Innovation and growth in legal services
Welcome to our quick guide to innovation in legal services.
Have you been thinking of a new way to serve your clients or run your firm? Do you have an idea but are not sure whether regulation could stop it getting off the ground?
Then this is for you. Read more to find out:
Why we are interested in innovation?
What our research tells us about how firms are innovating?
What we are doing to help?
The present legal services market faces challenges. People need significantly better access to affordable legal services. Small businesses need cost effective ways of solving legal problems. Providers of legal services can better meet these challenges if regulation facilitates rather than inhibits innovation and growth.
Crispin Passmore, Executive Director
Many firms are already trying out new ways of working, and we are seeing this coming through in a diversity of new ideas and ways of working. Innovation can help providers meet the challenges of a changing market, and will also help consumers and small businesses flourish with the provision of legal services that are relevant, accessible and affordable. Regulation needs to adapt as well. We want to make it clear that we have no wish to stand in the way of innovation. Indeed, we want to help. As such, our regulatory reform programme is squarely aimed at doing away with unnecessary rules and restrictions. But novel business methods are entirely possible using our current regulatory model too. You may want to speak to us about this. We want to help firms innovate and thrive, and we are improving our regulation so they can do this ever more effectively.
This paper also introduces our new initiative, SRA Innovate, which includes online material with dedicated support for those of you who want to discuss new ideas and ways of working.
Whether you are looking to broaden your service offering, reduce your costs or give yourself flexibility, we know a lot of you are innovating. That willingness to meet the challenge of change will help regulated firms thrive. It will also help consumers and small business flourish. We are doing what we can to help this change along, and this paper represents part of that effort. We hope you will find it useful.
What is innovation?
When someone mentions innovation, it's natural to think of the most radical ideas, a world away from the daily rigours of running a business. Some new services or ways of working are indeed novel and transformative, but simple changes to the way you do business can be innovative too.
An example would be if you start offering a new, affordable service to vulnerable clients in a region where it's never been available before. You may not gain many column inches but, for your clients, your innovation could be life changing.
But there can be no simple definition. As a regulator, we want to ensure that we do not stand in the way of solicitors who want to find new and exciting ways of serving their clients. Our remit of protecting clients and the public goes beyond providing a safety net for when things go wrong. It also means regulating in a way that encourages a strong and diverse legal services market with consumer choice at its heart.
You can be innovating if you:
- are delivering a new or improved service,
- have introduced a new or improved way of delivering a service,
- have introduced a new service or mode of delivery before your competitors, or
- are finding new ways to structure, manage or market your law firm.
Why are we interested in innovation?
The legal services market is evolving at a previously unseen rate and beginning to respond to public demand with new forms of practice and service.
This presents both challenges and opportunities for solicitors. We do not want to stand in the way of solicitors maximising those opportunities. Solicitors should be free to compete effectively in an increasingly diverse legal market, delivering their specialism and skills to those who need them. There should be as few barriers as possible to them doing so.
Our remit of protecting clients and the public goes beyond providing a safety net for when things go wrong. It also means regulating in a way that encourages a strong and diverse legal services market with consumer choice at its heart.
The ultimate beneficiaries of greater innovation within the legal services market will be users of legal services, through the emergence of greater choice in terms of quality, access and value. This is why we care about it.
Small businesses are a good example. There is a lot of demand for business legal services that are accessible and good value. Legal problems for small businesses are estimated to cause £9.79bn losses each year. Over half of small businesses seek to resolve legal issues by themselves and just 13 percent view legal advice as cost effective.1 An increase in the availability of relevant legal services for small businesses could help them grow and flourish. This would help the wider economy, providing more employment and better prospects. In short, legal services provide real benefit to society. Innovation drives the development of those services, helping both firms and the public.
The way services are delivered has changed. Here are just a few examples:
- services provided online,
- businesses providing qualified lawyers on a short-term basis to assist legal teams experiencing a period of high demand,
- legal services subscription services,
- unbundled legal services where the legal services provider undertakes part of the work and the consumer undertakes other parts themselves,
- one-stop shops packaging together a wide range of professional services.
What trends are we seeing?
We recently published the findings of our joint research with the Legal Services Board into the ways in which legal professionals are introducing new business ideas.2 The research covered 1,500 organisations including barristers chambers, solicitor firms and those offering legal services outside of legal services regulation.3
Not every firm is seeking to change the way they work but there is a general appetite for change. 80 percent of those surveyed said that they were open to new ideas, and 40 percent had put in place procedures explicitly to support innovation.
