I attended a very interesting seminar this morning hosted by Nat West, dealing with the impact of the Legal Services Act on the legal profession. It was addressed by an accountant, a legal consultant and a banker, and the 10 main points that arose were as follows:
1. The need for legal firms to have a plan to deal with the changes to the legal market place that will arise from:
i. the advent of the Alternative Business Structure (“ABS”), being corporate or partnership entities with involvement from non-lawyers as owners and/or managers;
ii. the demise of the referral fee;
iii. the development of national legal brands, such as Quality Solicitors; and
iv. the expansion of organisations such as Co-operative Legal Services into new areas of law (family law in their specific case).
2. Solicitors will thus have to consider their existing approach to their practice, with key objectives to safeguard and grow the practice being:
i. creation of closer ongoing business relationships with clients;
ii. development of niche specialisms;
iii. development of professional ‘one-stop shops’;
iv. practice differentiation;
v. targeted merger and acquisition activity; and
vi. ABSs including related non-legal activities such as PI claims generation.
3. Engagement with non-solicitors in professional practice is to be embraced rather than shunned, given the different specialisms and skill sets that this can bring to a practice.
4. Merger and acquisition activity must be backed by strong financial due diligence and an understanding of the respective cultures of the firms and the strength of the fit that the merger achieves. 70% of mergers fail to achieve the desired or anticipated financial benefits, and significant numbers of even the largest legal firms in the country have accounting policies that differ from generally accepted accounting practice (“GAAP”).
5. The key factors in any practice are clients and partners/staff, and so relationships with these key people are paramount to the success of a firm.
6. Merger & acquisition activity is and will become more widespread, with 74% of firms having recently been approached about a merger.
7. The current profile of the profession as detailed below may well start to change as ABSs start to acquire significant market share, and practices look to merge to combat the perceived threat:
Number of partners Percentage of legal firms
2 – 4 45%
5 – 10 10%
11 – 25 3%
26 – 80 1%
8. External equity investment will be attracted by efficient processes and transaction volumes rather than by key individuals within firms.
9. Tying in key partners and staff for the long-term will be vital, as 70% of solicitors surveyed said they would consider working for an ABS, given the potential advantages of job and income security, career path and available staff benefits.
10. Doing nothing is not a credible option.
Food for thought for our legal brethren, who need to react positively to changing times if they are not to be left high and dry