Wednesday, 30 June 2010

"Conveyancing Factories": Can Solicitors Compete?

In short, the answer is, in my view, no, and law firms should not even try. Here's why.

With any type of service, quality and price are undoubtedly the main drivers influencing customers'/clients' choices. Most people believe the old adage that "you get what you pay for". Nevertheless, many buyers and sellers of property, not to mention those remortgaging their homes and/or transferring ownership, are perfectly happy to instruct the cheapest firm, wherever they may be located and regardless of the service offered. It is the end result that matters most, not how (and if!) they get there. Conveyancing is, despite the personal attachment, not to mention the financial importance of the transaction, viewed no differently to the weekly shop. Price is king.

At the other end of the spectrum, are those that desire a bespoke, personal, local service and are, if necessary, prepared to pay for the privilege. For them, the "experience" or "journey" is key.

Finally, there are those somewhere in the middle, who are simply after the best compromise that they can get. Their expectation is that both price and quality of service will be "average"; a sort of halfway house.

So, should Solicitors try to compete on price? I believe the answer, for the vast majority of High Street practices, is no, at least not entirely. Such firms are unlikely to ever reap the economies of scale enjoyed by the out of town, high volume/bulk conveyancers. For this reason, being the cheapest is simply unattainable. No matter what they do, their competitors, especially with the proposed introduction of alternative business structures (i.e. "Tesco law"), will undercut them, possibly even offering conveyancing as a loss leader to grow their brand. Even in the current market, a Google search for "cheap conveyancing solicitors" lists numerous firms offering fees "from £89" and this ignores the cost of advertising and marketing and referral fees. In any case, it is your bottom line and reputation that counts. More work does not necessarily mean higher profits at the best of times, and reducing fees is hardly going to help! The adverse consequences attaching to a loss of goodwill should not be underestimated either.

It does not follow, however, that you should not give Clients the service they actually want (not what you think they want) and adjust your pricing structure accordingly. I have commented elsewhere on how this might otherwise be achieved and will revisit this conundrum in future posts, but here are just a few ideas. You could, for example, offer different levels of service to different Client types. Another possibility, depending on the types and values of properties in your target area, could be to offer the same fixed fee, irrespective of whether it is a sale or a purchase, freehold or leasehold and with or without a mortgage etc. Simply calculate your average conveyancing fee, which case/practice management systems should readily support, and give the comfort of clear, straightforward and transparent pricing.

Tuesday, 22 June 2010

Energy Performance Certificates: An Opportunity For Solicitors

A recent posting on The Law Forum highlighted a new venture called Partner Property ("PP") being promoted by ipacks2go and eTech. In essence, the scheme aims to provide "'t]he ideal revenue stream replacement for HIPs". If the seller decides to use one of PP's "legal partners", the Energy Performance Certificate ("EPC") is free. The Domestic Energy Assessor then gets paid for the EPC and, on completion, receives a share of the conveyancing fees, which can be split with the Estate Agent.

As I commented at the time, this appears to be yet another attempt to "hijack" Solicitors' Clients. To try to combat such threats, why don't Solicitors offer similar incentives? They could, for example, arrange the EPC and then refund its cost (about £50) if they deal with the conveyancing. A group of local firms could join together for advertising and marketing purposes and still offer Clients freedom of choice between local, quality firms. Such a proposition could also alert unsuspecting potential Clients to the alternative being advanced by PP and others.

Tuesday, 15 June 2010

Is Your Law Firm's Website Compliant?

Viewing, as I do, many Solicitors websites, you would, perhaps, be surprised at how many are non compliant. Is your firm's site one of them? Here is a quick snapshot of what is required, pursuant to the Solicitors Code of Conduct 2007, Electronic Commerce (EC Directive) Regulations 2002 (with the exception of litigation and notarial work) and Provision of Services Regulations 2009:

  • Name
  • Geographic address
  • Email address
  • VAT number
  • If a company, the company's name, place of registration, registered number and registered office
  • That the service is provided by solicitors of England and Wales regulated by the Solicitors Regulation Authority
  • A link to the Solicitors Code of Conduct
  • SRA registration number

If either the contract is concluded, or the service is provided, online, the following additional obligations apply:

  • All technical steps required to conclude the contract
  • Whether the concluded contract will be filed by you and whether it will be accessible
  • The technical means for identifying and correcting input errors
  • Legal status and form
  • Any general terms and conditions
  • Any contractual terms concerning the competent Courts or the applicable law
  • The price (where it is pre-determined) and main features of the service, if not already apparent
  • Details of your compulsory Professional Indemnity Insurance
  • Details of your complaint resolution procedures

There are other information requirements contained in the The Consumer Protection (Distance Selling) Regulations 2000, which are outside the scope of this summary, as are the many other obligations relating to letterheads, emails and client care, for example.


