CMA Legal Services Market Study Interim Report 2016 PDF

Legal Services
Market Study
Interim Report
8 July 2016
Crown copyright 2016

You may reuse this information (not including logos) free of charge in any format or
medium, under the terms of the Open Government Licence.
To view this licence, visit www.nationalarchives.gov.uk/doc/open-governmentlicence/ or write to the Information Policy Team, The National Archives, Kew, London
TW9 4DU, or email: psi@nationalarchives.gsi.gov.uk.
The Competition and Markets Authority has excluded from this published version of the
interim report information which it considers should be excluded having regard to the
three considerations set out in section 244 of the Enterprise Act 2002 (specified
information: considerations relevant to disclosure). The omissions are indicated by [].
Contents
Page
1. Summary .............................................................................................................. 6
Interim findings...................................................................................................... 8
Competition ..................................................................................................... 8
Consumer protection ..................................................................................... 10
Regulation ..................................................................................................... 11
Remedies ............................................................................................................ 13
2. Introduction ......................................................................................................... 17
The scope of this market study ........................................................................... 18
Purpose of this document ................................................................................... 19
Progress to date.................................................................................................. 20
Next steps ........................................................................................................... 21
Interim report structure........................................................................................ 21
3. Overview of the legal services sector.................................................................. 23
Characteristics of the legal services sector ......................................................... 23
Regulation and regulatory framework ................................................................. 25
Baseline consumer protection regulation ....................................................... 26
Sector specific regulation .............................................................................. 27
Legal services providers ..................................................................................... 32
Market participants ........................................................................................ 34
4. Competition between legal services providers .................................................... 37
Introduction ......................................................................................................... 37
Process of competition........................................................................................ 38
Demand side ....................................................................................................... 39
Individual consumers ..................................................................................... 39
Small businesses........................................................................................... 40
Supply side ......................................................................................................... 41
Competition on price ...................................................................................... 41
Competition on quality ................................................................................... 44
Intermediaries ................................................................................................ 46
Comparison tools........................................................................................... 47
Barriers to entry, expansion and exit ............................................................. 49
Innovation ...................................................................................................... 50
Impact of ABSs on competition...................................................................... 54
Conclusion .......................................................................................................... 56
5. The effectiveness of consumer protection rules and regulations ........................ 58
Introduction ......................................................................................................... 58
Whether differences in regulation between regulated and unregulated providers
give rise to consumer protection risks ................................................................ 59
Consumer awareness of the level of consumer protection afforded to them . 59
Does the provision of services through unregulated providers in itself give rise
to consumer protection issues? .................................................................... 60
Clarity of information ........................................................................................... 66
Effectiveness of client care letters in conveying key information ................... 67
Effectiveness of existing redress mechanisms ................................................... 69
Consumer awareness of redress mechanisms .............................................. 69
Consumer trust in redress mechanisms and whether the redress process is
working effectively ........................................................................................ 70
Conclusion on the effectiveness of consumer protection rules and regulations .. 73
3
6. Impact of current regulations and the regulatory framework ............................... 74

Introduction ......................................................................................................... 74
The impact of regulatory costs on competition .................................................... 75
The impact of reserved activities ....................................................................... 77
The impact of regulation by title......................................................................... 78
Restrictions on competition from unregulated providers ................................ 79
The impact of differences in regulatory costs on competition ........................ 80
Conclusion on the impact of regulation by title .............................................. 81
Regulatory barriers on non-traditional business models (such as ABSs) ............ 81
Our assessment of whether the current regulatory structures have an impact on
competition ........................................................................................................ 82
The impact of the current regulatory structures on competition ..................... 83
Regulatory independence .............................................................................. 83
Conclusion .......................................................................................................... 84
7. Remedies ............................................................................................................ 86
The outcomes of a market study ......................................................................... 86
Our approach to outcomes ............................................................................ 86
Our approach to remedies ............................................................................. 87
Competition, transparency and informational remedies ...................................... 88
Improving price and service transparency ..................................................... 88
Addressing barriers to comparison and search ............................................. 92
Improving consumer information and awareness .......................................... 94
Consumer protection and redress ....................................................................... 96
Consumer protection ..................................................................................... 96
Redress ......................................................................................................... 98
Changes to regulation and the regulatory framework ....................................... 100
Alternative regulatory frameworks ............................................................... 101
Regulatory structure and independence ...................................................... 102
Other possible remedies ................................................................................... 103
Invitation to comment ........................................................................................ 103
Case studies ..................................................................................................... 104
Wills and probate services case study .............................................................. 105
Scope .......................................................................................................... 105
Suppliers ..................................................................................................... 105
The experiences of consumers.................................................................... 107
Initial observations on competition............................................................... 108
Next steps.................................................................................................... 109
Employment law services case study ............................................................... 110
Scope .......................................................................................................... 110
Suppliers ..................................................................................................... 110
Next steps.................................................................................................... 114
Commercial law services case study ................................................................ 115
Scope .......................................................................................................... 115
Suppliers ..................................................................................................... 115
Next steps.................................................................................................... 118
Overview of standards required of providers by regulatory status .................... 119
Stakeholder engagement .................................................................................. 121
4
Appendices/Annexes
A: Wills and probate services case study
B: Employment law services case study
C: Commercial law services case study
D: Overview of standards required of providers by regulatory status
E: Stakeholder engagement

