SRA Freedoms – a Real Opportunity?
On 25 November 2019 the SRA brought in a raft of changes to the way in which lawyers can practice as solicitors under their regime. I have written a book about the subject, taken part in podcasts and webinars and, a little over six months on, I thought a reflection might be useful.
Non-SRA regulated entity model
This model was clearly in the SRA’s mind for charities and law centres and in order to promote access to justice. That is not our experience of as a law firm advising those contemplating it. That might be because that is not our natural market, we are a niche advisor to advisors rather than a charitable or similar natural advisor. The bulk of the enquiries we have received have come from individuals who are either historically locum solicitors or have a limited company and have been providing legal services either as a non-practicing solicitor, in relation to unreserved legal activities, or in an in-house capacity and now want to use their experience of being in-house for businesses to serve multiple businesses.
It was a point that I noted and predicted some years earlier when the concept was first mooted; however I have been stunned by the potential take up and struck by the interest in this area from those parties looking effectively to find a solution to be able to offer legal services to the public without the distraction, hassle and onerous obligations of starting a law firm and, if it does not work, the risks of incurring run-off cover.
To a certain degree I suspect run-off cover for traditional law firms is a major factor, although in my view it should not be. The simple business focus of “does this work for your client base”, whether that be multiple companies who want to take you as an in-house lawyer one day a week or two days a month etc, or “is your client base a tightly grouped typical client such as a tech space or scientific grouping of companies”, in which case the model can work well but needs to be set up properly.
In recent months we have written numerous advices to clients on the pros and cons of this business model, including the limitations in terms of insurance and the risks that are entailed. We have also written terms of business and contracts to make this option a reality for a number of individuals operating through a limited company when that limited company is not itself going to be regulated by the SRA.
Of course those individual lawyers remain regulated by the SRA under the model, but it is a freedom that I imagine is difficult for the SRA to track in terms of its trend. For me and our client base it appears to be a key trend from the 2019 freedoms.
The SRA regulated freelance solicitor, that is to say somebody who is working on their own, in their own name and not through a limited company or LLP and is trading effectively as a sole trader, was the option of the SRA’s freedoms which probably attracted the most comment. I indeed wrote a book regarding it. It remains a return to the 1960s/1970s sole practitioner model.
The personal liability though that existed in that era as a default position for solicitors and professionals is of course not the era in which we live now, and the risks have changed. Whereas perhaps 20, 30 or 40 years ago clients would not have routinely sued their solicitor if something went wrong. That is no longer the case.
The emphasis on consumer protection and the emphasis on empowering people and businesses to protect their rights over the last thirty years or so has led to a situation whereas this business model is now far risker than it was when solicitors could not incorporate. Since the 1990s the trend has very much been on protecting individual assets and it remains something that I am keen on, despite having written the book on freelance solicitors and having being commissioned by the Law Society to write their Practice Note on Freelance Solicitors. For the right kind of solicitor and the right of practice area, i.e. non-transactional and relatively low risk, then it is an exceptionally good option. However, those clients adopting it need to be comfortable with the personal liability risk in the event that the insurance they take out fails.
The rules around freelance solicitors are unusually complex. This complexity is proving to be a real practical barrier. I am aware from discussions almost twelve months ago, and long before the SRA brought in the model with senior members of the team who brought this through the SRA process that they are aware of some of the restrictions and they do arise as a consequence of either the Legal Services Act 2007, or alternatively as a result of the rule restrictions which are difficult for the SRA to lift as a consequence of the oversight regulators expectation. Regular readers of this blog will know that the oversight regulator is the much-derided Legal Services Board.
The SRA published figures indicating that there were 149 freelance solicitors registered with them in June 2020. Therefore the take up is as I predicted, modest but steadily growing and it is a model that will continue to grow as both insurers and practitioners become more familiar with it and, for example, those who undertake high risk and high value work will conclude it is not a model that is sensible for them but there are other freedoms including the non-SRA regulated model which may be stronger in terms of the structure for risk management and actually for simplicity, given the rules are clearer than freelance solicitors.
Anyone making the move to being a freelance solicitor needs to be committed to managing risk effectively to the highest degree, given the structure of the model and also needs to be comfortable taking the significant compliance steps that are necessary in terms of the letter of engagement, the notices to clients and terms of business that go hand in hand with this model.
The SRA introduced freedoms to try and introduce challenge into the sector. There are around 10,500 law firms and the evidence is that with Covid-19 the number of law firms actually is likely to go up as lawyers leaving established law firms as a consequence of redundancy or a love of home-working seek to move away from the larger law firm model. It very much looks like, except at the international and city level, as being the model of the last century rather than this. Those freedoms though will be attractive to many of those individuals and these are exciting times to be launching a legal business.
Mark and I have always given a lot of advice to other lawyers on the structure of their business and undoubtedly these new freedoms mean that there is a wider regulatory question before there is a business sense question to be engaged with. We are of course delighted to help so if you need to get practical, commercially focus legal advice on the right structure do get in touch.