The survival of more law firms is under threat, it has been revealed. Nearly 200 have this month been unable to get Professional Indemnity insurance, following the collapse of a previous provider.
The number includes the latest casualty, Hacking Ashton LLP, a major law firm with branches across Staffordshire.
It went into liquidation after declining fee income meant it had insufficient cash to pay its PI. Without PI cover, solicitors are unable to practise.
Duff & Phelps – a global financial advisory and restructuring firm, which is not a law business – says that this is the just the latest challenge for the UK legal sector, where there have been increasing numbers of firms entering administration, plus some high-profile restructuring and mergers.
It says the recent merger of top 100 firms Penningtons with Manches and the collapse this year of national law firm Cobbetts and of US firm Dewey Leboeuf, are illustrative of widespread financial pressures on law firms, both big and small.
Jeremy Bennett, partner at Duff & Phelps, said: “Many have had to find replacement Professional Indemnity insurance after the Latvian authorities recently withdrew the operating licences from insurer Balva, which has previously been a source of PI for many UK law firms.
“For many small and medium-sized law firms, there is now a real survival risk.”
Law firms typically plan for the annual October 1 deadline for their PI renewals, which are expensive. Many turn to their existing lenders to pay for this overhead. However, some have had to apply for expensive short-term funding. It is thought that over 170 law firms have not secured PI for the current year.
Bennett said: “It is not surprising that industry observers predict more failures in the sector, at least in the short term.
“The restructuring and turnaround of a law firm not only involves the practice, but also individual partners or members, who will have professional and partnership loans in use to fund their firms’ capital requirements.”
Recent legislative changes allowed the introduction of Alternative Business Structures (ABS), which allows non-lawyers to run legal practices.
According to the SRA, there are currently more than 180 registered ABS. Bennett said the impact of this change in the legal environment should not be under-estimated.
Bennett said: “Once investment into the legal sector reaches critical mass, it is likely we will see a polarisation, from which only two types of practices will survive in the long term: highly efficient practices selling commoditised law at a price set by the prevailing market conditions, and prestige practices selling bespoke legal advice for which they are able to dictate the price.
“Delivering more legal service at less cost is a key value proposition and one likely to become increasingly important to small and mid-sized legal practices.”
Of course, conveyancing is only part of what law firms do – but for estate agents, it is the key part. It was notable how a recent story on Estate Agent Today attracted a large number of reads.
https://www.estateagenttoday.co.uk/oldeat_news_features/Big-conveyancing-firm-is-shut-down-by-legal-regulator
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Comments
Too many intellectual wet farts running legal companies.
Academia & business do not mix.
Is it legal?
Yes it is!
It is perfectly legal under the Solicitors Act and the SRA Code of Conduct for solicitors to engage in the marketing of properties (both for sale and for rent). You do not need a separate entity. Somemay choose to have a separate entity as it avoids the Estate Agency arm having to comply with the more onerous Solcitiors Code of Conduct on matters such as conflicts of interest.
Thin end of the wedge me thinks, the SRA have said over 150 firms have not met the Oct 1 deadline. Big risk of system collapse, these are big firms.
Is does show in general how bad business people solicitors are, all law and no business acumen.
Agents don’t mock, if or when they go under, so do your referral fees, the sale will be a mess, the company that takes them over will have no obligation to pay you or even work hard to get the file sorted.
Mr Lund, how do you satisfy Law Society regs that you need to be separte from other parts of the business if agents can just walk accros the office and speak to a colleague?
When I worked as a conveyancer, my hours needed to be at least 6.00 am until 7.00 pm weekdays (add in another five to ten hours over a weekend) in order to carry out the complicated legal work out of office hours, see clients and make and take phone calls during office hours. Because of the level of service I offered I resisted paying referral fees. Some of those agents then sent their work elsewhere but many came back to me when they wanted conveyancing for themselves, friends and family, or a matter was urgent and/or complicated.
Times have moved on and I would consider paying a referral fee now but the fee would have to be fair and reasonable (otherwise I could end up cutting corners and working myself into the ground) and the working relationship with the agent has to be harmonious (most of mine were).
It is somewhat ironic that many agents and conveyancers fight like cat and dog, when we all want the same thing, transactions to complete, to earn a decent living and our clients to be happy.
"lundy"
Strange. I haven't heard that name since I was at infant's school. Do I know you?
We don't employ solicitors to deal with our property marketing. We employ seasoned estate agents.They find it quite easy to chivvy matters along since all they have to do is walk across the office to have a constructive word with the colleague who is doing the legal work. Happy to extend an invitation to you if you are interested in what we are doing.
Oh and thanks for the comment about the web site.....gives me a stick to hit someone else over the head with.
Finally, it takes longer to qualify as a solicitor than a barrister...doubtless that is because solicitors are a bit thick(er).
"website is in course of being re vamped so you have been looking at a temporary "
says it all,,, solictors cant compete with agents because you are slow, not customer focused and always have something else to do instead of pick up a phone and push a sale through...
Solictors who pay no referral fees deserve to go bust,,you are conveyancers not barristors..you should have passed more exams instead of acting superior...mm thats better
Big Ted
The price for building our own profile rather than supporting others (and paying them to do so).
Andrew, you seem to have gone to a lot of trouble and expense to cut out the middle men and referal fees to then give away "free" legals.
Forward Looking
We've had an estate agency for several years now. It is not viewed as a poor relative. I appreciate what you say about the web site but our Estate Agency site is in the course of being re vamped so you have been looking at a temporary fix.As for other solicitors I agree with what you say. The picture is ,of course, rather different North of the border.
Trevor
We don't do multi agency as our sales commission (which is competitive with stand alone Estate Agents) includes free legals. We have a high street presence. As with most independent agents our business is mostly from existing/previous Clients and recommendations from them, their friends and family.