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Case studies
1.
While our market study covers a broad range of legal services, we are also
carrying out three case studies. These will enable us to conduct a more
detailed examination of the three themes that are the focus of our market
study (as set out in paragraph 2.7).
2.
Our research into each of the three case study areas is ongoing. We are
currently reviewing existing research, and engaging with interested parties in
order to obtain further relevant evidence for the purposes of our final report.
3.
We have included any evidence from the case studies that is particularly
relevant to our examination of the three themes in the main body of our
interim report. In addition, the following appendices set out a high level
overview of our case studies:
Appendix A: Wills and probate services case study
Appendix B: Employment law services case study
Appendix C: Commercial law services case study
104
APPENDIX A
Wills and probate services case study

1.
This appendix sets out interim observations in the wills and probate case
study. Where findings are incorporated into the main body of the interim report
they are referenced, but not repeated in this appendix.
2.
This case study has drawn on the wide range of pre-existing research and
analysis in this area, including reports prepared for the LSB and LSCP. We
have also engaged with providers, their representatives and intermediaries.
Scope
3.
A will is a document in which a person states who should receive his or her
property after his or her death. Probate is the process of verifying a persons
will after their death. The process of applying for probate is a reserved activity
limiting who can provide the service.264 The provision of will writing and
probate services form the basis of this case study.
4.
The two services are closely related. Writing a will can act as a gateway to
higher value probate work. Many solicitors store wills for free and this may
give them access to probate work; similarly some providers will be named as
executors.
5.
Related services often offered alongside wills and probate include estate
planning, lasting powers of attorney, establishing trusts, will storage, funeral
services and estate administration.
Suppliers
Wills
6.
Solicitors are the most commonly used suppliers of will-writing services and
were the only/main provider for 78% of consumers with this as their legal
issue. There are just over 4,800 solicitor firms active in will writing,
representing 46% of all solicitor firms.265 Although will writing is an
unregulated activity, solicitors writing wills are regulated.266 As part of this
regulation, solicitors must have PII and consumers can use the LeO.
See paragraph 3.15.

SRA data 2014
266 See paragraph 3.17.
264
265
105
7.
There are an estimated 1,600 non-solicitor firms specialising in will writing.267

Our consumer survey found that these will writing companies were the
only/main provider of legal services for 11% of consumers with this as their
legal issue.
8.
Many of these specialist will writers are part of a self-regulatory scheme such
as the SWW or Institute of Professional Will Writers (IPW). These schemes
include codes of practice with complaints mechanisms, learning requirements
and a requirement for PII. These providers believe that self-regulation helps
signal their credibility to consumers.
9.
There are an estimated 80 DIY/automated providers who allow consumers to

draft a will using a template without direct assistance. These services can
range from a paper-based kit to an online interactive template. Some
providers offer to provide a professional check of the self-completed will.
These self-completion wills did not feature in our consumer survey. However,
a 2010 survey found that they accounted for 13% of paid for wills.268
10.
Other providers include financial services providers such as banks, building

societies, accountants and independent financial advisers. Many of these
providers outsource the actual provision of the will to solicitors or professional
will writers. Similarly, charities, trade unions and employers may act as
intermediaries between consumers and suppliers.
11.
Differences in redress mechanisms and access to compensation between

regulated and unregulated providers, including within will writing, are
discussed in paragraphs 5.27 to 5.33.
Probate and estate administration

12.
Solicitors are the main providers of probate services both in terms of number
of firms and number of estates administered. Our consumer survey found that
84% of consumers used solicitors as their only/main provider for probate
services. There are just over 4,000 solicitor firms active in probate and estate
administration, representing 39% of all solicitor firms.269 Other authorised
providers such as authorised accountants, authorised conveyancers, notaries
and legal executives also provide probate services.
Economic Insight (2016), Unregulated legal service providers: understanding supply side characteristics,
prepared for the LSB.
268 Law society submission quoted in Legal Service Consumer Panel (2011), Regulating will writing.
269 SRA data 2014.
267
106
13.
Other providers include trust corporations, banks, charities and specialist will
writers. Of specialist will writers around 1,000 out of 1,600 providers offer
some form of estate administration.270 While the majority of these providers
conduct most of the work themselves, outsourcing specific tasks to solicitors
(including the tasks that involve reserved legal activities), in roughly a fifth of
cases they instruct a firm of solicitors to carry out the majority of the work. 271
The experiences of consumers

