James Tuke takes a look at the effects that impending legislation may have on barristers

When it has finished weaving its circuitous route through a congested parliamentary process towards the end of 2007, the Legal Services Bill is likely to induce the most significant round of restructuring the legal profession has experienced in living memory. New research containing analysis and opinion from respected commentators across the legal profession and beyond has described the impending legal reforms as a 'Big Bang' moment for the legal profession, similar in size and scope to the equivalent legislation in the financial services markets of the late 1980s.

Published this summer by Thomson Sweet & Maxwell, 'Brave New World: Impact of the Legal Services Act' is the result of a two-year investigation by Intendance Research, in conjunction with LPA Legal Recruitment, following in the wake of the Government-commissioned Clementi Review. The report reveals the threats and opportunities presented to the profession by the forthcoming legislation, based on the results of two groundbreaking surveys among senior opinion-formers within – and outside – the legal profession, including Geoffrey Vos QC in his capacity as Bar Council chairman, former Law Society president Fiona Woolf and Tony Williams, former managing partner of Clifford Chance and Andersen Legal.

Intendance has long been providing research to the legal profession – principally focused on the online activities of chambers and firms – alongside its website development services and new barrister time-recording system. When Sir David Clementi's recommendations for the modernisation of the legal sector were announced in 2005, we recognised that our clients would need to prepare for groundbreaking reforms that, in the opinion of Professor Stephen Mayson, director of the College of Law's Legal Services Policy Institute, "are meant to be cataclysmic – bringing about an upheaval in the structure of the market and its methods of delivery".

It should be pointed out that just months before the Bill is expected to be enacted there still appears to be a widespread lack of awareness of the reforms and their implications. This apathy may be partly attributed to the popular misconception that the reforms will have an adverse affect only on high street firms at the retail end of the profession. However, while the research shows this attitude to be broadly well-founded, both commercial firms and the Bar will not be immune to the effects of the new legislation: nearly 70% of our respondents believe that high street lawyers will be either significantly or drastically affected by the reforms, but none thought barristers and other solicitors would remain unaffected.

Change naturally takes time to bed down and be accepted and adapted to by those it affects but, with the news that financial services groups such as the Co-op and Halifax are starting to offer legal services to compete with some retail firms, some in the legal profession might feel the barbarians have arrived at the gate already. Though this development is akin to a ripple in the ocean, the analogy is apt. The corollary of deregulation in this case is likely to be increased competition, integration and a more relaxed approach to outside ownership, particularly with the introduction of Alternative Business Structures (ABSs). The latter change is probably the most seismic: how will law firms and chambers adapt to – and meet the challenges of – an invasion of different management styles, operational systems and strategic principles?

In order to gauge opinion from opposing sides of the market, a small group of senior non-lawyers was consulted and their thoughts on the retail end of the sector matched the findings in the survey. The Clementi Review was known to have the interests of the consumer at its heart and the implementation of ABSs would seem to back this up. By allowing non-lawyers to own law firms, the floodgates have been opened. Multinational companies looking to expand their portfolio of industries will be able to use their brand power, advanced operational systems and general economies of scale to take a significant slice of the market. This is not to suggest that the so-called 'Tesco law' will come to dominate the legal landscape in the foreseeable future, but nearly 75% of respondents agree that within a year a major organisation from outside the profession will acquire or establish a law firm. Retail firms are shown to be most at risk from such a scenario because of the commoditised nature of some of their practices (for example personal injury, conveyancing and will-writing); practices that a supermarket, for example, could systemise and distribute via its superior technology and established retail network.

While this will have little, if any, affect on commercial law firms operating at the higher end of the market, the movement of law – traditionally a knowledge-based discipline – towards being a more process-driven, administrative practice has many implications. With the help of better technology, it is not beyond the realms of possibility that, having been successful in the volume end of the legal market, a large retail player will then turn its sights to higher-margin work in, say, M&A. Some supermarkets have extensive legal experience and could use their knowledge of processes and models to streamline components of an M&A deal.

However, the quality of legal advice dispensed by legal professionals working under ABSs has been called into question. Barristers, in particular, are concerned about this issue, expressing more concern than any other group; more than three-quarters fear that quality could be jeopardised. As for forming an ABS themselves, the majority of barristers are against the idea, 66% saying that they would not be encouraged to follow this option at all. In comparison, just 26% of solicitors gave the same answer. The kind of firms more open and willing to establish ABSs are likely to be smaller niche firms with ambitions to move up the ladder, having spotted the potential in the reforms to raise capital, hire rainmakers and implement growth.

One possible tactic barristers and solicitors can use to offset the threat – if they see it as such – from outside ownership is integration. As soon as the Legal Services Bill has been given Royal Assent towards the end of this year, the two halves of the profession will be able to form partnerships called Legal Disciplinary Practices (LDPs). While solicitors are relatively enthusiastic about this prospect – 70% of them either could see some advantages or welcomed the new LDP system – half the barristers surveyed either thought the idea was anathema or should be discouraged.

Looking further into the future, the ability of ABSs to provide greater levels of capital is likely to have a profound influence on the traditional relationship between client and law firm. While top-end work will remain bespoke, investment in IT will enable some legal work to become standardised, then sold as a package. This increase in efficiency will have two effects. Firstly, it will empower the client to place a value on such legal advice and secondly, it will force law firms to consider changing their current profitable business models built on the simple ratio of hourly billing for advice dispensed. As Mark Chandler, general counsel of Cisco Systems, argues: "The very source of success for law firms today – the ability to manage client access to information and require clients to use bespoke one-to-one systems – will be the source of failure in the future."

James Tuke is head of Intendance Research.