What Future? - MHA MacIntrye Hudson's Kate Arnott on the future of the legal profession
With the fourth industrial revolution upon us, the legal profession is facing a period of rapid change. Competition is increasing, client expectations are higher and the downward pressure on fees continues – all while the sector braces itself for the impact of Brexit. At the same time, for many practices, performance has plateaued or, in some cases, declined. Achieving growth in current market conditions is challenging.
While longstanding relationships will always be highly valued, advisory work will come to dominate fee income sources in future as clients demand that the more repetitive, manual work and transactional aspects of services utilise new technologies to reduce the burden and costs. Clients will also increasingly expect that their professional advisers have access to artificial intelligence-based technology in areas such as document review or research, and in screening litigation matters to predict their likely success.
Expectations of employees are also shifting away from traditional working patterns towards a more flexible model that better suits their needs, which provides law firms with both challenges and opportunities around retaining staff and attracting new talent.
Professional practices will not escape the digital revolution and will need to invest in technology, people and flexible working practices to maintain a competitive edge and future-proof their operations.
So, what structure is best placed to meet future challenges? The majority of professional practices operate through a partnership (or LLP) structure. The fit is excellent for a participative business that has been handed between generations in a flexible manner. However, the ability to raise funds to invest in new technology and people is limited to what equity partners are able (or willing) to put back into the business or raise from alternative funding streams. Any significant funding investments should be monitored closely to ensure the original strategic objectives, such as fuelling growth or expansion, are being met.
Some firms have looked to private equity backing or have floated on the Alternative Investment Market. This brings a completely different dynamic to a more traditional LLP structure and should be approached with caution. While the initial cash injection can be used to invest in technology and support growth, the model could potentially leave the next generation of partners (or employees under a corporate structure) with an external investor to pay from profits of the business, which may not be sustainable in the long term.
In any structure, consider the range of skills and strengths of the senior leadership team to ensure there is a balance between those who excel at generating fees and bringing in new business and those who can drive future strategic change. Being agile is a key factor for future success and the firms that will survive and prosper are those that are able to adapt quickly.
MHA MacIntyre Hudson has developed a comprehensive guide – The Roadmap to your Financial Future – for professional practices. The guide covers everything from partnership agreements and the financial responsibilities of becoming a partner, through to tax-efficient financial management, succession planning and plans for retirement – it’s essential reading for both new and established partners. The free guide can be downloaded at: www.macintyrehudson.co.uk/publications/article/theroadmap-to-your-financial-future
This column appears in LPM October 2018 - Make the cuts. Read the full issue here.