Guarantee Fund: whose benefit?

After a strange silence on the subject, there have finally been a couple of passing nods in the direction of the Guarantee Fund in the ABS debate. Remember that it is an “important client safeguard which also brings benefit to all parts of the profession in private practice. These benefits must be preserved in any new regulatory scheme”.

Can we take a close look at that, please?

Admittedly it is an important client safeguard. But at the risk of doing the Emperor’s New Clothes thing again, can I ask: “What benefits to us exactly?” The only one I can think of is the old chestnut about the solicitor “brand”. Quite frankly, I would imagine that the majority of us serving the majority of private individuals in Scotland would question the strength of the solicitor trademark after the umpteenth lawyer joke or complaint about having to pay fees. How many people have any idea what a solicitor – specifically, rather than “a lawyer”, or even an advocate – actually is? How many of our clients simply think of us as “ma lawyer”?

Let’s be honest, as brand identity goes, it’s hardly MacDonalds (although coming from Dumfries and Galloway, I’m waiting for Dolce and Gabbana to offer franchising) – otherwise the OFT, consumer lobby and Government would all love us too, and would back off from us in the same way that the forces of change for the sake of change backed off from external ownership of GP practices. Does anyone seriously think that our “brand” is up there with that (assuming they ever demeaned their profession in such a way) of GP in the public eye?

So how does the Guarantee Fund benefit us mere mortals? Marketing? “Instruct us. If we rip you off, everyone else in the same boat will pay for it!” What a nice positive message managing the client’s expectations. No. It’s just a cost, and like all costs, one which seems to get bigger and bigger all the time.

But what will happen to that cost post-ABS? Can a post-ABS “global” industry still cling to an old-fashioned traditional idea such as a Guarantee Fund? Can it be afforded? Has anyone thought of how much the Guarantee Fund could cost us?

Bear in mind that by that time the big firms or corporations will probably only be paying for one practising certificate per department (and therefore one Guarantee Fund contribution, unless the token solicitor isn’t a principal), because many people in the big firms don’t do reserved business and therefore don’t actually need a practising certificate to make money. They’re still lawyers. Just not “solicitors”. Big loss. In-house finance departments are hardly going to agree to dubious “status” costs in these days of tightening budgets in the public and private sector. Even if they don’t, the shareholders will probably have something to say about the matter. They’re hardly going to accept a reduction in their dividends so that some of the staff can feel warm and clever about themselves unless it boosts the bottom line, so that’s about 30% or so of the profession (assuming some individuals stay with us) gone.

Bear in mind that employed solicitors aren’t called on to contribute anyway. So this shouldn’t turn the hairs on the heads of the in-house sector grey.

Therefore the cost of the Guarantee Fund (and, indeed, the Master Policy and possibly the Law Society itself) will be borne pretty much by the High Street, who do need it to do what they do. The Guarantee Fund has already had one or two creaky moments while we’ve predominantly covered business in our own wee neck of the woods. If ABS is going to be the Big Bang of the Scottish profession (or at least some parts of it), how much will the rest of us have to cough up from our income from SLAB or unrealistically low conveyancing fees (when conveyancing starts to re-materialise) to pay out some huge client from overseas who claims to have been ripped off by the foreign department of a multinational with a Scottish office? Jurisdiction shopping indeed. What would you advise a client who came to you in that situation?

Has anyone done a risk assessment on this? How much could our unlimited liability Guarantee Fund cost each and every one of us who actually needs a practising certificate to work? Theoretically, the Guarantee Fund, with one big multinational hit, could wipe out the whole High Street sector in the legal equivalent of what just happened to the banks. What’s that going to do for “consumer choice”? I don’t see any other industries waiting in the wings with bated breath to move into children’s law, divorce (unless there’s pots of money at stake), protective orders in abuse cases, legal aid and all the other areas covered by a shrinking high street, but essential to the wellbeing of the most vulnerable in our society. Even if they wanted to, could the Government afford to carry out another bailout, and what would that do to the independence of the profession?

And what an attraction Guarantee Fund liability will be for the external investors whom the proponents of ABS tell us we need. Imagine selling unlimited personal liability to Duncan Bannatyne on Dragon’s Den? Good luck. An investor would have to be off their head.

So, on the one hand, we have to have ABS to open up the profession to investment market forces. However, on the other hand, we have to retain old-fashioned, “All Chaps Together”, unlimited liability mutual funds whereby some of us (who are just trying to look after the people who are supposed to be represented by the self-appointed “consumer lobby”) sign a blank cheque to underwrite the honesty of goodness knows who. Which is going to dissuade anyone investing in that sort of risk. Investors are likely to be rather more sophisticated and cautious than those who are trying to direct policy in this debate.

Yossarian would love this one.