Co-op to offer legal services after Big Bang

The Co-operative Group, the supermarket-to-financial services business, is looking to offer legal services through its network of 300 bank branches as it tries to take advantage of the “Big Bang” deregulation of the £23bn market.

Britain’s biggest mutual retailer is poised to be among the first new entrants into the legal profession after the introduction of the Legal Services Act in October, which will make the UK one of the most deregulated legal markets in the world.

The shake-up has been described as the profession’s equivalent of the City’s Big Bang in 1986, which transformed and modernised the financial sector.

The aim of the reforms, brought in by the last Labour government, was to make will-writing and conveyancing as accessible for consumers as buying a can of beans from a supermarket. Hence the act has been called Tesco law – although the supermarket chain has itself expressed little interest in the legal market.

It means that for the first time, Britain’s 10,000 law firms will be able to raise capital by floating on the stock market or to form new business structures by bringing in non-lawyers, such as accountants, as partners.

Eddie Ryan, managing director of Co-operative Legal Services, said the group planned to seek a licence to operate in legal services when the market deregulates in October, enabling it to offer legal services to non-members.

It already offers legal services to members. “Everything is on the table,” he said. “Some legal services will be done remotely over the phone and others done face to face and need to be done by acquiring or working in partnership with law firms.”

Co-operative has also beefed up its legal operations from three staff in 2006 to 370 staff in preparation for the act. AA, the motoring organisation, and Saga, the over-50s specialist group, are also thought to be looking at the legal market.

Private equity groups also sense an opportunity to buy stakes in law firms, believing the legal market is dominated by inefficiently run groups that are lagging behind in outsourcing and information technology.

Wol Kolade, managing partner at Isis Equity Partners, a private equity house, said: “Law firms face a series of big challenges down the line.

“I think we will end up with very large firms and small boutiques and those in the middle which are generalist firms will have to become larger or become really focused, and this will create opportunities for private equity.

Seven law firms from among the UK’s 30 largest are looking to raise up to £50m in external capital in the next five years as the market for legal services is liberalised, according to research by Smith & Williamson, the accountancy and professional services group.

Lawyers, especially in small, high-street firms, are now bracing themselves for the shake-up that they fear could lead to intense competition from aggressive new entrants such as Co-operative at a time when traditional sources of work, including legal aid and property conveyancing, are drying up.

Craig Holt is the chief executive of Quality Solicitors, which has set up a network of law firms that are independently owned but marketed under the Quality Solicitors brand to help the consumer locate a firm. There are 125 firms branded as Quality Solicitors but Mr Holt said there were expected to be 300 by October.

“There is a tradition of law firms to be inaccessible and detached from clients, to close at lunchtime for example,” he said. “We want to turn this on its head and encourage people to come in and step through the door and not feel they are going to be hit by a bill,” he said.

But the changes have prompted alarm in parts of the profession.

In Scotland, with its own legal system, feelings among lawyers ran so high last year that Holyrood’s justice committee in June accepted the recommendation of the Law Society of Scotland that the act should be significantly watered down north of the border.

Lord Neuberger, the UK’s master of the rolls said last year that in the field of legal services, “consumerism is an important factor but it is not the only or, ultimately, even the most important, factor”.He drew parallels with the 2008 credit crunch, which some commentators have blamed on the financial services sector succumbing to “a form of market fundamentalism”.

“We must be careful that the legal Big Bang . . . does not result in an equally devastating loss of respect for the legal sector and the rule of law,” he said.

He added: “You cannot treat the supply of legal services by lawyers like the supply of baked beans by a food retailer.

“There is a very significant difference between a commercial supplier of goods, or even services and a professional supplier of services, particularly legal services.” he said.

Professor Stephen Mayson, director of the Legal Services Institute at the College of Law said: “I don’t think there will be a Big Bang but we will look back in a few years and realise there has been a significant change.

“Different parts of the legal market will go at different speeds. The short-term retail legal market dealing with wills and conveyancing and personal injury may be interested in new capital to invest in technology and processes.

“Large corporate firms say they do not want any external capital and that’s probably true but the need for it could change over the medium term if they want to expand into new markets like India.”

London’s Magic Circle firms – which include some of the world’s biggest law firms, such as Clifford Chance and Herbert Smith – have indicated that they are unlikely to seek fresh capital.

Observers inside and outside the profession said the very act of selling out would destroy the value of law firms, as young lawyers who had been aiming to become partners would immediately leave and go into a better paid industry such as banking.

David Morley, senior partner at Allen & Overy, said last year: “People say there must be a price at which the partners would be willing to sell out but I am not sure any valuations within the range of the plausible would yield value on such a scale that partners would want to give up control.”

Another partner at a large law firm said: “It would be like selling the inheritance for future generations.”

But other commentators pointed to possible parallels with the banking sector which was dominated by partnerships after Big Bang. Some 20 years later many of those traditional firms have sold off or been taken over.