14.
The vast majority of firms charge fixed prices for wills.272 Most firms charge
fixed fees for probate (59%), but with significant numbers either giving an
estimate of total cost or charging an hourly rate. A small proportion (9%) of
providers charge a fixed percentage of the estate. In such cases, the
percentage charged typically varied between 0.5% and 3%.
15.
Half of unregulated will writers display their prices on their website.273 This
compares to 16% of solicitors who display prices on their websites, although
this result is not specific to wills.274
16.
As for other legal services, it is difficult for consumers to assess the quality of
providers of will writing and probate services. In many cases this will still be
the case after the service has been performed. A particular problem for wills is
that mistakes are unlikely to be spotted until probate (which in many cases
occurs years after the will was drafted). A high proportion of consumers
(79 to 94%)275,276 reported being satisfied with the quality of their will.
17.
Paragraphs 5.17 to 5.19 discuss a 2011 shadow shopping exercise277 that

assessed the quality of wills provided by unregulated and regulated providers.
This research found that the wills it assessed showed no significant
Economic Insight (2016), Unregulated legal service providers: understanding supply side characteristics,
commissioned by the LSB.
271 IFF Research (2012), Probate and Estate Management Services Survey, prepared for the Legal Service
Board.
272 92% of providers for standard individual wills and 85% of providers for complex individual wills. See OMB
Research (2016), Prices of Individual Consumer Legal Services: Research Report, commissioned by the LSB.
273 Economic Insight (2016), Unregulated legal service providers: understanding supply side characteristics,
274 OMB Research (2016), Prices of Individual Consumer Legal Services: Research Report, commissioned by the
LSB.
275 IFF Research (2011), Understanding the consumer experience of will writing services, commissioned for the
Legal Service Board, Legal Service Consumer Panel, OFT and Solicitor Regulation Authority.
276 Economic Insight (2016), Unregulated legal service providers: understanding supply side characteristics,
270
107
differences in quality between regulated solicitors and selfregulated/unregulated specialist will writers.
18.
According to a survey in 2011, the main reasons for picking a particular will
provider are having used the provider in the past for other services or having
a personal recommendation.278 Around a third of consumers compared the
will writing services offered by different providers.279
Initial observations on competition

19.
There are a large number of suppliers of wills and probate services. There is
also some variation in the types of providers consumers can choose. Despite
this there is some evidence that competition may not be working as well as it
could be.
20.
There are clear asymmetries of information between the consumers of wills

and probate services and the providers. It does not appear to be easy for a
consumer to assess their level of legal need or the likely price and quality of
available suppliers.
21.
Prices vary considerably for both wills and probate. Using specified scenarios,
recent research found the difference between prices in the upper and lower
quartile for a standard will is 90 (where the median price is 150) while the
same difference for a grant of probate for a valid and non-contested is 450
(with a median price of 650).280 This suggests to us that the market may not
be working as well as it could.
22.
One aspect of wills and probate that we would like to understand better is the
effect of the unregulated sector. There is evidence that some unregulated will
writers offer more transparent pricing, lower prices and a differentiated
service, for example with home visits. There is also evidence that an
unregulated will writer does not produce a lower quality will.281 However, there
is also evidence that consumers lack awareness of the differences between
regulated and unregulated providers and the implications of those differences.
IFF Research (2011), Understanding the consumer experience of will writing services, commissioned for the
280 OMB Research (2016), Prices of Individual Consumer Legal Services: Research Report, commissioned by the
LSB.
278
108
23.
In relation to probate, we note that new providers have been recently granted
the right to provide probate services. Specifically, the CLC can license entities
to provide conveyancing and probate services. 282 The Chartered Institute of
Legal Executives (CILEx) can license probate practitioners. Finally, the
ICAEW can authorise providers, including accountants, to offer probate
services.283
24.
Our initial research suggests that granting the right to provide reserved
activities to alternative providers has not had a major impact on competition in
the probate market. This is illustrated by the fact that providers authorised by
the CLC only have a very small share in the probate market. (We do not have
any shares for providers authorised by the ICAEW since it only started to
authorise providers recently.)
25.
Moreover, as noted in paragraph 6.13, prior to ICAEW authorisation,

accountants were providing estate administration services already, but were
outsourcing to solicitors the probate element. As such, although the new
regime now allows accountancy firms to offer a one-stop service in relation to
estate administration, our evidence so far does not indicate that the possibility
to bundle probate with estate administration has had a major impact on
competition in the probate market.
Next steps
26.
Going forward, we intend to gather additional evidence in relation to:
the quality of will writing services;
the role and impact of self-regulation;
the extent to which differences in redress between regulated and

unregulated will writers create consumer harm; and
how competition works in the probate sector, including the impact of

allowing providers other than solicitors to provide this service.
The CLC was established by the Administration of Justice Act 1985 to regulate licensed conveyancers in the
provision of conveyancing services. From August 2008, CLC was also authorised to regulate probate services
and issued its first probate licences in December 2008. Recently, CLC has been allowed to issue stand-alone
licences to probate practitioners who are not licensed conveyancers.
283 ICAEW became an approved regulator for (non-contentious) probate services in August 2014 and issued its
first probate licences in September 2014. Note that, differently from SRA which can authorise only solicitors,
ICAEW can authorise both members (eg accountancy firms) and non-members (eg tax institutes) to provide
probate services. So far, ICAEW has authorised over 200 providers.
282
109
APPENDIX B
Employment law services case study

