Large law firms “most worried” about threats from ABSs and accountancy firms

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4 March 2015

Steer: law firms spending on technology

Steer: law firms spending on technology

Large law firms are most worried about the threat from alternative business structures (ABSs) and accountancy firms, but interest in becoming ABSs themselves is waning fast, new research has found.

A quarter of the 160 firms involved cited ABSs as the top threat, with 24% naming accountancy firms providing legal services. PwC, KPMG and EY all obtained ABS licenses from the SRA last year.

“Considering the growing presence of these structures and the heavyweight brands involved, this is still a relatively low level of concern which suggests a certain amount of complacency among firms,” researchers said.

However, despite their concerns, only 17% of firms told Winmark’s annual Looking Glass report, produced in partnership with Thomson Reuters and Mayer Brown, that they were likely to use the ABS structure in the next three years – down from 46% in 2013.

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“The overall picture is that the firms that want to become ABSs are well underway, while many of the remaining firms seem to be losing interest in the possibility or have decided against it.

“However, the usage of ABS by non-legal services suppliers to enter the legal market appears to be the main road by which ABS will have an impact.”

Almost three-quarters of the law firms surveyed had turnovers of more than £50m, with many topping £100m. A further 122 in-house counsel also responded.

In-house lawyers consistently rated the impact of changes in legal services – such as alternative fee arrangements, technology or internationalisation – as more significant than law firms did. The only three which firms rated higher were legal process outsourcing, legal apprenticeships and partner tax changes.

However, firms were much more concerned that technology and innovation could result in “medium to high levels” of replacement of their services. A total of 58% of firms said they believed this, compared with 38% of in-house counsel.

More than half of in-house lawyers, 53%, identified regulatory changes as top of their list of “key risk factors”, with contractual risk coming a close second.

Law firms identified market conditions and a “race to the bottom on fees” as joint top of their table, with competitors, staff retention and client retention following on.

Both firms and in-house lawyers saw improving economic conditions as the top “key opportunity”.

Samantha Steer, head of large law at Thomson Reuters, said that, with typical law firm technology budgets of £625,000, it was clear that law firms were spending on technology.

“For example, this report finds that law firms are more likely than their in-house counterparts to have implemented document, matter and case management systems. Perhaps what’s missing, then, is spend on technology that directly and visibly benefits in-house counsel.”

Ms Steer added that since the report highlighted the way firms were still struggling with differentiation, use of technology could be one route to achieving it.

Sean Connolly, senior partner of Mayer Brown, said: “Technology has transformed the way in which we work. However, whilst there are many examples of innovation and commoditisation across the sector, the law as a profession has been slow and selective on its application.

“In many ways the conversation about how legal services — both high and low value — could be delivered is only just beginning.”

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