Legal Support

Perhaps it’s a bit much to say a multi-billion-dollar industry handing out fat bonuses is on life support, but it’s equally important not to let appearances deceive you. The legal industry (and we’re talking specifically about law firms… not the universe of vendors) is still kicking and making gains, but growth remains sluggish, demand remains negligible, and most of the growth is coming from increasing rates. That should remain cause for concern.

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Perhaps it’s a bit much to say a multi-billion-dollar industry handing out fat bonuses is on life support, but it’s equally important not to let appearances deceive you. The legal industry (and we’re talking specifically about law firms… not the universe of vendors) is still kicking and making gains, but growth remains sluggish, demand remains negligible, and most of the growth is coming from increasing rates. That should remain cause for concern.

The Citi Private Bank Law Firm Group and Hildebrandt Consulting annual report is out, and the outlook for 2017 looks positively tepid. Per Am Law Daily:

The report, which is released annually, noted that demand for law firm services grew by 0.3 percent in the first three quarters of this year, while expenses grew by 3.4 percent during the same time period, thanks in part to the rise in associate pay. Still, firms were able to raise revenue by 3.7 percent, largely because lawyer rates grew by 3.2 percent.

This stingy demand figure, which has stuck with us for awhile now because growth is dead (affiliate link), suggests a saturated, hyper-competitive market. Indeed, the firm leaders that spoke with the authors of the report cited intense pricing pressure and a sharp decline in client loyalty. It’s the sort of dog-eat-dog world that could produce some big losers if the winds changed a little bit. Thankfully there’s no risk of any external factors screwing with the legal market, right?

External factors, such as the ongoing impact of Brexit, the US election result, China’s slowdown, and the drop in oil prices, will likely cause law firms to continue to experience a more pronounced level of volatility from one year to the next than they are used to.

Beyond macroeconomic events, law firms will also continue to experience a shift in the competitive landscape. The growth of alternative legal service providers has had some impact, although many firms tell us that it is still relatively small. The Big 4 accounting firms will likely affect firms in their markets outside of the US. Perhaps the biggest shift will continue to come from the size and scope of corporate law departments.