternative Business Structure. Although still requiring approval from the Solicitor’s Regulation Authority (SRA), the new licences permit companies that are not law firms to offer legal services, and allow third-party investment as part of the Legal Services Act- which now makes England and Wales one of the most liberal legal markets in the world.

Of course, the whole idea of the ABS scheme was to 'demystify' the purchase of legal services, making the process as simple as possible for the consumer. But as with any change in regulation, there are businesses who seek to take advantage of the changes for themselves.

On Friday, both Direct Line and PwC announced separately that they had been granted licences to practise law as an ABS. You might wonder why an insurance company and an accountancy firm would want to be lawyers as well.

For Direct Line, it is likely that they are looking to replace the lost income following the ban on referral fees that came into effect in April last year. Before the ban, insurance companies received substantial backhanders from ambulance chasers desperate for the personal injury claims of car accident victims. The hope was that premiums would come down after the ban, as fewer PI claims might be made if people aren’t constantly harassed into making one. But the lack of extra fees might be hurting insurers financially- and what better way to further line shareholders’ pockets than to offer the personal injury claims service yourself. You might not get a referral fee, but you can certainly get a slice of the litigious action.

And what about accountants? Most accountants wouldn’t want to touch legal services with a bargepole, but there is one area where accountants and lawyers find common ground- high-level tax planning. While this type of work is essentially all about the (tax) law, top end accounting and legal firms have often jostled in the same space. However, legal firms have had an unfair advantage- while there may be no substantial difference in the advice given, lawyers benefit from something called ‘legal privilege’ and accountants most certainly do not, following test cases on the subject. Legal privilege means that advisers can refuse to disclose details of a client’s affairs, including tax planning documentation, even when required to do so under HMRC powers.

If, however, a large accountancy firm were to set up an ABS, said large accountancy firm could then pass all its dodgy high-end tax planning through that vehicle and get the benefit of privilege. Clever huh?

It is likely that many more insurers will follow suit, as well as a number of larger and more tax focused advisers. The Institute of Chartered Accountants in England and Wales said in August that 20 to 25 of its member firms had expressed an interest in applying for an ABS licence.

SRA’s executive director of policy Crispin Passmore said “throughout 2014, we expect to see further change as more businesses take advantage of the liberalisation to innovate and grow the legal market, be it through increased exports of corporate legal services, improving access and affordability for small business, or helping individual consumers solve the problems of day-to-day life.”

So are you pleased that the purchase of legal services is now, apparently, as easy as buying a tin of baked beans*, or is it just a load of odd-smelling gas?

*this description of buying legal services was what led to the new structure being nicknamed Tesco Law. Tesco have no plans to offer legal services, however, so it's bit of a crap nickname.

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