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.