The Espirito Santo Investment Bank released its report, The Legal Services Market: The Race Is On, in London yesterday (10 October).

The report predicts that the Legal Services Act 2007, which commenced on 6 October, will pave the way for big companies to enter the legal market.

"The high street heavyweights, such as retail banks and supermarkets, will change the rules of the game," said the report. "Many established brands entering the legal market have the advantage of finance, scale, reputation, distribution, awareness and loyalty, and can offer services that are both cheaper and more accessible than traditional legal practices."

Under the reforms, which will deregulate the British legal sector, any business with at least one qualified lawyer can apply to be licensed to offer a full range of legal services under new trading bodies known as Alternative Business Structures (ABS).

The report predicts that law firms will have to look to adopt more aggressive advertising strategies to survive.

"Law firms will have to explore marketing and advertising options to create distinguishable brands, and focus on lowering costs, if they are to compete," said the report. "This will mark the advent of legal brands, in a similar vein to retail chains."

The UK Justice Minister, Jonathan Djanogly, said the commencement of the reforms represented a "landmark day for the UK legal industry".

Many British legal groups have expressed disquiet about the reforms.

Young lawyers should be paid more

The report also predicts that the ABS reforms will lead to increasing numbers of British law firms choosing to list on the stock exchange. This will result in higher salary increases for young lawyers and give non-lawyers more clout in law firms.

"Increasingly, young lawyers have been unimpressed and disincentivised by the anachronistic structure that requires continuous employment for 25 years to monetarise their talent," said John Llewellyn-Lloyd, the head of the professional services team at Espirito Santo. "The modern young lawyer will naturally respond to shorter remuneration cycles. ABSs will provide managers with the tools to break the long partnership remuneration cycle and replace it with bespoke incentive plans based on three to five years."

The report predicted that these reforms have provided a "perfect storm" of change in the UK legal market, and that its effect will be "huge".

It predicts that clients are increasingly demanding a "one stop shop" for legal services, in a similar way to shops.

The report said that at the upper echelon of the UK legal chain, the five established Magic Circle firms at the top of the tree will face increased competition from five to 10 "key providers of volume legal services".

It also predicted that more British firms would look to enter into global mergers.

The trend towards outsourcing was also noted in the report. It said large companies might seek to outsource their whole legal team in the future, and that law firms would increasingly look to outsource process driven elements of practice to focus on advisory components.