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April 8, 2016 0

Lawyers are failing to meet the needs of Small and medium-sized enterprises (SMEs), according to the Federation of Small Business in response to a Competition and Markets Authority (CMA) study into legal services in England and Wales.

During their on-going survey of the legal service industry the CMA has pledged to examine concerns regarding the affordability and efficacy of legal services, in addition to a further investigation into the complexity of the current regulatory framework. The results of the survey have so far been decidedly negative, and many small to medium businesses have informed the competition watchdog that the legal services industry is not currently serving them effectively.

What are the main concerns for SMEs?

In response, the Federation of Small Businesses (FSB) has called for a thorough look into the way the legal sector works with small businesses, whilst also admitting that the perception of legal services does play a part in these findings. The purported high cost and seemingly open-ended nature of legal proceedings were cited as the two main concerns preventing small businesses using lawyers, as with many legal professionals choosing to charge hourly rather than via fixed fees this can make business owners wary of runaway costs.

lawyers confusing SMEsAnother concern raised by many small to medium businesses is a perceived lack of understanding from lawyers, especially when it comes to the finer points of certain industries. The notion that legal action represents the highest form of escalation makes it seem like a last resort option for many. In closely knit industries an overly aggressive response to a minor dispute could be seen as damaging to future business prospects. This distrust from SMEs of legal practitioners and their methods then leads to a reliance on self-help solutions and accountants, with the latter often benefitting from a close and consistent relationship with their client.

One of the major findings of the report so far is that SMEs are experiencing great difficulty when it comes to choosing legal representation. This is another reason why they instead turn to a trusted accountant for advice. The constraints of running a small business often mean that owners have very little chance to evaluate and compare different lawyers, a discovery which has prompted the FSB to demand market reforms in order to help SMEs find the most appropriate legal provider for their needs.

Addressing the problem

CMA to look further into the problemThe CMA has now been asked to look at the options available in addressing these issues, including whether a more comprehensive study into the Legal Ombudsman is needed. At present its remit does not cover dispute resolution services or unregulated providers, and for many small business claims these are some of the most frequently used services. So whilst some believe that it is these unregulated legal providers who are tainting the image of the industry, others claim that the solution lies with lawyers themselves, with their lack of proactivity on the matter deemed the root cause of their image problem.

The CMA are due to publish the initial findings of their study with an interim report in July, which hopes to determine whether the legal services market is in need of a full investigation. If so, such a study is scheduled to be published by the close of 2016.

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