老司机午夜福利

Business confidence returns to pre-pandemic levels

After a serious low and a soaring high, business confidence levels have returned to pre-pandemic levels. Results from our 2022 Bellwether survey revealed 91% of respondents are quite confident or very confident about the future of their firms (a 2% decrease from last year). A lazy conclusion to this change would be that confidence is slipping, but it is more likely the aftermath of the post-lockdown legal boom which saw the UK鈥檚 law firms generate a whopping 拢41.58bn in revenues, compared to annual turnovers of 拢36.78bn in 2020.

鈥淲e鈥檙e predicting higher revenues than expected 鈥� that's just a part of the way the business has grown during the pandemic and we are getting more work than we can service so that gives us confidence investing in new fee earners.鈥�

Four-fifths of firms say financial expectations have been met

A third of respondents said the impact the pandemic has had on 2021 financial predictions was somewhat higher (23%) or significantly higher (10%) than projected. Just under half (49%) of respondents said their financial predictions were about level with what they expected. Only 17% said it was smaller or significantly smaller.

鈥淩evenues have exceeded expectations actually. That鈥檚 about good work 鈥� good work coming in. We reviewed our charge rates and that has helped.  We did some work on pricing with a consultant and that helped, too."

More than half of small law firms are in growth mode

When asked about the performance of their practice compared to three to four years earlier, just over half (51%) of respondents said they are growing. This is a noticeable slip from the two-thirds (66%) of respondents who said the same thing in 2021, hinting that the post-lockdown boom that came to define 2020 and 2021 has come to an end.

鈥淚 think for a lot of people, they are trying to consolidate and deal with the work they鈥檝e got. We want to move past that because if you are constantly worrying about that you鈥檙e never really going to grow. You鈥檙e trying to deal with standing still, which doesn鈥檛 appeal to us."

More firms are open to mergers and acqusitions

Organic growth is the priority for most small law firms, with 65% of respondents revealing that their businesses are planning to grow through organic means in the next five years or so. This is a small slip from the 66% we saw in 2021.

When asked about growth through mergers and acquisitions, 16% said this was part of their current growth strategy. In addition, when asked how the pandemic has altered their views on merging or acquiring other firms, a fifth (21%) said it has made it more attractive, compared to only 14% in 2021.

This aligns with what we鈥檙e seeing at larger law firms, where growing through mergers and acquisitions is on the agenda for most. A recent survey of larger firms found 92% are planning to grow on a national or international scale through the acquisition route. A similar survey by M&A broker, , found almost half (47%) of UK law firms are considering mergers and acquisitions.

"At the moment we are looking at organic growth because we鈥檝e got opportunities running throughout the practice, but also there is an intention to increase our geographical footprint.鈥�

鈥淲e probably don鈥檛 have the funds to acquire another firm so we鈥檙e better expanding through recruitment 鈥� and then you get to a certain level and you鈥檝e got to think, well, are we happy as we are? Is the organic growth working?"

"Unless it is a merger or acquisition with somebody that you know exceptionally well and you are very, very confident in their risk appetite being the same as yours and their history, it is quite a big risk.鈥�

Change management is the biggest challenge for most

Just as the legal sector is showing signs of returning to its former self, the same old problems are popping up once again.  

Keeping working practices and systems up to date is the most significant threat to small law firms, with four-fifths of respondents (81%) listing it as a quite significant or very significant threat.

Another commonly cited threat was the need to keep up to date with changes to the law (78%), as was the continuing demands of compliance regulations (77%), and the need to attract and retain good lawyers (77%).

The top three threats facing small law firms

However, when asked to list the top three threats that represent their firms鈥� biggest challenges, attracting and retaining talent came up first, with 49%. The pandemic forced many to rethink their current working situations, prompting what the media has dubbed the "Great Resignation". This is especially the case for those working in the legal sector, who saw their friends, family and flatmates who work outside of the legal sector enjoying a much better work-life balance.