We know from the research that around 25 percent of legal services providers have introduced a new service in the last three years. That's higher than the UK average for businesses in general.4
The main effects of these innovations have been to increase the range of services offered, improve quality or bring in new clients. We are seeing a diverse range of new ideas. Some firms are trying out new business structures, such as integrated professional services firms bringing in functions like accountancy to complement their legal advice work and offer a ""one-stop" service to clients. Others are changing the way they work, with some making much greater use of remote working and IT to reduce costs and increase their flexibility.
Solicitors are more innovative than other regulated providers
Solicitors are more innovative than other regulated legal services professionals, and ABSs are the most innovative of all. That shouldn't surprise. Increasing the resources available to try out new concepts, and bringing in ideas from outside the legal market, are major reasons for firms becoming ABSs in the first place.
The research confirms that having a wide range of skills in the boardroom and access to different forms of funding does help to support change.
Competition from outside legal services regulation
There is increasing competition in the market from those operating outside of legal services regulation. They are more likely than other firms to have introduced radical innovations - services no other competitor is offering. In a way, it should not be surprising that those operating outside of legal services regulation are doing a lot of things differently. One of our challenges as we reform regulation is to free solicitors up further to work across the market delivering quality services.
Having a wide range of skills in the boardroom and access to different forms of funding does help to support change.
Legal services providers making innovations
Improving our services by founding an ABS
As a leading provider of legal education we have always been proud that our students have the opportunity to work alongside solicitors and deliver legal services to those most in need. Our original law clinic opened 9 years ago but recently we decided to form an ABS to extend the range and reach of the services we provide. The ABS licence gives us scope to undertake reserved legal activities and allows our students to obtain experience in a regulated practice under law school staff. We think this will help them understand better client conduct, professional ethics and the role of the lawyer as well as giving them experience of vital yet more mundane aspects of legal practice (such as drafting a bill, reviewing a ledger or handling a challenging client). It also potentially provides an opportunity to move in to areas of fee charging where this would be appropriate, which will bring income into the charitable trust to help develop all services for the future.
When we embarked on the ABS model, we looked at the law clinic model run by several law schools abroad, particularly in the US. Some of these university law clinics did provide an entrepreneurial/ business law service on a fixed fee regime. We were drawn to some of the key ideas they had implemented, mainly the need to develop commercial services for small businesses and give our students experience of the area of legal practice most of them would go into. We will, in time, be looking to recruit a business lawyer whose role will be to supervise students while working on cases for local businesses. This will further enable our students to get experience in areas of law which will improve their ability to secure employment which will lead to qualification when they leave us. We have faced challenges along the way and establishing proper governance around a new law firm within a large (non-legal) organisational structure took a lot of time and effort, but we consider it will be worth it. It is very useful in defining our relationship with our parent University body. We believe there is a substantial demand for legal services in many areas. By taking this step, we are better equipped and can be more flexible in meeting some clients needs; at the same time, we can research and develop, potentially, new ways through the ABS of delivering legal services which could be adopted more widely.
University law clinic
Technology to support innovation
For many firms, what is really exciting is what is on the horizon in terms of technology, like virtual assistants who will be carrying out a huge range of tasks in the future. We are living through a massive technological revolution, a huge tech wave which is bringing us all sorts of new ways to innovate and get closer to our customers, which is what innovation is all about.
Newly established law firm
Barriers to innovation
Firms still report that they experience some barriers to innovation. The most commonly reported barriers were regulatory and legislative. A quarter of firms who responded listed these as the main problems. That means that three quarters of firms don't find that regulation gets in the way of innovating. We do not want to be a barrier in any way to firms trying out new ways of working – quite the reverse. We want to reduce the burden of regulation while maintaining critical protections for the public interest. Perhaps one of the more surprising findings was that regulatory change was perceived to be the main driver for innovation. This has left us in no doubt that a reformed regulatory model is pivotal to us seeing further growth and innovation in the market.
What are we doing to help?
Introducing SRA Innovate
Our new initiative, SRA Innovate, provides dedicated space for innovation.
Our objectives are to:
- Encourage new services and service delivery methods to benefit the public.
- Formalise and expand existing initiatives in place that support innovation.
- Consider what else we could be doing to support innovation in legal services.
As part of this initiative we have created new pages on our website that provide information on where to go to for support if you want to do something new or have questions about our regulation. We are also providing advice on innovation through our professional ethics team.
For this initiative to be a success, we need you to talk to us about your ideas and how we as a regulator can better support innovation. We are setting up an external reference group on innovation. This group will be able to discuss ongoing issues and early thinking on policy initiatives through an email forum. Information about how you can join can be found on the SRA Innovate section of our website.
Our ambition is that SRA Innovate will become a centre for information and support for organisations wanting to offer legal services in new ways. We will develop the site to include the latest research on innovation, and we will share the information we learn about new business models and how they interact with our regulation. You will also be able to discuss applications for authorisation with us.
