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A 'trade' in law firms to emerge in 2020

Investment to flow more readily to law firms, report suggests 

6 June 2013

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By Manju Manglani, Editor (@ManjuManglani)

UK law firms will have a more ready flow of investment in 2020, according to a new report.

The report Legal Innovation 2013 suggests that, as both investors and law firms better understand each other’s requirements, there will be greater investment flowing into law firms.

It says that a process of natural selection will “thin out” firms without the backing to compete and predicts that a “trade” in law firms will emerge as investors look to exit.

Law firms will however need to adopt “proper performance metrics” as part of their efforts to make themselves more attractive to external investors, it says.

The report predicts that, with few law firms business planning more than three years ahead, fears over the regular three-to-five-year investment cycle will recede.

“Early-stage experimentation has produced new types of legal business models which are not always attractive to funders. Here, innovation has not yet been reflected in market change. This is particularly evident among legal businesses providing services to business clients: we have not yet seen a real game-changer enter the market,” said George Bull, chair of Baker Tilly’s professional practices group, which produced the report.

Changing approaches

The report suggests that the increasing complexity of law firm structures will challenge the regulatory framework. In addition, it says the legal market will be reshaped by a fundamental review of which legal activities are regulated. Regulation will focus on the entity’s activity, rather than the various individual legal professionals, it suggests.

It predicts that law firms and alternative business structures (ABSs) will adopt marketing strategies that are much more reminiscent of retail operations. Consolidation in the market will be driven by demand from big brands to have white-labelled legal offerings, it says.

It suggests that the unbundling of legal services will result in greater integration of legal and other services, which in time could enable clients to ‘build’ their advice package online in the same way that they can currently create a custom holiday package. Fixed fees will continue to be used, it says, but will no longer be calculated in such a way as to deliver the same result as the hourly rate.

“In some quarters, a degree of innovation has been unleashed which is unprecedented,” commented Bull.

“It is also interesting that, in many cases, law firms that previously held the view that reforms would have little impact on their business are coming around to the view that they will have to adjust their business model. The realisation that change will be necessary appears to be steadily growing.”

The report predicts that multidisciplinary offerings will help lawyers to offer a “wrap-around advice service” to clients. The delivery of legal advice will also become much more closely integrated with other delivery methods, it says, with face-to-face advice becoming less frequent.

The definition of what constitutes a lawyer will also change significantly as a range of roles develop with legal businesses that do not involve directly providing legal advice, according to the report.

It notes that non-lawyer owners in particular will look for business skills such as project and process management when recruiting lawyers, rather than simply relying on legal qualifications.

It adds that the idea of a partnership bestowing ownership rights in the same way as it does currently will die out.

 

 

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