Scope
1.
Employment law governs the rights and obligations of employers and

employees. In this case study, we are looking at the supply and demand for
employment law services for both individuals and small businesses. We are
looking at the markets for the services offered to individuals and small
businesses separately whilst recognising the overlap between suppliers.
2.
The principal services for individuals we have identified for this case study
are:
3.
Reviews of settlement agreements284
Advice and representation in employment disputes, and principally those

where an application to go to the Employment Tribunal or civil courts is
made.285
The principal services for small businesses we have identified for this case
study are:
the drafting, preparation, review and supply of employment

documentation including employment contracts and employment policy
documents;
advice on compliance with employment law; and
advice and representation in employment disputes, and principally those

where an application to go to the Employment Tribunal or civil courts is
made.
Suppliers
4.
We understand that the predominant providers of employment legal services

are solicitors, barristers and HR consultancies. Solicitors and barristers may
These were formerly known as compromise agreements and were renamed under the Enterprise and
Regulatory Reform Act 2013 which amended the Employment Rights Act 1996. A compromise agreement is only
valid if reviewed by an independent lawyer, who under the LSA2007 is authorised to conduct litigation or rights of
audience.
285 Relevant matters are reserved to the Employment Tribunal, but breach of contract claims are able to be made
in the civil court.
284
110
choose to focus on advising individuals or businesses and HR consultancies

service businesses exclusively.
5.
So far as the provision of advice on settlement agreements is concerned, the

Employment Rights Act 1996,286 requires any agreement to be reviewed by a
qualified lawyer287 or a trade union official.288 Our understanding is that, as a
result, where a fee is charged, such work is likely to be undertaken
predominantly by solicitors.
6.
So far as advice and representation in Employment Tribunals are concerned,

we understand that individual consumers are likely to use solicitors and
barristers.289 For small businesses, advice and representation may also be
provided, to a lesser extent, by HR professionals employed by HR
consultancies. However, it should be noted that around three out of five
individuals and small businesses (with fewer than 25 employees)290 do not
have representation in Employment Tribunal disputes.
7.
Individuals may also be represented at the Employment Tribunal by trade

union officers, but increasingly we understand that trade unions make
arrangements for legal representation by a third party solicitor or barrister
rather than directly representing a client. Some initial advice on an
employment claim may be provided by trade union officials where a claimant
is a trade union member.
8.
In addition to directly engaging a legal services provider, small businesses

may obtain information or advice291 through telephone and online portals
provided by government,292 trade293 and employers associations294 and
insurance companies. This information and advice may be limited to
information on procedure or process, or in the case of legal advice helplines
may provide some consideration of the specific nature of a legal issue.
Specific legal advice provided by such portals may be provided by a third
See the Employment Rights Act.

Being a person who, for the purposes of the Legal Services Act 2007, is an authorised person in relation to an
activity which constitutes the exercise of a right of audience or the conduct of litigation (within the meaning of that
Act)
288 The individual must be declared competent by the relevant trade union.
289 BIS, SETA 2013. The Compensation Act 2006 requires anyone advising, investigating or providing
representation in relation to an employment claim to be regulated by the claims management regulator, unless a
solicitor, barrister or Fellow of ILEX.
290 The unrepresented figure falls to around a half for businesses employing 25-49 employees.
291 As specified in paragraphs 2 and 3 of this Appendix.
292 For example, GOV.UK.
293 For example, the FSB.
294 For example, the National Farmers Union.
286
287
111
party law firm. ACAS is the most commonly consulted source of public
information for both employees and employers.295
9.
There are very few legal restrictions on the supply of employment law
services to businesses296 and there are a number of unregulated providers
which supply (in combination or isolation) documents, advice and
representation.297 Unregulated providers tend to employ a combination of HR
professionals and qualified lawyers.298
10.
HR consultancies and document providers tend to offer pricing structures

based on fixed one-off or monthly charges with medium-long term contracts of
one to five years, though there is variation across providers and depending on
the nature of services delivered. This differs from the approach adopted by
solicitors where prices are usually set on an ad hoc basis depending on the
case. Solicitors do not tend to offer any medium-long term contracts and they
tend to use fixed or capped pricing only for some services (such as settlement
agreement review).299 Where representation is provided this may be either
incorporated as part of an insurance backed product,300 as a monthly fixed
fee, a one-off fixed fee or charged on an hourly basis. Several subscription
based providers offer an insurance backed product that covers both legal
expenses and any award that the Employment Tribunal awards. These
businesses may or may not be authorised by a competent authority.
11.
The document providers we are aware of provide access to documents

through an online portal which allows employers to generate legal documents
such as employment contracts. The service can be provided as pay as you
go for individual documents or alternatively users can subscribe on a monthly
basis for unlimited usage or to have access to additional legal advice via the
internet or telephone helpline.

