Regulators and solicitors refusing to disclose pricing information will be ‘held to account’

What has happened?

On the 15th September 2021, the Legal Services Board sent out a warning to both regulatory and solicitor firms concerning the disclosure of information to clients. The board outlined a long-term ambition of greater price transparency throughout both professions, intending to achieve this target by ‘clamping down’ on law firms not appearing to fulfil this requirement.

What Does it Mean?

The Legal Services Board demonstrated its seeming growing frustration with industry regulatory bodies and legal firms falling short of expected standards. The LSB urged Regulators to step up their game in complying with regulatory requirements. Further, it appeared to emphasise the importance of communication which allows clients to make informed decisions easily. The Regulator provided clear examples of actions expected to meet this industry standard. Firstly, through clear communication about prospective prices. Secondly, it offered pragmatic guidance on the choice of pricing arrangements such as the traditional graded fee earning, fixed-fee arrangements and disbursements. Whilst the consequences of poor compliance have not yet been revealed, the Legal Studies Board suggested that harsh repercussions could be expected for those not shaping up.

What Impact Could it Have on the Legal Profession?

It seems more likely that the previous guidance approach will be replaced with new rules to meet policy objectives with guidance introduced to improve compliance. There is increasing speculation that additional transparency may mean a requirement for prices to be displayed, both including and excluding VAT and disbursements. For example, barrister fees need to be considered early. With the long-term goal of greater price transparency, it appears the profession is moving towards a policy of helping clients understand the cos t being charged by providing the reasoning behind pricing policies. The Legal Services Board ‘expects’ regulators to use a needs-based approach and ‘engage meaningfully’ across the board to assess if the clients are satisfied with the services being provided.

The new approach seems to be a direct-descendent of the original criticism from the Competition and Markets Authority back in 2016 and 2020, respectively. The CMA was stinging over how little information was given to clients when making critical decisions about which law firm they would choose.

Whilst the aims of the Legal Services Board are laudable and probably being introduced with good intentions, there are untold negative consequences for adopting a price-transparency policy. The OECD Secretariat described the policy as a double-edged sword.

For example, the OECD said it could lead to ‘conscious parallelism’ and ‘anti-competitive coordination ’ among legal service providers. It could move down the road of competition law breaches whereby one firm in the marketplace proceeds to increase the costs for providing its services in the hope that other parties will do likewise. If firms adopt such a policy, they risk breaching competition law and losing access to valuable customers and revenues.

The profession should balance the risk of competition law breaches with business needs to have a cutting edge. Dr Vincent Mak of Cambridge University summarised the middle ground all businesses follow when adopting transparent pricing practices . For some businesses, revealing their pricing structures risks confidentiality and perceptively hands rivals an advantage . For many, it is one disclosure to avoid .

However, on the other hand, Cambridge University claims other businesses use it as a unique selling point. With the advent of the Economic, Social and Governance (ESG) movement sweeping the profession, this appears to be a trend towards providing more information about safety compliance , carbon emissions and supplier information .

Dr Mak believes this approach is not suited to every business and compared the examples of fashion retailer GAP’ non-price disclosure and perception of quality with its competitor Everlane’s complete cost transparency approach. ?Cambridge University effectively suggested to the Legal Studies Board the limits of the one-size-fits-all approach and advised the LSB to tailor its approach to the needs of those affected.

Anyone likely to be affected by the Legal Services Board consultation can provide their response here .

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This Article was Written Using the Following Sources

[Source 1] Draft Statement of policy ?– empowering customers Legal Services Board – ?Empowering Consumers Draft Statement of Policy (legalservicesboard.org.uk)

[Source 2] Draft Statement of policy – empowering consumers – Legal Service Board - Empowering Consumers Draft Statement of Policy (legalservicesboard.org.uk) – September 2021

[Source 3] Section 49 of the Legal Services Act 2007 - Legal Services Act 2007 (legislation.gov.uk

[Source 4] Section 31 of the Legal Services Act 2007?Legal Services Act 2007 (legislation.gov.uk)

[Source 5] Hyde, John – SRA under pressure to demand more price transparency – 15th September 2021 SRA under pressure to demand more price transparency | News | Law Gazette

[Source 6] OECD Policy Roundtables – Pricing Transparency 2001 - Price transparency negative effects OECD 09.11.2021.pdf

[Source 7] Mak, Dr Vincent and Raghabendra – Cambridge Judge Business School – 14th January 2019 - Cost transparency – or not - News & insight - Cambridge Judge Business School