Business clients are equally happy with the quality of service from regulated and unregulated lawyers – and some may ditch their regulated lawyer if they can find a cheaper alternative.

Research commissioned by the Solicitors Regulation Authority found that more than 80% of SMEs were satisfied with both types of providers, irrespective of whether they were regulated or not. But there remains a concern about the quality of certain types of unregulated firm, with the perception that rogue traders were more likely to crop up where there were no regulatory standards to meet.

Researchers concluded that high satisfaction levels with unregulated providers may be linked to clients having lower expectations or lacking a clear understanding about what high-quality advice means in practice.

Surveys of more than 500 small and medium-sized businesses found of those that had faced a legal issue in the past two years, 47% reported going to a solicitor, barrister or licensed conveyancer for advice; 30% had sought advice primarily from other businesses (in particular financial advisers and claims management companies); and 20% had primarily obtained advice from non-professionals, such as family, friends and online forums.

Respondents reported a preference for choosing a regulated provider over an unregulated one, with 87% choosing the regulated option where fees were similar for each.

But consumers also perceived unregulated providers as more affordable, which could be significant as the economic slowdown forces businesses to re-examine costs. The unregulated sector was also perceived to be using more innovative technology.

Interviews with the legal sector confirmed that 48% of unregulated providers expect demand to increase in the next year, with only 4% expecting a decrease. Unregulated providers, particularly will writers, were optimistic when asked about potential business impact in an economic downturn.

The majority (62%) of SMEs expected to be more likely to experience legal issues in an economic downturn, particularly due to issues with the purchase of goods and services, and employment, and while just 17% of consumers indicated they might switch lawyer, price was the most common reason they cited.

The unregulated sector is still relatively small, comprising at 3,800 providers employing over 20,000 people and generating annual revenue of £2bn. This is just 6-8% of the overall legal services market. Wills and estate administration (excluding probate) is the most common unregulated service sought out by consumers.

Researchers said there was evidence that consumers may overestimate their understanding of whether providers are regulated and unregulated. While 82% of consumers reported that they knew their lawyer’s regulatory status, only 33% of providers believed that their customers understand the difference between regulated and unregulated providers.

The report said there was a ‘potential opportunity’ for the likes of the SRA to improve the availability and transparency of regulation.

Reflecting on the report, SRA chief executive Paul Philip said: ‘Helping people to understand what their money is buying, and not buying, when they engage a legal services provider will help them make good decisions about the service that is right for them. That is all the more important as the non-regulated market develops.’