12.
Individual consumers are less likely to have regular or recurring legal needs
relating to employment law compared to small businesses. The mean cost of
Employers also use publically available sources of information. Our qualitative research with small businesses
for example identified a business that contacted ACAS to confirm that it had followed the appropriate process for
terminating an employees employment.
296 With the exception of breach of contract cases in the civil courts, there are no relevant reserved activities
under LSA07.
297 Regulated providers also provide similar services.
298 Due to some restrictions, these lawyers may need to surrender their practising certificate and offer their
services as a non-practising solicitor or barrister.
299 This is likely to be the case also for other legal services providers conducting litigations such as barristers.
300 These typically cover both legal expenses and any award made by the Employment Tribunal.
295
112
representation of individual consumers at the Employment Tribunal was

4,825 (median 2,000) in 2013.301
13.
Small businesses are more likely to have regular or recurring needs. The
number and frequency of claims that businesses face are linked to the
number of staff they employ.302 The mean cost of representation of small
businesses at the Employment Tribunal was 4,379 (median 2,500) in
2013.303 12% of small businesses304 were members of organisations that
provided cover for legal costs, and a further 30 to 40% of small businesses
had insurance cover.
14.
The most common complaints by individuals to LeO in relation to employment

law matters relate to providers either failing to advise (20%) or to follow
instructions (16%).

15.
Our initial observation is that employment services are provided by a wide

range of suppliers, both to individuals and small businesses and that there is
a significant presence of unregulated providers. However, the nature of
unregulated suppliers differs for individuals and businesses:
For individuals, regulatory restrictions relating to settlement agreements

and employment tribunals mean that the greatest source of unregulated
advice and representation comes from trade union officials. Claims
management companies are likely to be the largest category of for profit
unregulated employment advice, but are not a significant source of
supply.
For small businesses there are far fewer restrictions on who may provide
advice and representation. As a result, HR and regulatory compliance
consultancies have an established presence in the market as suppliers of
fixed fee, subscription based unregulated legal services. Use of HR
consultancies by small businesses appears to increase with the number
of employees a business has.305
2013 prices.
For example 78% of businesses with fewer than 25 staff which attended the Employment Tribunal did not
have experience of the Employment Tribunal in the preceding year compared to 63% of businesses with 25 to 49
employees.
303 2013 prices, for businesses with fewer than 25 employees. The mean cost was 2,000 and median 5,634 for
businesses with 25 to 49 employees.
304 This was the case for businesses employing both 1-24 and 25-49 employees.
305 The LSB found that 1.2% of all small businesses used such consultancies but the figure was 15.6% for
businesses with 10-49 employees. LSB, Mapping of for profit unregulated legal services providers.
301
302
113
16.
Since the introduction of fees for employment tribunal cases in July 2013,
there has been a significant reduction (in the order of 70%) in the number of
cases reaching the tribunal. This has necessarily affected the demand for
representation for both claimants and defendants at employment tribunals. A
second driver in the reduction may be the requirement for all employment
tribunal applicants to notify ACAS first before a case can proceed.306 It is not
clear to what extent claimants may still seek initial advice before deciding not
to pursue a claim. Some suppliers have as result sought to supplement
revenues by offering additional services to businesses, such as training.
17.
Our current understanding is that employment disputes can vary significantly

in complexity, from simple wage claims to complex discrimination cases, but
are broadly non-commoditised bespoke services. In contrast we consider that
settlement agreements may be an example of a commoditised product.
However, our research indicates that prices are often determined by the
contribution an individual employer is prepared to make to an employees
costs.307
18.
The presence of HR consultancies with extended contract periods (typically in

the range of one to five years) may reduce the frequency of switching for
some consumers but their presence in the market may be acting as a
competitive constraint on other legal services providers and may be a source
of innovation in resourcing and price models.
Next steps
19.
We intend to continue our stakeholder engagement, particularly with regulated

suppliers.
20.
We will seek to explore the significance of intermediaries, particularly in

relation to employment disputes. We will be contacting providers of legal
expenses insurance and trade unions to better understand their role in both
financing legal costs and the selection of legal service providers.
21.
We will also reflect on any findings arising from the MOJs review of the
impact of tribunal fees.
This is so that ACAS can make an offer to the applicant and respondent to engage in ACAS early
conciliation scheme. The House of Commons Justice Committee found that [] the timing and scale of the
reduction following immediately from the introduction of fees can leave no doubt that the clear majority of the
decline is attributable to fees. Courts and Tribunal Fees, House of Commons Justice Committee, HC167. A
review of the impact of Employment Tribunal Fees by MOJ is currently ongoing.
307 We understand that it is convention (but not a requirement) that employers pay the cost of any review of a
settlement agreement.
306
114
APPENDIX C
Commercial law services case study

