Why Solicitors should work with Independent Financial Advisers
“We predict that the legal world will change more radically over the next two decades than over the last two centuries”
– Richard Susskind, The future of the Professions, 2016
Many Solicitor practices are facing an uncertain future since deregulation and an ever-increasing competitive legal services market. The six reserved activities that are based on historic practices give the individual practice little protection against the growing influx of new legal services providers that do not have the same level of regulation.
Solicitors need to be mindful of managing change and a male dominated partnership business model is no longer fit for purpose in the current economic climate. The partnership itself reflects a time when the “professional” partner was able to withdraw all the profits from the business each year and not retain any value in the business itself. There seemed to be a regular supply of new aspiring younger people who desired to become a partner in a law firm therefore creating a readymade succession and exit plan for a retiring partner. Those days have long gone and younger solicitors either want to reduce the liability and risk of becoming a partner or do not want the responsibility.
Anything that can be processed with technology is being done and that generally takes a substantial investment in business models that are an anathema to many solicitor practices. This applies to many of the stable services traditionally provided by solicitors to their clients. The word client itself has changed and many purveyors of legal services are actually customers – people who buy services on price and shop around for the cheapest service available. Whilst we all know that the service provided may not meet expectations, the majority of customers do not consider this implication when purchasing the service.
Solicitors have not been renowned for providing exceptional client service and this is a key differentiator from the “factory” providing legal services.
Looking Ahead
Therefore, looking into a crystal ball, what do we see as the future for a successful solicitors practice in the future?
Let us look at some of the areas of law most under threat – conveyancing has been a key component of many traditional practices in the past – this provided a good income, regular cash flow and earned the partners of law firm’s pre-2008 an average of £50,000 per partner in unearned income on interest alone. We now have large conveyancing factory units that compete aggressively on price – some are offshoring the searches and documents of title work to India. In addition, if a Solicitor practice generates circa 20% of turnover from conveyancing they are considered a “hobbyist” conveyancer by the professional indemnity insurer and increase the percentage of the professional indemnity premium to reflect this perceived additional risk. Whereas a practice that does over 80% of their turnover from conveyancing is considered a specialist and commands a reduced premium.
This also can be applied to probate and other traditional legal services; couple that with the external regulatory and governmental pressure on legal aid and personal injury work, many firms are facing a very uncertain future.
Areas for Growth
There are two areas that a solicitor practice may look to grow its business – both commercial and in the private client department.
Commercial work and becoming a virtual “in-house” council will become a growing trend with business advice and legal work combining to help grow businesses rather than providing transactional-based services based on client needs. This means a more relationship-based advisory business that legal services become a part rather than the whole.
The term “private client” is a term created by Solicitors and effectively means an individual or family looking for legal advice. Many Law firms have created a large number of wills over many years yet have failed to keep these will banks up to date, therefore making these difficult to have any value. Cleansing will banks is a necessity for any firm looking to survive and develop their business – the ability to market additional services to existing clients is essential.
Managing wealth
We do not see many Solicitor practices that wish to work in the “private client” arena surviving without a connection to financial services in some way. This can, of course, be a loose arrangement or could be far more formal in the form of a joint venture or even an alternative business structure (ABS) when investment could take place. We will explore each of these in the coming months.
The financial services market post-RDR has changed significantly from the commission hungry individuals of the past and they recognise the value in the legal services market. We know several IFA businesses that are actively acquiring Solicitor practices and employing solicitors in their business. IFA’s are providing will writing services and eventually probate and purchasing will banks from ailing legal practices.
Why are these businesses attracted to the legal sector? The answer is simple; they want access to high net worth individuals, legal clients and provide advice on inheritance tax planning, trusts and investments.
If Solicitors do not grab this opportunity, then this traditional area of business will become lost to them. Providing a holistic solution to clients will be welcomed and will not only provide a less transactional approach to clients but also give the Solicitor practice a significant contribution to their bottom line.
How do you go about finding the right partner?
Many Solicitor practices have had loose relationships with IFA’s with nothing formal in place. In many instances, each partner has their own “relationship” with individuals and simply refers work when appropriate. In fact, we would argue that every client meeting a Solicitor could generate an opportunity for introducing some form of financial planning with appropriate financial planning advice.
Finding the right IFA partner is very important and having the confidence with the advice is essential for the Solicitor to know their client is being looked after.
As in any relationship, we would encourage a building of confidence between the two parties but more importantly a commitment to making the relationship work. This will mean training all Partners, fee earners and staff into why the relationship is important and how it will be mutually beneficial.
Once this trust is established, you can look at a joint venture arrangement or even creating an alternative business structure for both parties to benefit financially from the arrangement.
Penguin Wealth would like to apply for the job to be considered as that partner that can help you build your private client practice.