Andrew,
I absolutely agree with you. You could, however, have achieved all of the points you make by accepting referral fees. You could still cross sell and get your companies name in front of clients with a good relationship with local agents.
If you want a larger business empire and have the skills to develop it, then your plan makes perfect sense and I hope it is working well for you. However, opening an estate agent to make your solicitor's business stronger suggests that the agency side is always going to be seen as a poor relative (As suggested by the website offering of your two businesses.) and may end up bringing the whole business down.
In my experience 'most' solicitors want to be a soilcitor and not have the hassle of an estate agency arm.
@ Andrew Lund
Hi Andrew - I can see the value to your company. What fees do you typically charge for sole/multi agency - do you have a Hg St window or is the agency side run just online via the 2 main portals.
Do you ever do joint agency marketing?
Forward looking - you need to look at the bigger picture. It's not just about Estate Agency fees. The Estate Agency is a revenue generating marketing department. It puts my Firm's name in people's front gardens, it introduces new clients to the firm and allows us to cross sell other legal services.
As for Estate Agencies doing conveyancing - frankly, it's not worth the hassle which I guess is why not many have looked at it.
The trouble with the property industry today is that too many companies rely too much on the web. The web is needed as a easy to find presence and about what services a company can provide.
But be it for a lead fee, or for no fee, but to recommend an agent or solicitor for their ability to GET THE JOB DONE often carries more value.
What amazes me isn't so much solicitors opening a agency arm, which Im sure in many cases will be superior to many budget agency models out there. But the fact that many agents could open more business by B2B working together.
To Mr Lund,
Congratulations on becoming part of the fraternity of estate agents! I appreciate your comment on not wanting to pay referral fees, A purely business decision which anyone is able to take.
However, how much did it cost financially to set up the office and then how much management time as well? Just to not pay a referral fee. In my opinion that seems like an awful lot of work, a bit like estate agents bringing in conveyancers so they do not have to work with solicitors, probably not the best way forward.
SRB - your comments are ill - judged and misinformed. We have seen the light. We have embraced the concept of a one stop shop providing property marketing and legal work under one roof thus cutting out middle men like panel managers and avoiding reliance upon referrers like you. Referral fees and low charges have rendered the conveyancing market dysfunctional. I'm not alone in that view - ask Harry Hill formerly of the defunct "In-Deed".
I was talking to a business development manager of sizeable firm of solicitors the other day. He said that the firm had upped its fees a in the last couple of years as fees were getting too low.
He was also called in as the partners were lawyers and didn't have fluid marketing to tie in with closure skills to engage new business.
Joe Public (if motivated to move) will pay more if solicitors and agents bespoke services to help Joe Public sell their property.
I'm still amazed at agents who have a handful of properties yet fund expensive running costs. Winters round the corner and as stock availability becomes less and no doubt portal rises kick in - in 2014. many agents too would be wise to look at how they develop their model to grow.
I have to say that from someone who refers thousands of conveyancing instructions to a solicitor panel, it amazes me how much you all whinge about effectively receiving FREE business. You pay absolutely nothing until you also get paid, and with no upfront cost to your firms. If the role was the reverse with listings into our firm, we would be delighted to have such an arrangement with no cost to us until completion, ie when we receive our fee.
Get out of the dark ages Mr Lund.
To continue a theme - the corporates aren't helping. Their conveyancing sausage machines where they require almost half the lawyers fee as a commission result in junior staff undertaking much of the legal legwork as otherwise its uneconomic. However in the recession affected market over the last few years, Law firms had little choice.
This situation wont get better.
I am sorry that small solicitor firms are having so much trouble staying afloat ... perhaps exacerbated by many mortgage lenders only wishing to work with 'panel' solicitors.
In our experience we usually get the best service from the smaller firms of solicitors. Sometimes the large firms lose track of cases or paperwork, and the 'conveyancing factories' usually perform far worse than the smaller firms ... support these good solicitors all you can I'd suggest.
I do get referal fees of £100 + VAT but one who does so says that it represents good value as we are providing them with in essence a good, qualified lead at no effort or expense from themselves. Another was furious that a buyer was blaming him for slow progress, in part as he did not want us to think he had been to blame as he said that the amount of conveyancing income provided to him by our little firm was very significant to him, and he would very much miss it were we to stop the referals to him.
Andrew is both right and wrong.
Right in respect that is doesn't matter how the firm is structured be it partnership, LLP or ABS - its how its basic fundamental principles are exercised in terms of service, pricing etc
Wrong in trying to mix this with referral fees - There are plenty of very profitable firms paying referral fees for conveyancing and not many law firms that are very good at estate agency.
My advice is stick to the knitting - let agents be agents and good lawyers be lawyers - if they pay a referral fee its should be part of a combined marketing strategy not because they cant find / think of any other way to win work.
Mr Bennetts view is too simplistic. Those firms that are failing are doing so because of excessive levels of debt, poor cash flows and weak balance sheets. In this respect size and legal structure are of no consequence. The notion that the advent of the ABS and non-lawyer management will knock all traditional firms into a cocked hat is a myth perpetuated by a certain clique of consultants and the legal press egged on by those who would like to see the break up of the profession. Ironically,
Hacking Ashton was an ABS. Another failed firm Challinors was managed by a small coterie of individuals including a non-lawyer Andy Hodges who went to jail for stealing money from both them and his previous firm. Having said that the Estate Agency sector should examine its own conscience particularly those who demand referral fees from conveyancers. Our answer as a firm of Solicitors who were not prepared to pay referral fees was to set up our own estate agency instead. Maybe that's where the true story lies?