The combination of Covid and the high cost of indemnity insurance is persuading solicitors thinking of striking out alone to join fee-share consultancies instead, new research has found.
But it cast doubt on the prediction made last year that firms of legal consultants were set for huge growth.
The report from LexisNexis said that with consultancy model firms probably comprising less than 1% of the legal services market by value, their commercial impact was “likely to be limited in the near term”. However, they could put “more immediate pressure on talent retention”.
Rise of the Legal Consultants follows on from an Arden Partners study just over a year ago that consultancy firms would become the dominant business model in the consolidation of the high street and mid-market.
LexisNexis put Keystone Law as the largest consultancy firm by revenue, with £55m and 386 consultants.
It was followed by gunnercooke (£48m and 330 consultants), Taylor Rose (£26m and over 350 consultants) and Setfords (£18m and over 400 consultants). The report did not detail the many smaller fee-share firms now in the market.
The report said the pandemic had “spurred sole practitioners to consider becoming consultants amid a rise in professional indemnity insurance premiums”.
Adrian Jaggard, CEO of Taylor Rose, said: “Insurers are becoming more risk-averse in areas such as conveyancing and have been pushing up premiums to cover potentially high pay-outs.
“The number of solicitors working from home since Covid has also increased risk for insurers, particularly for those working in smaller firms without well-established risk, compliance and quality control processes.
“As a result, we are seeing a lot of experienced solicitors who no longer want the responsibilities of compliance and increasing operating costs.”
Most firms had similar revenue share percentages, with consultants keeping 70% or more of the fees they generated.
Christopher O’Connor, director of solutions at LexisNexis, said: “The market is not big enough yet for traditional firms to be losing sleep over, but where they are most worried at the moment is less on the business side and more on the talent side—they are very worried about losing talent and they have to change things to make life more attractive to retain their lawyers.”
Tony Williams, founder of Jomati Consultants, told researchers: “There are no shortage of platforms but the challenge is how many lawyers are there who genuinely have the sort of following and the business development skills to feed themselves.
“This model relies on a level of self-sufficiency. Fundamentally it’s a hunter-gatherer mentality. Clearly there are people who can do that but whether there are enough who can consistently do that, that will be a challenge.
“For more junior lawyers it may depend on the maturity of the platform and the ability of others within the platform to generate work for juniors.”
Keystone directly employed junior lawyers on a salaried model like a traditional law firm and made them available to consultants to use them for individual matters. Keystone consultants have the freedom to hire their own juniors and pay them out of their own pockets.
Gunnercooke consultants can also directly employ juniors, but the firm also has a programme for self-employed junior lawyers, providing them with a business coach, training and the opportunity to complete an executive MBA course.
Mr O’Connor suggested the consultancy model would eventually be “more disruptive in the mid-market where there is more competition on fees and firms are less distinctive, creating an opportunity for such platform operators to expand their footprints”.
At the top end of the market, Daryl Cooke, co-founder and executive chairman of gunnercooke, predicted that the next five years would be “just like how the magic circle developed” or the Big Four accountancy firms: “There will be three or four law firms that will come out on top in the revenue-share model.”