Taking the law into your own hands
The introduction of the Legal Services Act on 6 October this year in England and Wales represents one of the biggest shifts the country has ever seen concerning how consumers can access legal help.
For the first time, businesses outside the legal sector will have the ability to offer their own full range of legal services under their own brand, as part of the Act's Alternative Business Structures (ABS).
The aim is to widen consumers' access to legal services, increasing choice and competition.
This means that anyone who is not a lawyer will be able to own a legal firm, as long as it is managed by a qualified lawyer who will oversee the work of any non-lawyers and ensure compliance with the rules of the Solicitors Regulation Authority (SRA).
Yet, what could this mean for the housing industry and mortgage brokers? Are we about to see a flood of conveyancers looking to take advantage of a multi-billion pound industry?
Taking on a completely new industry certainly requires careful consideration. Not least because brokers applying to become an ABS will face dual regulation from the FSA and SRA.
Nevertheless, brokers will be on familiar ground given that the Legal Services Act is based closely on the Financial Services and Markets Act (FiSMA), meaning the SRA will have a very similar approach to that of the FSA.
Ann Morgan, ABS manager at the SRA, said: "The Act is a huge change and a great opportunity for legal services to broaden and to link up with other services like mortgage brokers. This gives the opportunity to offer legal services under one brand, building your customer base, and cross marketing to clients."
The SRA does not know the extent to which companies will take up the opportunity, but Tesco, Co-op and Saga have already signalled their intent to extend their businesses into legal matters.
Applications will be accepted by the SRA from August and licenses granted from October. The SRA has seen enquiries from a broad range of firms looking at innovative opportunities, including small firms considering setting up a legal offering with their local counterparts.
Eddie Goldsmith, senior partner of Goldsmith Williams, believes there is a huge opportunity for the mortgage industry to get involved.
He said: "It comes down to control and brand. It's about feeling that you're better at dealing with your client than lawyers are.
"However, it's not something to be trifled with. There are detailed rules and it's not for the faint-hearted."
Indeed, becoming an ABS means that a non-lawyer owner of a legal firm will be directly responsible for all legal work done by his staff. If something goes wrong in his firm, he will be hauled up by the SRA.
As such, Goldsmith believes that smaller firms will not look to take on legal services themselves, but leave it to larger businesses, such as networks and estate agents.
In particular, he foresees mortgage firms going beyond conveyancing to offer private client services, such as wills and probate - all potentially lucrative markets.
Yet, brokers are hesitant about the idea of branching out into the legal profession.
Ben Thompson, managing director of Legal & General Mortgage Club, said: "It is highly unlikely we will ever go into offering our own legal products, because it's not core to what we do."
He added: "The real, genuine financial planners are more likely to embrace this, as it is an opportunity. But the caveat is that you have to do it properly, with the right qualifications and service."
It also cannot be ignored that the conveyancing sector is facing increasing regulatory pressure from the SRA and Law Society. In addition, lenders are doing more due diligence on the conveyancers they work with and culling panel numbers in an attempt to crack down on fraud.
Jonathan Cornell, communications director of First Action Finance, said: "A solicitor's core function is to work for the client or on behalf of the lender. If they are employed by brokers, the duty to the client is eroded. What happens will ultimately be decided by the lenders, which are slowly culling conveyancers and ring fencing those they trust."
Goldsmith does not believe lenders will consider using ABS. But he adds that this should not stop brokers considering commoditised services, such as wills and probate, under their own brand.
However, Cornell said: "There is a huge difference between mortgage and legal services. I think it will be a step too far for most people."
Nevertheless, in order to explore and understand how the mortgage sector can maximise the potential opportunities of ABS, Goldsmith Williams is running an event on 27 June 2011 in London, supported by media partner Mortgage Solutions.
And for those who remain unsure about ABS and want more information, Morgan encourages them to contact the SRA.
Indeed, in a market that remains extremely tough, looking into all potential avenues of new business is something that always deserves consideration.
For more information, go to the SRA website.
Content correct at time of publication