Scope
1.
Commercial law in broad terms governs the conduct of commerce and

business. In its widest definition it encompasses almost all activities in which
businesses engage.308 For our case study we have focused on the provision
of legal services relating to contracts and business disputes for micro and
small businesses.
2.
The relevant services we have identified for this case study are:
3.
legal document preparation (including advice); and
advice and representation in disputes.
We have also identified mediation and arbitration as services related to

disputes.
Suppliers
4.
At this stage we understand that the most commonly used suppliers of

commercial legal services are firms of solicitors and barristers. We have
identified that suppliers have adopted a variety of business and delivery
models.
5.
We have identified a number of web-based legal services providers active in

the supply of legal documents with relatively well developed brands. Our
current understanding is that the largest providers of web-based legal
services are unregulated, but that a number of SRA regulated firms and
entities are also active in supplying documents online. However, we
understand that online providers account for a relatively small proportion of
the market.
6.
The service offering of online document providers varies by supplier, ranging

from DIY templates, through to semi-bespoke and fully tailored drafting
Law firms providing commercial law services may group discrete areas of the law such as company law,
health and safety and regulatory compliance within their commercial service line, although we are not treating
these as commercial law for the purposes of our market study.
308
115
options.309 Some providers offer an additional document review service

conducted by a qualified lawyer.
7.
In addition to directly engaging a legal services provider, small businesses

may obtain information or advice through telephone helplines and online
portals provided by government,310 representative bodies,311 trade312 and
employers associations313 and insurance companies. Specific legal advice
provided by helplines may be contracted out to a third party law firm.
8.
We have identified a small number of unregulated or self-regulated legal

services providers which are active in providing advice and to some extent,
representation in disputes. The providers we have spoken to are typically
single principal firms with the owner of the business having varying levels of
legal education or qualifications and professional experience. Those who
have chosen to be self-regulated hold practising certificates from the
Professional Paralegal Register and carry PII. We have identified a small
number of qualified solicitors who have chosen to act as unregulated legal
services providers. For these providers, business generation is heavily
focused on word-of-mouth recommendations.

9.
Trading problems are the most common legal problem experienced by small
businesses.314 For a number of commercial and business reasons, small
businesses may either choose not to pursue disputes or are unable to identify
an appropriate route to resolve that dispute. This can be because small
businesses face similar difficulties to those experienced by individual
consumers in accessing legal services. In contrast, larger businesses are
more likely to be repeat purchasers of legal services and may have in-house
legal advice which may either service the businesss legal needs or act in
engaging third party expertise.
Some websites sell consumers a standard template as an electronic text document, whereas other providers
offering semi-bespoke documents use web forms that lead consumers through a series of questions that
generate relevant clauses and automatically populate the document with relevant details.
310 For example the Ministry of Justice.
311 For example the Law Society.
312 For example the FSB.
313 For example the National Farmers Union.
314 Blackburn, Kitching & Saridakis (2015), The legal needs of small businesses: An analysis of small businesses
experience of legal problems, capacity and attitudes, commissioned by the LSB. The definition of trading problem
includes all those goods or services provided to the businesss customers or purchased by the business that
were not as described, unacceptably late delivery or payment, distance selling consumer rights, contract
problems or disputes, supplier insolvency, fraudulent or wrongful trading, unfair operation of a public tender and
legal/regulatory issues relating to international trading.
309
116
10.
Our research found that, where possible, small businesses will try to solve
their legal problems themselves, particularly where they have accumulated
experience of dealing with similar issues. Additionally, small businesses are
more likely to tackle trading issues without external assistance than they are
with other legal issues such as intellectual property and employment law.315
11.
Our qualitative research found that solicitors were the predominant source of
legal advice but that some small businesses choose to pursue commercial
disputes without external legal representation in the small claims court. Whilst
some small businesses are comfortable with handling their cases without
assistance, they would not have been aware of this route without being
informed by third parties. We also found that businesses often rely on
recommendations from third parties to select a provider. Where businesses
seek to review the market, the sophistication of comparison varies.

