Quarter of lawyers could work at fee-share firms “within three years”

Hume: Extraordinary growth

Up to a quarter of lawyers could work at fee-share alternative law firms within the next three years at current rates of growth, a detailed analysis has predicted.

There are 2,800 lawyers working across 35 consultant-led practices of different sizes, with the numbers for lawyers at the top-five hiring fee-share firms increasing their headcount by 15%.

By comparison, the top-five hiring traditional law firms is actually negative, at -1%, according to Codex Edge, whose software tool – ATLAS – contains “exact data” on over 100,000 lawyers at over 6,000 law firms.

Other research has noted the rise of fee-share firms, which operate on the basis that consultants bill clients for work and the firm provides administrative support in return for a proportion – generally up to 30% – of the fees.

The research focused on the top 10 fee-share firms by size and did not cover the likes of LOD and Axiom, which supply lawyers on a contract basis to third parties for in-house roles and project work, or the similar operations set up by large law firms like Allen & Overy. It covered the period January to July 2022.

With 419, ATLAS recorded Setfords as having the most consultants, followed by Keystone Law (405), Taylor Rose MW (353), gunnercooke (296) and Spencer West (115). Excello Law (110) and Nexa Law (87) were the only others with more than 33.

By far the largest number (1,281) were based in London, followed by Manchester (121) and Peterborough (99) – where Taylor Rose MW has its headquarters.

Residential (556 lawyers) and commercial property (447) were the two areas of practice with the highest number of lawyers. This was because of Setfords and Taylor Rose MW, which between them supplied 434 residential property and 207 commercial property consultants.

Commercial litigation (279), corporate M&A (213) and employment (190) rounded out the top five – Keystone had the most consultants in each of these practice areas.

The research showed how the number of joiners was higher than the number of leavers for all the large fee-share firms.

By contrast, there were more leavers than joiners for three of the five the most active traditional firms – Eversheds, DWF and CMS – and the difference was minimal for the other two, Addleshaw Goddard and Shoosmiths.

Consultancy firms were growing organically at “a significantly faster rate by headcount” than that of traditional law firm – 15% against -1% for the top five hirers in each group – and also had better retention rates.

The report said: “The speed of growth is astonishing but will come as no surprise to many as there is now mainstream acceptance towards [alternative law firms]; indeed it is in many ways no longer seen as an ‘alternative’. ‘Challenger’, ‘modern’ and ‘virtual’ law firms are frequently being used instead.”

The data suggested that “up to a quarter of lawyers” could work at these firms within the next three years.

Codex Edge noted that some lawyers were operating via multiple fee-share firms, since they were not employees and not always exclusive to a single firm.

While many traditional law firms have adopted hybrid office and home working following the pandemic, there was so far little sign that this was having a negative effect on fee-share firms, for which flexible working has long been a key selling point.

The mean average level of post-qualification experience at which lawyers moved to fee-share firms was 16, compared to 12 for moves across the entire legal sector. In both cases, women on average moved four years earlier than men (14 v 18 years’ PQE for fee-share firms and 10 v 14 years across the market).

There are now more women working at fee-share firms than men and percentage-wise more women have moved to them rather than traditional firms since January 2021.

As of July, 64% of Setfords’ consultant lawyers were women, one of the highest proportions among the top 100 firms. Irwin Mitchell has the highest with 73%, according to ATLAS.

Codex Edge director Chris Hume commented: “What comes across so strongly in the data and in this report is just how significant an impact the challenger firms have had – and continue to have – in the UK legal services market.

“The growth is extraordinary, almost to the point where the terms ‘alternative’ or ‘challenger’ are no longer necessarily appropriate, as they become an established part of the landscape.

“Looking at our own moves data, we can see that the trend for lawyers to opt for the platform model in increasing numbers is continuing at pace.”

A report last year from Arden Partners predicted firms of consultants were set for huge growth and would become the dominant business model in the consolidation of the high street and mid-market. It estimated that around 50,000 solicitors – a third of the profession – could be working as consultants in just five years’ time.

Another report this year, from LexisNexis, said fee-share firms could put pressure on talent retention but cast doubt on how big a threat they were to traditional firms.

Separately, AIM-listed Keystone Law yesterday published its results for the six months to 31 July 2022, which showed revenue up 9.3% to £37m, compared to the same period last year, with profit before tax down 2.5% to £4.1m – this was mainly due to the £200,000 in savings made by the cancellation last year of face-to-face activities within the firm.

Chief executive James Knight said: “Keystone has delivered another very good financial performance for the first half of the year… We maintain a robust cash position with strong cash generation, and are pleased to declare an interim dividend of 5.2p per share.”

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