14 September 2022 Mini Series: The Business of Law Firms - Alternative Legal Services

Mini Series: The Business of Law Firms
Alternative Legal Services​

What do you need to know this week?

Welcome to our eleventh article in TCLA’s series on the Business of Law firms.

Last week, we looked at the encroachment of US law firms on the UK legal market. Specifically, how US firms are increasingly dominating the UK corporate market in London and what this means for UK firms’ success domestically and internationally. While the stakes are not necessarily existential — the top earning UK firms have posted bumper revenue figures the past couple of years — the threat of further US competition no doubt informs the strategies employed by these firms’ senior management.

One strategy among others that certain UK firms are pursuing is the diversification of their income streams into non-traditional lines of business. This week’s article will provide an overview of one of the hottest examples of this, this alternative legal services market.

The Alternative Legal Services Market

Alternative legal service provider (ALSP) is an umbrella term that describes the delivery of legal services outside of the traditional model of then clients instructing private practice law firms to provide certain legal services. Instead, depending on the task in question, clients are increasingly favouring ALSPs for the simple fact that they are ideally cheaper and more efficient.

Most services ALSPs deliver relate to so-called “high-volume, low-value” work. As Practical Law notes, these services include:



Most of the original ALSP are legal process outsourcers (LPOs), which are independent businesses that execute one or more high-volume, low-value legal tasks, either for law firms or the in-house legal teams of large businesses. Today, according to Thomson Reuters, LPOs still hold the majority of the ALSP market share.

However, law firms are increasingly developing their own ALSP offerings, usually through captive subsidiaries, which refer to entities that solely provide alternative legal services yet are wholly owned by the traditional private practice law firms. Captive ALSP subsidiaries now represent the fastest growing segment of the market, growing at a rate of 30% a year, according to Thomson Reuters.

How is this topic relevant to law firms?

We will address this in more detail next week, but for law firms investing in their own alternative legal service provisions, there are two principal benefits:

First, alternative legal services cut cost expenses because they can transfer high-volume, low-value tasks away from lawyers and other fee-earners to dedicated departments. In most cases, these departments are based outside of London to further lower costs (salaries, leases, etc.) in cities like Manchester, Glasgow, and Belfast. The effect of this is the reduction of operating costs, especially salaries, which in turn increases profits.

Second, law firms with captive subsidiary ALSPs indirectly create an entirely new line of revenue because they can refer clients to these entities.

We will look at specific examples of certain law firms’ ALSPs next week.