12.
Our findings to date suggest that solicitors are the predominant suppliers of
legal services to small businesses, particularly for document drafting and
small disputes.316
13.
Pricing models vary across different legal services. Document drafting and
review, for example, are typically offered on a fixed fee basis and those fees
are more likely to be published on supplier websites. Online document
providers may provide monthly subscriptions providing unlimited access to
document template libraries.
14.
Our current view is that pricing is significantly less transparent in commercial

disputes, where fees tend to be based on hourly rates. Given the uncertain
nature of disputes, providers appear to be less willing or able to provide firm
estimates or fixed fees.
15.
Our qualitative research found that some small businesses were unaware of
how to seek redress, or perceived the cost of making a complaint to be
greater than the expected benefit and would be a distraction for the business.
For some businesses, switching provider was an alternative to seeking
redress.
Pleasence & Balmer (2013), In Need of Advice? Findings of a Small Business Legal Needs Benchmarking
Survey, commissioned by the LSB. This report uses the same definition of trading problems as Blackburn et al.
(2015).
316 We understand that in more complex cases and in particular those reaching the higher courts that the use of
barristers will be more prevalent.
315
117
16.
Our engagement with stakeholders has so far identified a number of potential

barriers to seeking redress, including the limited scope of the LeO with
respect to small non-microbusinesses,317 the use of unregulated legal
services providers,318 and the commercial decisions relating to the opportunity
cost of management time and a desire to maintain a relationship with their
legal service provider.319
Next steps
17.
We will be seeking to develop our understanding of innovation and barriers to

entry, expansion and exit in the market.
18.
We intend to continue our stakeholder engagement with suppliers of

commercial legal services to small businesses, with a particular focus on
innovative services and both regulated and unregulated providers.
A micro business is one with fewer than 10 employees and turnover or a total balance sheet value of less
than 2 million.
318 Consumers of legal services provided by unregulated providers are unable to access LeO and depending on
the provider, may use a provider that does not hold PII. Consumers of legal services provided by unregulated
providers that are members of self-regulatory bodies may have additional opportunities to receive redress. As
noted in Chapter 5, it is not clear how significant in practice it is that small businesses who use unregulated
providers benefit from fewer redress and financial protection arrangements.
319 Our qualitative research found that small businesses tended to take what they felt was a business decision,
weighing up the time and effort they envisaged they would need to spend pursuing an issue with the expected
outcome which, it was typically assumed, would be of little consequence.
317
118
APPENDIX D
Overview of standards required of providers by regulatory status

Regulated provider (under the LSA07)
Information
Standards/Codes
of conduct
Advertising
Financial protections
arrangements that include:
PII compensation fund
Self-regulated provider
Unregulated provider
Regulated providers must keep confidentiality and in

particular their communications attracts legal
professional privilege, protecting communication with
the client
Regulated persons should have a written file retention/
destruction policy available to the client on request
Requirements under the Data Protection Act 1998 apply
Standards of conduct are designed to ensure that
regulated providers (individuals or entities) should carry
out their work with care, integrity and diligence and with
proper regard for the technical standards expected of
them
A regulated person should only undertake work within
his expertise or competence
Their communications are not subject to legal professional privilege.

Are not specifically regulated around their handling of confidential business information.
Requirements under the Data Protection Act 1998 apply
The majority of the self-regulatory bodies have

a code of conduct.
Codes of conduct include specific and general conduct

rules when advertising their services (including on
websites)
Subject to advertising codes administered by the
Advertising Standards Authority
Financial protection arrangements generally aim to
protect clients from loss due to dishonesty, fraud,
negligence, insolvency or failure to account.
All regulators require professionals to have an indemnity
insurance. Based on different regulators codes of
conduct, an entity or individual will be unable to practise
a reserved activity until they have PII in place.
Not all regulators have a compensation fund in practice.
Although the regulators codes of conduct

covers technical competence, they also cover
treating consumers fairly and information type
issues. This is generally covered by the
Consumer Rights Act.
Only a requirement if the unregulated

provider is member of an association
that has a code of conduct.
Although the regulators codes of

conduct cover technical competence,
they also cover treating consumers fairly
and information type issues. This is
generally covered by the Consumer
Rights Act.
Subject to advertising codes administered by the Advertising Standards Authority.
Only a requirement if the unregulated provider

is member of an association that requires PII
(however, stakeholders have informed us that
most unregulated businesses will have this in
place for their clients protection as well as
their own)
119
Not a requirement, although indemnity

insurance may be a relevant financial
protection and therefore, unregulated
might have this in place
Complaints handling,
including Legal
Ombudsman (LeO)
Sanctioning
Closure
Regulated providers must have a complaints procedure.

