Wednesday 11 July 2012 by John Hyde

Competition from new market entrants is forcing law firms to offer services and prices they cannot hope to deliver, according to the Legal Ombudsman. In his second annual report, Adam Sampson (pictured) raises concerns that under-pressure firms are cutting corners and making unrealistic promises.

He also warns of a potentially 'disastrous' risk of a legal sector equivalent of recent mis-selling scandals.

Sampson says there is no threat to professional ethics from new entrants to the legal market - but that existing firms offering fixed fees must be monitored in case 'cheap and cheerful tend into cheap and shoddy'.

'Fixed pricing in legal services is not always possible,' he says.

Price competition is also forcing firms to consider commoditisation and using less qualified individuals, or IT systems, to complete transactions.

Sampson said this was risky, not least because of the unreliability of automated systems and the different nature of individual cases, and service sometimes falls short of what consumers expect.

Sampson said there have been a number of complaints from customers who lost money on unrealistic no win, no fee promises or confusing legal insurance policies.

According to a poll commissioned by the ombudsman 74% of people do not know what financial cover their legal expenses insurance policy provides.

He said the arrival of new commercial products is to be celebrated but warned it would be 'disastrous' if the legal sector was exposed to the risk of its own version of the banking sector's payment protection insurance scandal.

During the last financial year, the Legal Ombudsman's Office undertook around 8,400 investigations from the 75,000 enquiries that were lodged.

These resulted in 7,455 cases resolved, 18% of which related to family law, 15% to conveyancing and 12% to wills and probate.

The office cost £17.3m last year to run - lower than the £19.7m budget - and was paid for through Ministry of Justice funding, practising fee levies and charges made against firms subject to three or more investigations.