It’s with some certainty that we can say the competitive nature of the legal sector will remain. The survey results show that there will be a continuing need to invest in technology, and new entrants, along with US law firms, will look to disrupt. Further, the challenges of Brexit and the Cyber threat will not go away. Despite the challenges facing the sector, law firms are generally optimistic about the short term. But based on past experience, are these expectations too optimistic? Read our 'at a glance' preview below for more on this section.
Below we outline four key areas and questions law firms need to consider to remain resilient through change.
• The vast majority of firms are optimistic on fee income and profit growth from 2018 to 2020, with a significant number of firms predicting that profit growth will outstrip fee income growth in the period 2019 to 2020.
• Top 26-50 firms’ expectations stand out, with fee income expected to rise by 5.3% from 2019 to 2020, but profit to grow by 7.3%. Top 10 firms expect fee income and profit growth of 3.9% and 4.3% respectively, and the Top 11-25 expect increases of 4.8% and 5.2%. Top 51-100 firms expect fee income to fall by 0.1% on average and profits to increase by 1.9%. It should be noted, however, that previous years’ surveys have shown that forecasts in the sector are invariably overly optimistic.
• The results of our survey suggest merger activity will continue over the next 2 years.
• 40% of Top 10 and 46% of Top 26-50 firms state that merger is somewhat likely, whilst 9% and 18% of Top 11-25 firms state merger is very likely and somewhat likely respectively.
• Merger types, though, will vary. Larger firms will seek mergers with non-UK based law firms (with UK/US mergers likely to lead the way), whilst mid-tier firms expect to merge with smaller UK organisations.
• Cyber threats, Brexit, shortage of talent and the speed of technological change are the threats that attract most concern for law firms.
• Cyber leads the way: 86% of Top 10 firms, 80% of Top 11-25, 92% of Top 26-50 and 86% of Top 51-100 firms are either extremely concerned or somewhat concerned about this threat. Clearly, law firms need to be focused on data security and the need to continuously protect themselves against the risk of cyber attack.
• New market entrants are also a concern for many mid-tier firms. 70% of Top 11-25 and 58% of Top 26-50 firms are somewhat concerned about this threat.
• The threats posed by inflation, exchange volatility (except a small number of Top 10 and 11-25 firms) and inability to finance growth are not a concern for the vast majority of firms.
• No firms expect to relocate a head office, close a regional office or relocate a shared service centre due to Brexit and only a small number of firms expect movement in partner and staff headcount (maximum of 18% per banding).
• More firms expect movements in fee income (between 50% and 64% across the bandings) and costs (between 29% and 62% across the bandings) due to Brexit.
• A significant number of firms do not expect Brexit to impact their headcount, fee income or costs: 43% of Top 10, 27% of Top 11-25, 15% of Top 26-50 and 36% of Top 51-100 firms.
• All Top 10 firms have a committee focused on regulatory and structural aspects of Brexit and 86% on people aspects. The prevalence of Brexit committees falls through the bandings; for example, regulatory aspects of Brexit are covered by a dedicated committee in 73% of Top 11-25, 46% of Top 26-50 and 29% of Top 51-100 firms.
• 100% of Top 10 and 40% of Top 11-25 firms view technology as the key challenge facing the legal sector over the next 2 years.
• 80% of Top 26-50 firms view Brexit and 50% of Top 51‑100 firms view shortage/retention of talent as the key challenges.
UK Leader of Industry for Business Services, PwC United Kingdom
Tel: +44 (0)7740 923078
Senior manager, Assurance, Law Firms Advisory Group, PwC United Kingdom
Tel: +44 (0)7739 449052