Annual Law Firms’ Survey Suggests Four Clear Concerns For 2019

The Annual Law Firms’ Survey 2018 seems to show optimism and success in spite of problems that were seemingly guaranteed to disrupt any growth in the legal sector. 89% of UK law firms have seen substantial income growth in 2018.

Although the figures suggest short-term gains, the report highlighted four risks to the legal sector in 2019-2020 including Brexit, technology, cyber risk and skills shortages.

Overwhelmingly, Brexit dominates the anxious psyche of law firms with 89% concerned about the future implications it will have on their law firm. Few firms anticipate that Brexit will force them to relocate their offices with only 18% worried this will be a problem moving forward.

All top ten firms have a committee focused on the regulatory and structural aspects of Brexit, highlighting the clear importance and anxiety about the impact our break from Europe will have.

100% of the top ten law firms and 63% overall view technology as a key challenge facing the legal sector over the next two years.

Many firms have questioned whether the technology basics have been put in place to ensure optimum efficiency within the firm. Where they are unclear on this, many firms have a technology improvement plan to ensure the firm is aware of the emerging technologies.

However, many remain concerned that their firm is confused over the best technology available to benefit their firm. Many question how they would fund technological investments in the current market. Because of Lawtech’s perceived infancy, many are deterred from embracing technology fully until clearer benefits are emphasised.

82% of the top 100 law firms are concerned about increasing cyber threats, with 60% suffering a security incident during the year. This remains consistent with the 61% reported in 2017.

However, 46% of law firms found a security incident related to their own staff where there had been a loss or leakage of confidential information. This figure had increased from 33% in 2017 highlighting the importance of adequately training staff to prepare for cyber threats.

Many firms were worried about their ability to plan for business continuity following a cyber attack. Only 54% of senior management had participated in a crisis management exercise in the past 12 months.

Furthermore, Only 27% of respondents were very confident that their IT Disaster Recovery testing has fully demonstrated that end to end operable services can be recovered in line with business recovery requirements.

Finally, 84% of the top 100 law firms remain worried by a shortage of talent in the legal sector. This fear is only exacerbated by the possible implications Brexit could have on the talent pool within the UK legal sector.

Tony Hodgson, Consulting Partner at PwC, said: “Recent years have seen significant change in law firms’ operating models in response to changing client demands, the pressure to maintain and grow profits, and the increased level of merger activity.

“As a result, business support functions have had to provide more for less, delivering greater insight and value but at a lower cost.  Firms have done this by bringing in people with specialist skills, moving to lower cost locations and, wherever possible, automating activity.

“Our 2018 Law Firms’ survey shows increased activity around three key areas:

“Firstly, data analytics is becoming an increasingly important skill for firms, especially in areas such as pricing and working capital management.

“Secondly, many firms are fixing their foundation areas of IT such as PMS, HR and CRM.

“And thirdly, we’re seeing a number of firms beginning to use new technologies such as AI and blockchain.

“Change is becoming a constant across the sector and that in itself is an important area of focus. How quickly can your firm adapt to new ways of working?”

David Snell, Partner PwC and Head of Law Firms Advisory Group, commented: “Our latest Law Firms’ Survey considers the future outlook and trends for law firms.

“Last year our survey highlighted the pace of change in the legal sector. This year we see an acceleration of that change against the backdrop of a strong year for the sector as a whole. Overall, firms have responded quickly and are showing considerable resilience through change.

“So what do our findings show?

“Firstly, the way clients procure legal services is having a profound impact on the sector. Hourly rate arrangements (in the UK at least) are becoming much less common, with fixed fees managed by procurement teams now to the fore. Alongside this, e-billing processes are slowing down working capital cycles to unsustainably high levels.

“For Top 25 firms, fee earner numbers have, on average, fallen – as firms strive to improve productivity and leverage from efficiency measures and investment in new technologies.

“Much of the new cutting edge technology however remains very much in the pilot stage and unlocking the true value of this investment is yet to be fully realised. And in the meantime, the threat of Cyber attack is at a critical level and presents one of the most significant risks to law firms.

“Finally, with Brexit looming large on the horizon, levels of uncertainty continue to increase. Whilst the overriding sentiment is that of resilience through change, law firms need to continue to look to the future, ensuring they continue to adapt to a rapidly changing world.”

Whilst the short-term legal sector remains profitable with legal services on the rise, a range of unknown factors in the long-term could murky the waters within the legal sector during 2019.

Is your firm worried by the use of technology? Do you remain anxious about the cyber security within your firm? Are you struggling to retain and find skilled legal services experts? Do you have a detailed plan post Brexit?

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