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The Changing Legal Landscape

We will see the biggest changes to the legal profession over the coming few years than we have seen for the past 300 years.

We now only have 15% of the profession operating via the traditional partnership model that is no longer fit for purpose. A further 17% are LLP’s but generally run as partnerships that are 32% of the profession that are vulnerable to failure for a variety of reasons. This represents approximately 3000 law firms that are not prepared to change how they practice.

External change in certain sectors, for example personal injury and criminal legal aid are making it difficult for many of these firms to survive. Let alone the new entrants into the sector such as IFA’s and accountants that are making huge inroads into the private client market.
It was predicted ten years ago that the numbers of law firms would drop yet we have seen minor changes to the number of practices predominately because we have such a growth in new law firms, many are sole practitioners with a specialisation operating in a niche sector in a limited company format.

Consolidation is inevitable for these 3000 firms, if they can find a suitable purchaser – there will be failures as a number of practices become un-mergeable.

Therefore, we are facing a crisis in succession and exit strategies for a large number of firms with younger future owners no longer wishing to become Partners.

Firms will have to carefully consider their structures, in some instances incorporating a practice can work well. Whilst it’s difficult to sell a law firm to another with goodwill involved by selling it to the existing owners can be very attractive. HMRC will recognise goodwill and will place a value on a law practice anywhere between 3.5 and 4.5 of profits before drawings. For example, a 4 million turnover practice making circa 1million profit, shared between the 5 equity partners has been able to incorporate with a goodwill value of 3.8 million pounds. Whilst this is not real money it can be converted into Directors loan accounts giving the new directors the opportunity to draw down this money without paying tax.

A stable part of many firms has been conveyancing yet it’s difficult to find conveyancers to do the work, therefore investing into technology to process this work is absolutely essential. This enables firms to de-risk their process and de-skill their workforce, in some cases we are seeing this process being operated from India or other in a cloud based solution. All client contact is UK based as well as exchange and completion but the process can be outsourced. This could even be operated from within a separate business and a different regulator.

Innovative artificial intelligence is being incorporated into the world of RTA portal work which can predict how a case might proceed and in what time scale – who can compete in this market?

Accountants and Financial services firms are invading the legal space, purchasing law firms and providing IHT planning and probate solutions. If the regulator get their way, it’s likely the we will create a two tier legal system with these firms employing Solicitors to do non-reserved activities without the burden of full firm regulation.

Creating a clear strategy for the future is essential for law firms; whilst profitability is holding up well in many practices there are doubtless challenges ahead. Clear decisions about the type of work you intend to deliver are essential and how it’s delivered cannot be left to chance.

For those firms that wish to provide complex solutions they will need to charge premium prices, the death knell for hourly billing. Clients want certainty of outcome and not the amount of time spent on a matter and will pay a premium for thus type of service.

The SRA have to reconsider some of their ideas and listen to the profession; we need a level playing field and not a two tier system: Professionals need to be regulated proportionally.

There has never been a more important time for law firms to have a clear vision of their future, their corporate structure, which will be the future owners and what services they will deliver.

There is no doubt we will have a healthy fitter independent legal community servicing a local market but the present crisis will clear many old processes away.

Viv Williams of Viv Williams Consulting  (
Tel: 03332 423993