The Law Society of England & Wales has just published their report 'The Future of Legal Services'. Based on consultation with a number of firms, a review of literature and three panel discussions it makes scary reading especially if you are a lawyer in a traditional high-street firm. The report envisages the legal market in 2020.
The Report's findings - in brief
The report's underlying conclusion is that ''Business as usual' is not an option.
- There will be greater competition from unregulated or non-lawyer providers and in particular for traditional 'retail' firms dealing with family, wills, personal injury and conveyancing
- Technology is key to survival
- Clients will be looking to buy legal services in different ways in future
- Many solicitors are approaching retirement with no viable plan for exiting their firm
Changing demographics
The Law Society predicts that by 2020 there will be more lawyers working in-house and in 'B2B' (business to business) environments, with a corresponding decrease in the number of lawyers working in consumer-facing firms. At the same time, opportunities for solicitors in non-traditional environments may increase.
They also envisage that for the first time, women solicitors will make up more than 50% of the profession. Worryingly, the number of solicitors approaching retirement age is also increasing and many of these have no clear exit route and may find the cost of closing their firm is unaffordable.
A much greater use of technology is likely, with lawyers diversifying into project management and business skills while using IT systems to automate parts of the legal process.
Changing client needs reflected in structural changes in law firms
Globalisation will also have a significant impact on the Top 200 firms, with new entrants from emerging markets and changes to the global economy forcing firms to adapt.
Consumers of legal services are becoming much more sophisticated – they want to buy services as they are needed, and at a fixed price. Corporate consumers are likely to use more than one law firm, sending different types work to the cheapest provider.
Corporate legal departments will no longer operate as an in-house law firm but will have responsibilities throughout the business.
There will be greater competition from unregulated providers, and from non-lawyer entities such as licensed conveyancers. Some law firms will de-regulate to take advantage of these options.
What does this mean for you?
Technology is one of the five main drivers identified by the Law Society. You are probably already using case management systems, document management and accounting technology. In future clients will expect a much greater use of electronic communication and they are likely choose firms based on their online presence and use of social media.
Sophisticated cloud-based IT systems combined with a strategic focus on niche markets and key strengths can help small firms flourish. Our cloud computing guidance can help.
Your cybersecurity and IT policies must be robust to avoid the risk of fraud/hacking and careless use of social media. Staff training is essential in this area, both to ensure that systems are being used effectively and to make sure that all your staff understand the risks involved in email and use of word-processing systems, and in posting on social media.
Read our information security article for more information on how to protect yourself and your firm.
Consumer choice
It is likely that consumers will be demanding greater value for money – they will still want a lawyer for technical work, but will want to carry out other parts of the transaction themselves if possible (the report likens this to someone renovating a house, who will employ plumbers and electricians but may want to handle less difficult talks themselves).
Clear communication with clients will be key. This includes transparency about your pricing, advice on what you will and won't be doing for them (retainer letters are a vital tool here) and offering them the option to pick and choose which parts of the job you will do. There is huge potential for dispute or even a negligence claim if you don't spell this out clearly.
A five-year plan
All firms should have a long-term plan for the business – development, recruitment, premises, investment and the like. For firms where one or more partners are approaching retirement age this is even more important. What is your exit strategy? What if more than one partner wants to retire at the same time – would this have a devastating effect on your finances?
Retirement Planning
The cost of run-off is still high and unless you can sell your firm to a buyer willing to assume responsibility for claims, this can make it very difficult to retire. You should of course be planning ahead for this, but talk to Lockton about your options in plenty of time – don't wait until this is imminent.
How can you adapt?
The report suggests a 'road map' with four options:
One is to 'do the Same as 2015, but better'. This means increasing your efficiency (and utilising any cost savings to improve your offering to clients). It also means automating some of the legal process, reducing overheads and looking at intelligent IT systems.
Other options are to focus on niche or specialist areas, or to focus on 'early stage' work and allow other providers to take on more complex or long-term matters. In either case you should look at partnering with other providers of legal services whose work could complement yours.
Remember that this report is a prediction of the future – nobody knows how the legal market will develop and there are likely to be other factors which are as yet unknown.
It will be more important than ever for law firms to be agile during this period of change – a flexible approach, the ability to invest in new technology and a willingness to adapt and to put consumer demands first will be essential.
To discuss any of the issues raised in this report, contact Calum MacLean, Risk Manager at Lockton.