External investment in law firms to trigger process of “natural selection”

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By Legal Futures

31 May 2013


Bull: real change is now being driven in UK legal businesses

A “process of natural selection” will thin out those law firms without the backing to compete with those benefiting from external investment, a major new report has found, with half of firms polled eyeing up the possibilities of bringing in cash.

The Legal Innovation 2013 report by accountants Baker Tilly, looking at how the market will evolve in the years to 2020, found that 11% of the mainly large commercial law firm polled would definitely consider external investment, while a further 39% said it was a possibility.

More than four in ten (42%) either have or expect to lose work to a ‘non-lawyer competitor’, with 37% eyeing up providing non-legal services in return.

The report predicted that as both investors and law firms better understand each other’s requirements – only 28% of respondents said they felt they had a ‘good’ understanding of outside investors’ requirements – investment will “flow more readily”.

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As well as the process of “natural selection”, a “trade” in law firms will emerge as investors look to exist; but “with few law firm business planning more than three years ahead, fears of the regular three-to-five-year investment cycle will recede”.

External investment will also change the make-up of law firms, the report suggested. “Who a ‘lawyer’ is will change significantly as a range of roles develop within legal businesses that do not involve directly providing legal advice; non-lawyer owners in particular will look at what a person brings to the business, not their qualification. Skills such as project and process management will be critical to the future success of firms.”

Half of respondents felt the Legal Services Act would have a positive effect on their businesses, and the report forecast that multi-disciplinary offerings would help lawyers “reclaim their former role as hommes d’affairs, offering a wrap-around service to clients”.

This linked with the prediction that unbundling will see greater integration of legal and other services. “In time this could see consumers ‘build’ their advice package online in the same way that they do now with holidays.”

George Bull, chair of Baker Tilly’s professional practices group said: “This report demonstrates that real change is now being driven in UK legal businesses, both by shifts in the general market climate and the significant regulatory shake-ups of recent years.

“In some quarters a degree of innovation has been unleashed which is unprecedented. It is also interesting that in many cases, law firms that previously held the view that reforms would have little impact on their business are coming around to the view that they will have to adjust their business model. The realisation that change will be necessary appears to be steadily growing…

“Long-term success for providers of retail legal services will depend on building a lifelong relationship with clients.

“Elsewhere in the legal sector, early-stage experimentation has produced new types of legal business models which are not always attractive to funders. Here, innovation has not yet been reflected in market change. This is particularly evident among legal businesses providing services to business clients: we have not yet seen a real game-changer enter the market.”

The report also said that by 2020, a fundamental review of what legal activities are regulated will have reshaped the market.



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