The second most-commonly cited challenge was attracting new business at 48%, followed by the continuing demands of compliance regulations at 41%. The latter won't come as a shock to most. While insurance costs are rising - a significant threat in and of itself - simply trying to reduce internal risks and keeping up with compliance changes has become a heavy burden for many.

Salaries and insurance are the biggest overheads

Salaries (56%) and Professional Indemnity Insurance (43%) have been the most significant operational costs for small law firms in the last 12 months, while technology spend is also high at 34%.

When looking at law firm size, there were big differences in the top five challenges: compliance is a bigger burden on small firms with lower capacity, as is being able to retire when you'd planned to.

Professional Indemnity Insurance (PII) costs have accelerated in recent years, with the pandemic only escalating the problem by adding a number of cyber-security risks to the equation. When asked if PII costs had increased at the 2021 renewal point, 45% agreed, 10% disagreed and 44% said they didn鈥檛 know. However, when excluding those who aren鈥檛 aware of any change 鈥� presumably because this falls outside of their day-to-day 鈥� this figure climbs to 81%.

Very few (6%) said their law firms have tried to counter this problem by jumping ship to a different provider. Instead, law firms are attempting to lower PII costs by starting the renewal process earlier or making internal changes such as improving risk management.

鈥淪witching providers can have its merits if you鈥檙e saving on the premium but at the same time we trust our PII broker, which allows us to deal with things more proactively when we have an issue.鈥�

鈥淪witching providers doesn鈥檛 necessarily help. We tried, we shopped around a little bit, but if you go to an insurance company and they know you鈥檙e up against it, they know that you have to have it. It鈥檚 not like it鈥檚 an option.鈥�

Small law firms are thinking big when it comes to tech

When asked which change initiatives law firms have implemented recently or plan to implement in 2022, website development was the most popular choice. A third (33%) of respondents saying they have already invested in website development while an additional 30% said they plan to invest. In a similar vein, process and technology was another commonly cited area of investment. The most commonly cited initiative law firms plan to implement is to develop a social media strategy, with a third (33%) stating this to be the case.

Employing more lawyers was also high on the agenda, with almost two-thirds saying they have or plan to invest in more legal experts. However, investing in increased specialisation and employing additional staff to develop marketing or business development was low on the priority list.

鈥淔or us it would revolve around automation technology 鈥� a lot of it is a case of adapting the technology to your business 鈥� it鈥檚 already there, it鈥檚 ready and waiting.鈥�

The tech tools small law firms are turning to

When asked which tech tools are currently in place, perhaps unsurprisingly, teleconferencing had the highest adoption rate at 79%. This was followed by legal research tools at 69%.

Productivity and collaboration tools such as Microsoft Teams are also widely used, as is cloud file sharing software.

Only 6% said they are using advanced legal technology such as AI robots, while an additional 5% said they are using chatbots.

Interestingly, a quarter of respondents said they already have online portals for matter status updates and a further 11% said they are planning on introducing it in the next 24 months.

鈥淭he tech has worked fine for us all the way through the hybrid working paradigm. We are very lucky we did an upgrade right at the beginning and the tech has been fantastic for us."

The tech tools small law firms want the most

Legal research tools, CRM systems and e-verification signatures are the most commonly sought-after tech tools that small law firms plan to implement, at 19%, 18% and 17% respectively.

However, almost half (47%) said they had no plans to implement any of the technology suggested in the survey. When asked what鈥檚 stopping them, lack of time was listed as the biggest reason (52%), followed by lack of technical expertise (46%), lack of understanding (36%) and insufficient budget (35%).

Lawyers are turning to free legal research tools despite lack of trust

Legal research was listed as the second most widely adopted tech tool by small law firms, with almost two-thirds saying they鈥檝e already invested in legal research tools. However, the survey revealed a shocking number of respondents at small law firms are still using free legal research sources instead of paid platforms.

Three quarters (74%) of respondents said they use Google for research and guidance information, 64% said the Law Society, and 58% said Legislation.gov.uk. Over a half (52%) use 老司机午夜福利 and over a third (38%) use Thomson Reuters.

