Confidence among smaller law firms that they will grow in the coming year has fallen for the third year running and they are planning to increase their marketing efforts in response, according to new research.
Meanwhile, almost a quarter (24%) would consider using open artificial intelligence (AI) sources such as ChatGPT for legal research or documents, in place of existing free or paid-for sources.
The LexisNexis 2023 Bellwether report Bold Ambitions? found that the proportion of smaller law firms expecting their performance to improve fell from two-thirds (66%) in 2021 to 51% last year and 46% this year.
However, only 6% said they expected their performance to decline in 2023, with 38% predicting it would remain stable.
The latest report was based on responses from 169 smaller law firms, mainly with 20 or fewer partners.
Debbie Sumner, go-to-market adviser for small law firms and sole practitioners at LexisNexis, commented: “The previous Bellwether surveyed the legal market during the post-lockdown legal boom and prior to the cost-of-living crisis, so this shift in sentiment is understandable. Yet it’s still remarkably positive given our current economic climate.”
The joint top challenges cited by 81% of the firms were attracting new business and keeping working practices and systems up-to-date.
These priorities were followed by retaining current clients, the continuing demands of compliance regulations and cybersecurity.
Most of the firms (59%) that said they expected to grow this year said acquiring new clients was their priority, followed by gaining more work from new clients and business development.
One in seven (13%) of these firms said they planned to grow through mergers and acquisitions, a little lower than in previous years.
The proportion of firms saying they wanted to invest more time and money in marketing rocketed to 81%, compared to only 24% last year. Almost nine in 10 said they wanted to increase their investment in business development.
The majority (51%) said they did not know if they would use ChatGPT or not, while exactly a quarter said they would not.
When those firms that said they would use ChatGPT were asked what level of risk they were comfortable with, most (63%) nominated 20% or less.
“Relying on open AI, in its current state, for legal sources or to generate documents could do lawyers more harm than good,” Ms Sumner said.
“The legal sector needs generative AI solutions that can search, summarise, and draft documents from trusted, authoritative legal sources instead of the open web.”
In other findings, the common method of charging clients was still the billable hour (79%), following by fixed fees (60%), but only 8% of firms said they charged exclusively by the hour.
A majority of lawyers, 56%, said they were satisfied by the work/life balance they were offered, but only 48% by their salary or the firm’s bonus scheme (33%).
Some 24% said they had plans to implement new technology in the next 12 months. Researchers commented: “A lot of the work is going into simply maintaining systems, as opposed to furthering them.”