Are legal services firms really failing UK SMEs and consumers?
At the start of last year, the Competition and Markets Authority (CMA) launched a study into the legal services market. Their aim was to find out if legal services are working for consumers and small businesses. Although the final report is yet to be published, for now they’ve released an interim report.
The report certainly makes interesting reading. It sets out the CMA’s initial findings as well as giving us their emerging views on possible remedies. In a nutshell, it says that legal services are not functioning as well as they might. This is largely due to the fact that few firms are open when it comes to disclosing their pricing structures. And that is making it difficult for consumers and SMEs to compare prices and discover the best value-for-money services.
Lack of transparency
The study found that only 17% of legal services providers actually publish their prices online. Rachel Merelie, Senior Director for the legal services market study, thinks this is a big part of the problem. She said: “Without greater transparency, individual and small business consumers find it difficult to compare and choose providers of legal services. For many of them this is an infrequent purchase and a lack of experience or prior knowledge makes it very challenging to assess what represents good value. As a result, they tend to rely on recommendations from family or friends in choosing providers without checking for themselves what the market has to offer. This is unlikely to drive effective competition.”
Fees in focus
Whilst fixed fees are definitely more prevalent than they once were, they tend to be used largely in the more commoditised areas of law. In other areas, despite plenty of competition, fees are rarely disclosed upfront so there is no quick and easy way for the customer to compare and contrast suitable services. Another factor may be that in contrast to other service markets, digital comparison tools are yet to make their mark on the legal services sector.
All this is leading to a large difference in pricing from one firm to another – and a great deal of confusion for the consumer. For SMEs in particular, this creates a certain reticence when it comes to accessing legal services. Paul Philip, Chief Executive of the Solicitors Regulation Authority, welcomed the report’s findings. He said: “The CMA has rightly focused on the changes that will make the biggest difference to the public. Too many people and small businesses are not using legal services. We agree that the best way to address this unmet need is through significantly improving information for the public and driving an open, healthy, competitive legal market that provides affordable services.”
The good news for legal firms is that although there is definitely work to be done, there will be no need for sweeping changes. Carrying out its role as the UK’s competition watchdog, the CMA concluded that although they were ‘open to more fundamental change’ of the regulatory framework, the current system was working effectively and in their view there was no need for a formal market investigation.
This news was welcomed by Catherine Dixon, the Law Society’s chief executive who said: “Making information available about the range of services and ensuring that pricing information is on offer to clients to enable them to judge on quality and price is always important. We believe that the market for legal services is already competitive and solicitors offer exceptional services to their clients as a consequence of rigorous training and years of experience. We are pleased that the CMA recognises that there is no requirement for a full market investigation.”
Pleasingly, the Legal Services Board have accepted the findings of the CMA. They agree with their analysis that a lack of transparency of price and service quality is undermining competition and reducing the incentives for providers to compete on price, quality and innovation. In their response to the report they said: “We would like to work with the CMA to help shape a set of transparency remedies that will truly be of benefit to consumers and that are practical and proportionate.” The full CMA report is due to be published in January 2017. Until then, watch this space…