Uncertain Future For The Legal Market But Still Opportunities For Innovative Firms

on 16 September, 2010 Email this Email this - Print this Print this

CoreLegal founder member David Mort, Director at IRN Research (a market research consultancy specialising in advising the legal services sector) provides further findings from IRN’s annual review of the UK legal services market.

First the bad news…..

IRN’s regular review of the UK legal services market (http://www.irn-research.com/news/new-report-on-uk-legal-services-market/) estimated annual growth of just 1.6% in value terms for the sector in 2009, the lowest for many years.

The short term outlook for the legal services market also remains cautious with the IRN report forecasting growth of just above 2.0% in 2010 and 2.8% in 2011. The worst of the economic downturn may be over but there are little signs of a strong recovery in key legal markets while increased competition and consolidation in the sector seems inevitable, and more pressure on costs and fees.

The number of legal aid firms is being drastically reduced and the latest survey of high street law firms   (see – http://www.lawgazette.co.uk/news/high-street-firms-fear-future) suggests that the overwhelming majority of 150 firms surveyed are worried about their future.

But opportunities for innovative firms……

The likely arrival of Alternative Business Structures (ABSs) in October 2011* should signal the start of external investment in law firms but the main assumption so far is that this will only interest the larger firms.

It is likely that many larger law firms could turn to ABSs to attract outside investors, possibly become listed companies, then use the investment to fund expansion, acquisitions. Some may move into the retail end of the market (high volumes can be achieved, national branding introduced etc) and increase the competitive pressures on smaller firms.

But there are also opportunities for smaller firms in the changing legal services market and here are some possible outcomes:

  • Some mid-tier and smaller law firms could merge with each other, and partner with other professional service businesses on the high street like accountants, estate agents, and attract external investment
  • Even if a merger is out of the question, more smaller firms are likely to consider the possibilities of shared outsourcing of support services to achieve benefits of scale and improve their competitive position. One pilot scheme involving 10 small law firms is already underway in Greater Manchester – http://www.lawgazette.co.uk/news/smaller-firms-collaborate-north-west – with these firms setting up a single management company to manage their shared support services.
  • Many smaller law firms operating in specialist sectors will continue to thrive
  • More boutique law firms operating in relatively specialist niche markets will emerge as partners leave larger firms to set up new law firms funded in part by external investment
  • More “virtual” law firms will be created to take advantage of new ways of working, reduce overheads, and increase outsourcing of non-core activities. These virtual firms will have the flexibility and low cost base to be able to continue to compete effectively.
  • Online legal services will become more important and offer another opportunity for smaller law firms, willing to invest in interactive and client-friendly websites, to compete with the bigger brands. Included in the IRN report are the results of a survey of  2,266 adults commissioned by IRN from YouGov.  A clear majority – 57% – agree or completely agree that good law firms should give their customers access to, and ability to use their services online in the next couple of years. Only 8% disagree.
  • Traditional business models will begin to change. The need to incorporate online services as described above is one example. More subtle changes should also be considered to deal with the new competitive environment, for example flexible working hours to deal with consumer demands for convenience.
  • Evidence from various consumer research continues to show that experience and trusted advice are still key factors influencing clients when they choose legal representation. Innovative law firms will build their local profiles around these strengths, and focus on good client care.

The UK Legal Services Market 2010 was published in April 2010 by IRN Research.

* There have been rumours that the new Coalition Government would abandon ABSs but this rumour appears to have been quashed: on 11th June 2010 the new Legal Services Minister Jonathan Djanogly was reported as saying that ABSs would be supported by the new Government. However, the Government would listen to any Law Society or Bar Council arguments that they should be delayed in order to ensure that they are introduced properly and maintain access to justice.

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Topics: Alternative Business Structures · Legal News · Legal Services Act · market research

1 response so far ↓

  • 1 Jason Cobine // Sep 20, 2010 at 10:03 pm

    Thanks David, external investment will be a real plus. Let’s hope it happens.

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