What does 2016 have in store for the legal profession?

Market conditions remained relatively buoyant in 2015, ?with most firms seeing around ?a 30 per cent increase in new instructions, particularly in conveyancing. This, however, only papered over the obvious cracks in many practices. We have had a number of small firm failures and a few high-profile ones, yet we still have an ageing, male-dominated profession that seems reluctant to change.

I have had enquiries from ?firms I saw over seven years ago that recognised they had a problem but battened down the hatches following the crash of 2008 and are only now realising they are eight years older and ?still have the same issues with succession and exit planning – in fact, these issues are exacerbated. The problem is that many of these firms do not have any younger staff prepared to invest in the business and many are unfit ?for acquisition.

A number of consolidators have grown on the back of ?these issues: Keystone, Setfords, Cubism, and latterly Lawyers Inc, all of which provide a solution ?for some practitioners, who can effectively trade under someone else’s banner and professional indemnity insurance, and have ?all the back-office support they need. This takes away the responsibility of running a business and leaves the practitioner free to simply practice law – a very appealing solution for many.

The change in legal aid contracts will also affect a large number of firms that will no longer have a contract in 2016. This is good news for the winners – or is it? Significantly more work means a greater need for working capital, and they receive nearly ?9 per cent less for the privilege. For the losers, we could see 500 firms close or be intervened – not a good start for 2016.

How has the market changed over the past 12 months? Very little, in fact: interest rates remain low and no increase is on the cards for the foreseeable future. This means that most firms with high gearing have been able to service their debt. 

We have somewhere between 2,000 and 3,000 ‘zombie’ firms – the walking dead that will need ?to merge or close down in some organised way. 

Perhaps more significant is ?the change of attitude of the regulator. The decision was made last year to remove the high-impact team that provided a form of business support to struggling firms. This team helped avoid numerous interventions or failures, but the decision has been made that a regulator should regulate and who can argue ?with that? We have seen a 69 per cent rise in Solicitors Disciplinary Tribunal (SDT) cases, which further indicates the regulator is regulating individual solicitors and not firms. Is this a catalyst ?for change?

Predictions for 2016

It is likely there will be a few high-profile failures and many smaller ones. Personal injury firms are running out of cash ?as they can reap the benefits of the pre-Jackson era for only a limited period. Also, raising the threshold for small claims from £1,000 to £5,000 has overnight changed the future for many firms involved in fast-track road traffic accident work. 

Proposals to abolish general damages for ‘minor’ soft-tissue injuries will be effective from April 2017; however, it is thought that the small claims limit change could be introduced as early as next spring. Where does this leave a large number of firms that specialise in this type of work?

The Solicitors Regulation Authority (SRA) is carefully looking into marketing fees paid for any form of personal injury work. We know referral fees are banned – or are they now called marketing? Once the SRA acts, whether it be for SDT increases or interventions, it could well make the remainder sit up and take compliance more seriously. 

The growth of artificial intelligence and cloud-based solutions will begin to revolutionise the way legal ?work is completed – anything that can be processed will.

If firms fail to embrace work-flows that could reduce their PII premiums, then I predict many of them will not be on ?the lender panels in the future. Surveyors have to use the Quest software tool to be on lender panels, to avoid false valuations on properties – watch this ?space if you want to remain ?on lender panels.

I also believe that many firms that currently try to compete on price alone will fail: it is a short road to the bottom when chasing prices downwards. The modern professional practice will change the pricing model, as most services will be priced according to the value clients place on ?the service provided, not the ?time spent working on each transaction. The hourly charge will become less important, although firms will still provide ?an estimate based on that charge. Firms can give clients a choice of either an estimated cost or a fixed cost based on the firm taking the risk – the fixed cost will always be higher. This will revolutionise the way many firms do business.

Viv Williams is CEO of 360 Legal Group @360legal www.360legalgroup.co.uk