New Order
Date: 20 February 2009
Authors: Linda Packard
Issue: Vol 159, Issue 7357
Categories: Features, Legal services, Other practice areas, Wills&probate
Probate is becoming an overcrowded market. There are many new entrants into legal services and in particular this sector of the market. These new “Tesco Law” competitors are expected to use their branding, existing channels to the retail market, IT capabilities and economies of scale to take significant market share away not only from small high street law firms but also the regional players. It is expected that in the wake of the current credit crisis up to 3,000 firms will have disappeared.
Trust corporations, traditionally owned by the banks have been around for a long time. New entrants are using this structure combined with, in most cases a powerful consumer brand to enter the market. These commercially astute entrants see this market as a
Fragmentation
The probate market is hugely fragmented and largely undervalued. Many practices provide a one stop shop for all legal services. Increasingly the client is seeking a specialist not a generalist. Clients are looking for expertise; fixed fees; regular communication and updates; frequent distributions; support and a process that is not unduly lengthened by a lack of knowledge on the part of the practitioner. Gone are the days when a client was content with an estate administration taking over a year. They want the money and they want it now.
Moreover there is a great deal of information available on-line and the client can access this at will. It is the role of the specialist to add value to that information.
Unfortunately there is a shortage of specialists. Few practitioners specialise in estate administration and even fewer provide a service that covers the whole of
Geography
A fundamental difference between these large institutions and the traditional solicitor undertaking probate is their geographical cover. Traditionally solicitors service local clients, unless they are a national firm. The new entrants have no geographical limitation. They are powerful players in this market because in many cases they have unlimited amounts of money to make the venture a success; the power to buy in expertise and IT and early access to the points of influence for a bereaved family. It is a well known fact that the earlier contact is made with the executor the more likely the firm or company is to be appointed to administer the estate. These factors combined with a well known trusted brand make the new competition a significant and continuing threat.
Traditionally solicitors have been appointed as executors in wills and have felt that this provides them with a stream of potential future income, as without a court order, it is extremely difficult to force an executor to renounce. This stance is unsustainable in the future and clearly breaches the principle of “treating customers fairly” which is being applied in an increasingly prescriptive manner by regulators. Despite the arguments that “it was what the testator wanted” or that there were good reasons for being appointed, it is often plain to the family that the only reason solicitors will not renounce is so that they can charge for administering the estate. In our experience some solicitors even charge to renounce, thus destroying the argument that the testator wanted them to act. Further increasing the pressure to change, many large institutions now provide a will writing service and naturally are going to want to promote their own trust corporations as executors. The negative publicity involved when a solicitor refuses to renounce or even worse charges for renouncing, is impossible to ignore in a world where the rights of the customer are paramount.
Wills are however not the only way to obtain a stream of future income. The larger institutions are moving in as early as possible after the death. What is to stop funeral directors offering probate services through their own trust corporation or a third party? How long before probate is included in the funeral package?
Protection advice
What should solicitors do to protect themselves? They need to recognise that client’s needs have changed. Clients do not want to wait a long time for the grant application to be obtained; they want to have access to whoever is handling their case, estate accounts on demand and they want quick distributions and monthly updates. Most of all they want to know how much it is going to cost. Hourly charge out rates are not client friendly, do not promote efficient working practices and arguably are not in the best interests of the client.
To compete with these new entrants, solicitors have several choices. In simple terms, they can merge, close or specialise. The impact of the credit crunch can be seen in the number of closures and mergers already taking place. Specialism provides an alternative route, but to specialise in estate administration will require them fundamentally to change their processes and outlook to compete with the consumer brands of the new market players. To sustain this expertise strategy they will need to specialise in this one area and will therefore have to divest themselves of other areas of work. Alternatively they can deicide to specialise in other areas in which case they will need to divest themselves of the estate administration work by outsourcing it to one of the new entrants. Firms who have already outsourced their work to our company have found that we can provide better value for money, a more client friendly service, and most importantly, actually increase fee income for the practitioner.
Outsourcing to a reliable provider can bring many benefits. The profit element of the fee is guaranteed. No more “writing off” time that is unrecoverable. The resulting time bonus for the practitioner should enable them to focus on their core specialism and thereby improve the overall profitability of the firm.
Outsourcing
Outsourcing will also protect the firm’s professional indemnity insurance. Where a practitioner only undertakes a few estate administrations a year there is a heightened risk of something going wrong and a potential claim on the PI insurance could result. The risk is therefore reduced by outsourcing the work to experts.
When considering outsourcing there are certain fundamentals that all firms should consider. First of all what are you going to outsource? Wills, administration of estates, tax work, preparation of accounts, trusts? It is important to remember that the aim is to reduce costs and improve client service. Ask yourselves “Can you do both?” If the answer is no consider outsourcing that function. Second look at the financial stability of the company you are going to outsource to. You want to make sure they are an organisation with the necessary expertise and reliability and are not going to disappear over night.
Survival
Can solicitors survive in the new order? It is now a fast changing environment for legal services and especially for high street practices. As all the major organisations are doing in the current climate, solicitors need to adapt and to specialise to survive and in order to do that they need critically to review their business model and understand the financial and operational impact of their non-core activities. If this includes wills and probate they should consider outsourcing to specialist providers. It’s up to solicitors to change, form new alliances or lose market share.
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