Written details of the procedure should be available
whenever the client requests and should be given in
writing in the initial client care letter
Complaints can be taken to the LeO free of charge for
the consumer (a case management fee is payable by
the lawyer)
Also need to sign post an approved ADR entity in
accordance with the ADR Directive320
Complaints redress procedure must be informed in the
client care letter (initial information) and must also be
made publicly available in the regulators website
Regulated providers may be investigated for breaches
of rules and sanctioned with penalties starting at
reprimands and escalating to fines, suspension and
ultimately striking off, the equivalent to a prohibition on
trading in reserved activity areas
Regulatory arrangements are designed to ensure
continuity of service for clients in case of a law firm
closing down, eg transfer of files to another firm
The self-regulatory body might have a

No access to the LeO
complaints procedure in place
ADR Directive signposting rules are
No access to the LeO
relevant although of course the UK has
implemented the Directive such that
ADR Directive signposting rules are relevant.
businesses are not required to
The Directive doesnt require participation to
participate. Some trade associations will
be mandatory but is stated to be without
have independent redress mechanisms
prejudice to national legislation making it
mandatory. The UK has implemented the
Directive such that businesses are not
mandatorily required to participate. Some
trade associations will have independent
redress mechanisms
Trade associations may have a range of penalties at their disposal including expulsion,
although this doesnt amount to a prohibition on trading. General consumer law is subject to a
mixture of private and public enforcement
Trade associations may have mechanisms to protect consumer prepayments. Insolvency law
applies
The Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 is the main UK implementing measure of the ADR
Directive and came into force in October 2015. This provides that where a trader has exhausted its internal complaints procedure, it must inform the consumer of the name and
website address of the approved ADR entity which would be competent to deal with the complaint. It should also state whether is obliged to use the ADR entity (ie by virtue of
any rules or regulations) or whether it is prepared to do so. The Directive and implementing Regulations apply only to consumers who are individuals and acting wholly or mainly
outside their business or profession. Therefore, they do not in general cover consumers who are SMEs.
320
120
APPENDIX E
Stakeholder engagement
The table below provides a list of organisations with which we have engaged since
the market study was launched in January 2016. We have also met a wide range of
regulated, self-regulated and unregulated suppliers (including ABS providers),
various price comparison websites, and a number of academics and other
commentators on the legal services market.
Type of organisation
Organisation
Oversight regulator
Legal Services Board
Approved regulators
Solicitors Regulation Authority

Bar Standards Board
CILEx Regulation
Council for Licensed Conveyancers
Immigration Services Commissioner
Institute of Chartered Accountants in England and Wales
Representative bodies
Law Society of England and Wales

Law Society of Scotland
Bar Council
Institute of Chartered Accountants Representative Arm
Chartered Institute of Legal Executives
Self-regulatory bodies
Society of Professional McKenzie Friends

Institute of Paralegals
Society of Will Writers
Institute of Professional Willwriters
Consumer organisations
Legal Ombudsman
Legal Services Consumer Panel
Providers of alternative dispute resolution services
Citizens Advice Bureau
Which?
Chartered Trading Standards Institute
Government bodies
Ministry of Justice
HM Treasury
Department for Business Innovation & Skills
HM Courts and Tribunal Service - Probate Registry
Advisory, Conciliation and Arbitration Service (Acas)
Judicial
President of the Employment Tribunal
Trade associations
Federation of Small Businesses

Society of Trust and Estate Practitioners
Society of Licensed Conveyancers
ABS and New Law Advisory Council
Employment Lawyers Association
Commercial Litigation Association
121

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6. Impact of current regulations and the regulatory framework ............................... 74

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Appendix A: Wills and probate services case study

Appendix B: Employment law services case study

Appendix C: Commercial law services case study

Wills and probate services case study

See paragraph 3.15.

There are an estimated 1,600 non-solicitor firms specialising in will writing.267

There are an estimated 80 DIY/automated providers who allow consumers to

Other providers include financial services providers such as banks, building

Differences in redress mechanisms and access to compensation between

Probate and estate administration

The experiences of consumers

Paragraphs 5.17 to 5.19 discuss a 2011 shadow shopping exercise277 that

Initial observations on competition

There are clear asymmetries of information between the consumers of wills

Moreover, as noted in paragraph 6.13, prior to ICAEW authorisation,

Going forward, we intend to gather additional evidence in relation to:

the quality of will writing services;

the role and impact of self-regulation;

the extent to which differences in redress between regulated and

how competition works in the probate sector, including the impact of

Employment law services case study

Employment law governs the rights and obligations of employers and

Reviews of settlement agreements284

Advice and representation in employment disputes, and principally those

the drafting, preparation, review and supply of employment

advice on compliance with employment law; and

advice and representation in employment disputes, and principally those

We understand that the predominant providers of employment legal services

choose to focus on advising individuals or businesses and HR consultancies

So far as the provision of advice on settlement agreements is concerned, the

So far as advice and representation in Employment Tribunals are concerned,

Individuals may also be represented at the Employment Tribunal by trade

In addition to directly engaging a legal services provider, small businesses

See the Employment Rights Act.

HR consultancies and document providers tend to offer pricing structures

The document providers we are aware of provide access to documents

The experiences of consumers

representation of individual consumers at the Employment Tribunal was

The most common complaints by individuals to LeO in relation to employment

Initial observations on competition

Our initial observation is that employment services are provided by a wide

For individuals, regulatory restrictions relating to settlement agreements

Our current understanding is that employment disputes can vary significantly

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