A perfect storm
Most commentators expect that there will be significant consolidation of the private client market in the next few years. Mark Brandon explains how small firms can rise to the challenge
Looking ahead, private client law faces a number of key questions, all of which seem to interlock: how to appeal to generations ‘X’ and ‘Y’, how to combat the influx of leveraged capital into the industry via alternative business structures (ABS) and how to make the sector appealing to meet succession needs. Together these challenges represent a perfect storm.
The introduction of ABS has thrown open the doors of the UK legal profession. Private client will be a core offering of ‘Tesco Law’ style operators, capturing much of the low-hanging fruit in the high street, the bread-and-butter private client work, which accounts for an average 12.5 per cent of the fee income of small and medium-sized law firms.
But that 12.5 per cent may be misleading. How many clients of your private client department are also your key property developers, owner-managers or investors? Lose the most personal bit of the business and you may lose a lot more than you had bargained for.
Ditching departments
The view of private client as a core offering for most major law firms disappeared about 20 years ago. As privatisation took hold, international mergers and acquisitions and financial instruments generated huge increases in fee income for the City firms. One by one, the large City firms began jettisoning their private client practices wholesale.
This was probably sensible for the Magic Circle, but the fashion also took hold in the chasing pack, the majority of which failed to realise that many clients were owner-managers and, in some cases the newly emerging super-rich, who would soon start using corporate structuring in their private affairs.
It left the middle ground of the profession very vulnerable to the well-organised, technocratic approach of emerging ABS providers. While the super-rich can continue to instruct a handful of top private client firms in central London, most of which have expanded internationally to meet client needs, their fees are beyond the reach of the reasonably moneyed further down the economic ladder. These clients have traditionally turned to quality high street practices. These will soon face a choice of instructing the traditional high street practice or the legal arm of a multi-disciplinary, deep-pocketed financial services organisation, which can offer a range of options beyond the reach of the traditional law firm.
Failure to engage
Of course, the task of aggressive ABS providers will be made much easier if traditional private client lawyers and law firms fail to engage with generations ‘X’ and ‘Y’ – and beyond. Where there is no engagement, there is no loyalty.
In addition, a generational shift, and the eventual death of many current clients, will see a potential client pool that does not behave as clients once did. The high street (or even City) private client lawyer will no longer be the natural recourse for those in a certain income bracket.
The clients of tomorrow are on Facebook and Twitter. They have access to massive amounts of legal information online. They can compare and contrast cost and expertise as never before, and they do not have to leave things in the hands of an expert. They can even write their own wills online. They will not go to a trusted adviser unless actively attracted by their expertise and costs transparency.
Ever-decreasing circles
Succession is a problem for many private client departments. Talking to managing partners and chief executives about private client lawyers gathered some interesting points of commonality/complaint: private client lawyers are among the least marketing-orientated and least proactive lawyers in the firm. All too often they concentrate on managing existing estates rather than trying to acquire new business, they are not good at cross-selling services to other lawyers in the firm, and good private client lawyers at any level are extremely difficult to recruit.
For the past two years, I have looked at lateral hires in law firms, specifically the success or otherwise of lateral hiring in the London market, where I specialise. Last year, I examined 2,295 partner moves across a six-year period to see whether partners hired from 2006 onwards were still at the law firm they joined at the start of 2012. One of the highest rates of outright failure per practice area – at 36 per cent of all hires – was private client.
It seems the opportunities offered by having a thriving private client practice are, for one reason or another, not being exploited. Private clients should be a great source of corporate, property, employment and other commercial work, but how often is this being effectively cross-sold in both directions?
Holistic approach
So, what next? Thought must be given to all three challenges: how to reach out to new clients below the super-rich and the dying, how to model a service that can compete with ABS providers, and how to encourage young lawyers to take an interest in private client law.
It is a bit ‘chicken and egg’. The key is obviously to develop new clients, but you have to have something to attract them with. Clients need to be given good reasons to instruct practitioners, things that ‘will benefit me’ or things ‘I’m scared not to do’.
The first step is product development and recruiting the right people – and the clock is ticking.
Mark Brandon is managing director of Motive Legal Consulting
(Nick Jervis shares some tips on how to market your firm's services here)
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Alternative business structures: one year on, by Christina Blacklaws
“So what does an ABS look like? The vast majority look like ordinary law firms. They are businesses that have decided the opportunities afforded to them by ABS status, such as external investment, are sufficiently attractive to undertake the Herculean task of mounting an ABS application. They have ranged from sole practitioners to very large firms with complex structures, such as Irwin Mitchell, which has been granted three separate ABS licences. “Other notable entrants have included Slater and Gordon (the Australian mega firm through their purchase of Russell, Jones and Walker), Quindell (with their purchase of Pinto Potts and Silverbeck Rymer), Parabis (backed by private equity firm Duke St) and Eddie Stobart barristers. Saga, among others, is awaiting an ABS licence. “I have been struck by the sheer energy, enthusiasm and creativity entering the market place. New business models are developing and flourishing. The Legal Services Act has created a catalyst for significant change not just from the increasing numbers of ABS licence holders but from others, such as Riverview Law, Rocket Lawyer and LegalZoom. “So what does this mean for smaller and high street practices? I believe an increasing number of businesses of all shapes and sizes will seek to benefit from the ABS structure, which provides unprecedented opportunity for lawyers to develop and expand their businesses through modernisation and investment. Of course, the trend for mergers and consolidation will also continue. “We will have many fewer firms and there will, undoubtedly, be a few large, national providers, but I do not see this as the death knell for small practices. Indeed, those firms that carry low overheads are fleet of foot and client-focused and they have advantages over larger, more bureaucratic practices. “The winds of change are blowing from every direction for the legal profession with the introduction of ABS being just one factor. Adaptability and innovation will be the keys to future success with room in the market for quality providers focused on excellent customer service.” Christina Blacklaws is director of policy for Co-operative Legal Services |