We will be looking to do more "regulatory testing", such as working with other regulators when we are approached by innovators who span more than one regulator.
We are putting in everything we can to help you get your new idea moving and we need you to engage with us and tell us about your ideas to support this initiative.
Beyond this initiative, we are reforming our regulatory model in order to help firms compete and innovate. In doing this, our focus is clear that restrictions can only be justified if they serve a demonstrable purpose.
Reforming our regulation
We have made some specific changes to our regulations or the way we regulate5 to help firms try out new ideas.
We have amended the Separate Business Rule6 to make it easier for firms to offer non-reserved work outside the scope of our regulation. You will need to make sure that clients understand what work is and isn't regulated, but the flexibility to offer these services should help regulated firms compete. Firms can take advantage of this freedom to offer greater choice to the public and provide services in new ways.
For those wanting to experiment with onestop shops (multidisciplinary practices), we have changed our rules to make this easier.7 You will be able to offer some services that are regulated by us and some that are not. We know the Accounts Rules are technical and complex. We are working on that, but there are alternatives to holding client money as well. If you want to explore them, then have a word with our SRA Innovate team.
Improved authorisation processes
We continue to streamline and simplify the firm authorisation process.8 For example, we have removed the requirement for us to approve individual managers of corporate owners in ABS applications. Almost all ABS applications are determined within 3 months of receipt of a completed application.
If you need to change structure to help you innovate, most firms can change legal status within 30 days of applying to us. So if you are a sole practitioner but you want your firm to become authorised as a limited company, there is a short application form9 and a fee of £200.
Authorising an innovative firm
We know that launching a firm to do something very different can involve a lot of work, but we welcome innovative structures and practices. We are working hard to ensure that we are easy to do business with. We have a new form for applications that we have designed to make as simple to use as possible, and we will work with you through the process. We also welcome the opportunity to discuss your proposals before you submit an application. That will then make the actual application process more straightforward and quicker. We certainly will not object to a proposal just because it's unusual or is commercially risky - that's the nature of an innovative idea.
Rachel Lewis, Director of Authorisation and Contact Centre
Experiences of applying for authorisation as an innovative firm
Getting the ABS off the ground has been a lot of work but the SRA were supportive. The person we dealt with was very knowledgeable and generally helped us navigate the relevant rules and regulations. There were issues around ensuring that the fact we work with a large number of student volunteers meaning we had to address issues such as the level of control we exercise over our students and the fact that some may also be working with other practices. Further we had to work through exactly who within our parent organisation needed to be subject to scrutiny to ensure those controlling the ABS were suitable people.
The main challenge in the latter stages of the process was in resolving insurance issues. We found speaking to insurers challenging at first, as we were an unknown quantity in the insurance market and difficult to describe in conventional ways. We also found navigating through the complexity of SRA rules on insurance and seeking exemptions difficult. If the SRA are reforming regulation, we would suggest starting with indemnity insurance rules. The SRA Innovate initiative would, if it had addressed these issues, have helped us and it is something we will consider using as we seek to develop new services and approaches to service provision.
University law clinic
We found the ABS application process straightforward and the SRA advisors were helpful and keen to understand what we were trying to achieve. Ultimately we both wanted the same things – compliance within a structure that can compete in a highly competitive market place.
The firms we regulate are an increasingly innovative group, and that is something we want to encourage. We are providing support for those trying out new ideas through our SRA Innovate initiative, and we are adjusting our regulations to ensure that they only do what is necessary, and that they are as clear and transparent as possible.
We are not here to tell you how to innovate, or when you might need to. We are interested in what happens as a result – better, more varied and accessible services for the public. We think it's a good thing that firms that we regulate can compete effectively, and we are doing what we can to help that process along.
Resources for innovating firms
Read more on all aspects of how our regulation applies to new ideas.
Our dedicated SRA Innovate web pages
Get help from the SRA on a regulatory issue
Get involved with our innovation reference group, and have your say on our regulation
New applicant guide to SRA authorisation
1. The legal needs of small business, Legal Services Board, 2015
2. Innovation in Legal Services
3. These providers offer non-reserved legal activities and operate outside of legal services regulation. They may attract other regulation depending on their business model. They include legal consultancy businesses, employment specialists, accountants, will writers and claims management companies.
4. Innovation in Legal Services
5. Raft of changes to cut red tape and open up the profession, SRA, 2015
6. Changes to the separate business rule and to activities with recognised bodies and recognised sole practices Q&A, SRA, 2015
7. Multidisciplinary practices, SRA, 2015
8. Raft of changes to cut red tape and open up the profession, SRA, 2015
9. Apply for authorisation of a new legal entity for an existing firm, SRA, 2015