Do Referral Fees Work for Solicitors?

According to a recent report commissioned by the Legal Services Board, referral fees do not harm consumers. Whilst one can question the efficacy of such findings (including the apparent bias of estate agent respondents and the small, and arguably non-representative, samples used), they have today been supported by a separate report. According to the Legal Services Consumer Panel, referral fees neither increase costs nor reduce the quality of advice. This is, perhaps, surprising given the Panel's concerns that price, not quality, dictates who gets the work, clients are subjected to high pressure sales techniques, non-disclosure is prevalent and panels are restricted, mainly consisting of larger firms. Consequently, the recommendations include greater transparency, written consent and enforcement action. Disclosure is already required pursuant to the Solicitors Code of Conduct, breaches of which can (and should) be enforced by the Solicitors Regulation Authority, so it is rather doubtful that the protection afforded to clients will be enhanced, unless, of course, the Panel feels that the Authority is either unable or unwilling to perform its duties. If it is the latter, is this an example of what Law Society President Robert Heslett warned on Tuesday is the looming threat to the profession's independence? Similarly, the Panel concede that written consent is impractical in personal injury cases where much of the initial work is transacted over the telephone. The same argument can surely be applied in many other fields, especially with improved IT and "legal tourists" removing the geographical constraints that have hitherto existed. It is certainly somewhat difficult to accept at face value Vanilla Research's claim that the suggestions are a "game changer".

Regardless of whether or not these two reports prove determinative in the Board's final analysis, I believe there is a broader, and possibly more pressing, issue: are referral fees actually good for the profession itself? Should solicitors not retreat and regroup now before they become over reliant on third parties for work? For what it is worth, my own view, as both a practising solicitor and law firm consultant, is that, irrespective of the ethical issues, paying referral fees to agencies can be self defeating. Here's why.

Yes, the volume of work may well increase, but what really matters is your bottom line and reputation/goodwill. Take A Firm & Co. They were a general High Street practice undertaking both contentious and non contentious work, largely for local clients, who had either used the firm before or had been recommended to do so. Advertising was fairly low key as a consequence. Most work was transacted face to face and "snail mail" was the norm. Work was handled by experienced solicitors with a good claims record. Support staff were experienced and had been with the firm for many years. Workload was, except for the usual peaks and troughs, more or less constant, as was turnover and profit. However, the partners began noticing that they were losing conveyancing work. They discovered that local estate agents, who they regularly dealt with and instructed to carry out probate valuations, were directing erstwhile clients to other firms, usually out of town, and receiving a referral fee in return. A similar thing was happening in respect of personal injury work. Claims management and insurance companies were capturing clients at an early stage and referring them to panel solicitors, again willing to pay for the privilege. Not wanting to get left behind, A Firm & Co. entered into an arrangement with both a local estate agent and a claims management company. They paid the Agent £200 per conveyancing file and £500 for each personal injury case (the reports highlighted that the fees can be as much as £400 and £800 respectively).

As a consequence, workload increased. New staff had to be taken on to cope and a new IT system (including a case management system) was installed, all at significant up front cost to the practice, placing considerable strain on the firm's cashflow. Indeed, borrowing was increased. Costs pressures dictated that the new employees were more junior/less experienced than those already at the firm, introducing a culture change and necessitating more training and supervision than before. Similarly, the solicitors increasingly delegated more work to the non qualified staff, personal contact was lost and other service standards slipped. Unfortunately, some mistakes were made, leading to a rise in the professional indemnity insurance premium, already swollen by the increased turnover and referral arrangements. Moreover, the arrangements had to be disclosed to clients, who questioned whether the firm was acting in their best interests. Dissatisfied clients made complaints, taking up yet more valuable time, and spread adverse publicity, damaging the reputation/goodwill that had taken years to build up. Eventually, the firm outgrew its town centre premises and relocated to an expensive open plan office complex on the outskirts of town, alienating former clients still further. Staff turnover was much higher. I could go on, but you get the picture.

Ah, I hear you say, but what about the increased fee income? This made it all worth it right? Well, yes, turnover was up, but the referral fees had to be deducted from this. Even discounting the additional overheads and other burdens, the firm was, in effect, standing still, doing twice as much work for the same fees (similar to some Legal Aid firms, but without the element of public service). Factor in the associated expenses and other negative effects and A Firm & Co. was, in fact, worse off. Nevertheless, they felt they had gone past the point of no return. They had invested so much in this new, "commoditised" business model, and were so reliant on the agents and claims companies, that they simply could not "pull the plug". They were stuck with the situation they themselves had created and could not help feeling that the tail was wagging the dog. You do not need me to tell you how much worse this situation will get if the agent and/or company squeeze the firm for even more money, the referrers go bust or close down, rules and regulations change or the markets slump. The same (or at least a very similar) scenario can be applied to third party referral networks, who take a share of any profit costs, as well as charging an annual membership fee.

So what is the alternative to the "if you can't beat them, join them" mentality? Well, I firmly believe that A Firm & Co. should have concentrated on building (not destroying) their own brand, rather than someone else's. They were reliant on the agent and claims company to attract the client and then automatically refer the client to the firm. A Firm & Co.'s own branding was, to a certain extent, irrelevant, as they were going to get the work anyway. Their referral fees were contributing to the third parties' own advertising and marketing budgets. A Firm & Co. both neglected its core clients and took no independent action to gain new ones.

I am in no way advocating that the firm should have continued with the same, staid "traditional" approach. As I have been at pains to stress elsewhere, law firms must adapt both their services and mode of delivery to compete with the new, more commercially minded entrants to the legal marketplace (so called "Tesco Law"). A Firm & Co. could, for example, have developed an interactive website to both serve existing clients and attract new business. IT could still have streamlined processes and helped improve communication, transparency and access to information. They could even have gone further and created a "virtual" office engaging self employed consultants and slashing operating costs in the process. Both old and new media could have been utilised to improve the firm's exposure. Standard tasks could still have been delegated to paralegals. The firm could have become more specialist, differentiating itself from rival firms and charging a premium based on its unique selling proposition. Perhaps a merger with a compatible firm to achieve economies of scale was the way forward.

Believe it or not, I also support referrals, but to and from fellow solicitors. A Firm & Co. could have referred work that it did not carry out to another firm, perhaps as part of a reciprocal arrangement or in return for a fee or share of any profit. It could also have sought work from another firm. Such arrangements, which do not necessarily have to be disclosed, re-seize the initiative, help solicitors retain control over their own destiny and keep referral fees within the profession. Over reliance should not be an issue either if the firm has also adopted some of the practices outlined in the preceding paragraph. The firm will always have its (enhanced) brand to fall back on.

Yes, similar growing pains and teething problems would have been encountered, but they could have been controlled, managed and smoothed over more easily. If necessary, more regard could have been had to the needs of those existing clients still craving a local, High Street Solicitor providing a bespoke, personal service, whilst at the same time reaching out to more IT savvy, less centric potential clients where speed, ease of use and price are king. Different levels and types of service could have been offered to accommodate both. Crucially, the firm's bottom line should have improved and its medium to long term future placed on a much firmer footing.

I do not want to scaremonger and I appreciate that all firms are different. A combination of solicitors referrals, other referrals and updated practices and procedures may well be the answer for some, but if, as seems to be the case, third party referral fees are here to stay, each individual practice must carefully consider all of the alternatives and decide what is best for them. Blindly following the crowd may not be all it is cracked up to be.


Much Ado About Nothing?

The coalition plans to introduce primary legislation requiring 55% of MPs to vote for a dissolution. This has caused much consternation and hoo-ha, leading to claims of an undemocratic/unconstitutional "fix", but is this really the case?

Firstly, let me say I do not claim to be a constitutional lawyer or expert. Neither am I approaching this issue from a political perspective; just as a "reasonable bystander"; "the man on the Clapham omnibus".

The actual text from the Agreement entered into between the Conservative and Liberal Democrat parties is:

"...This legislation will also provide for dissolution if 55% or more of the house votes in favour."

The Tories have 47% of the Common's votes. My understanding is that the proposal aims to protect both parties during the currency of a five year fixed term Parliament. It prevents the Lib-Dems holding the Conservatives to ransom as the smaller party could only muster a maximum of 53%. It also ensures that the Tories cannot "go it alone" as a minority Government and decide if and when to call an election. In Scotland, another coalition Government, a two thirds majority is required. However, it is claimed by some commentators that this changes our (unwritten) constitution in that a simple majority (i.e., more than 50%) is sufficient at present. For what it is worth, I find it hard to sympathise with such criticism for three reasons.

Firstly, there is the sovereignty of Parliament. As a general rule, any law can be introduced, provided due process is followed. Whilst the 55% rule is consistent with this notion, so too is a repealing Act supported by a simple Commons majority. Provided the Liberal Democrats can, along with Labour and the other parties, secure more than 50% support, what is to prevent the Houses passing an Act repealing the 55% rule?

Secondly, it is the Prime Minister who currently has the power to call a general election, not Parliament.

Finally, if the Tories lost a no confidence motion, again by a bare majority, is it not inconceivable that they would continue to limp on is such circumstances, unable to pass any of its legislation?

The upshot is that the proposal is, in my view, both well intentioned and "constitutional". Perhaps my analysis is too simplistic and/or plain wrong, but I cannot help feel it is much ado about nothing.