The survey also highlighted a growing awareness of the downsides associated with free legal sources. Two-thirds (63%) agreed that it is riskier to use open sources than paid sources compared to 46% in 2021, and the same number (63%) agreed it takes longer to complete a research task using free sources versus paid sources 鈥� 45% said the same in 2021.

This indicates that lawyers at small law firms prefer using paid platforms for legal research and are aware of their benefits, but may not have access to the content they need. This could be because many firms buy practice-area specific packages, but when lawyers need content that falls outside that practice area, they turn to free alternatives, thus increasing their risk to mistakes and wasting time.

"We use the paid-for services. That鈥檚 because of risk. There鈥檚 a lot of effort put into these platforms to make sure the information is correct and up-to-date. Some areas change constantly and the lawyers need to have that information at their fingertips."

鈥�I suspect it might be a generational thing 鈥� there are so many people who have grown up just googling everything now.鈥�

The war continues for legal talent

In a question covered earlier in the report, we revealed two-thirds of respondents said their law firms have invested or plan to invest in more lawyers.

We also asked legal experts how confident they are about competing for talent over the next 24 months. Half (53%) said they are only somewhat confident. Just under a third (31%) said they are very confident or extremely confident. A further 18% expressed doubts about finding the right lawyers.

鈥淧eople want so much money at the moment, which I understand 鈥� if that鈥檚 the industry, that鈥檚 the industry. It seems to have rocketed up and firms are throwing money at people to keep them."

鈥淭he problem that we鈥檙e seeing and I think that most firms like us are seeing locally and nationally is a lack of people in that sort of two to five to ten year qualified bracket. We鈥檙e good at training our own people, but then we get bigger firms coming in and swooping on your well-trained people offering them considerably more money and whisking them away."

Most say they鈥檙e happy 鈥� but are they being honest with themselves?

The majority of respondents ranked their job satisfaction levels highly, balancing out to an average of seven out of 10. In fact, three-quarters of respondents ranked their roles as six or above.

鈥淚 would agree that I enjoy my work, and I would go back into law if I had another chance, but maybe I haven鈥檛 been burned as much as some of my colleagues."

Stress levels, however, were also high, with the overall average resting at six out of 10. Three quarters (75%) said stress levels are between six and 10, while 44% said between eight and 10.

"There are some fabulous younger people coming through and a lot of them have new skills as well, which are helping older people in firms embrace technology and helping firms grow."

Work-life balance the most important aspect of a new role

When asked what they鈥檇 look for in a new role, work-life balance was ranked as the most important factor, followed closely by firm reputation. Client portfolios, leadership teams and access to legal technology were also deemed highly important.

Interestingly, only 1% of respondents ranked diversity and inclusion as the most important factor, and only 2% ranked climate change.

鈥淚 think probably the reputation and work/life balance you could see as being a main driver for switching a job offering credibility and reassurance.鈥�

"When it comes to diversity and inclusion and climate change, I think with younger lawyers, they tend to be key issues. They do ask about these sort of categories."

Remote working isn't holding businesses back

When asked how working from home has impacted new business from passing trade, the majority of respondents (49%) said it has stayed the same. Only a small number (6%) said they鈥檝e lost business because of this new way of working.

"We are very, very happy with the hybrid scenario, not because we have got any intention to decrease office space but just because our people are more productive and happy, and you know happy people are productive people."

Three quarters (71%) of respondents also revealed that their law firm has adapted well or very well to the challenges of hybrid working 鈥� only 3% said they had responded poorly or very poorly.

However, despite this progress, many small law firms still expect their team to come into the office on a full-time basis.

When asked how many days they are expected to work in the office, 43% of the respondents said five days a week while 19% said three days. Only 6% said they weren鈥檛 expected to go into the office at all. This appears unchanged from last year鈥檚 survey which saw 42% saying five days a week and 19% saying three days a week.

There are certain advantages to in-person interactions, such as learning and development opportunities, office culture and collaboration. However, with more and more lawyers wanting a better work-life balance, which for many means hybrid, remote and/or flexible working, the small law firms that fail to embrace a more flexible approach may find attracting and retaining the right people to become increasingly difficult.

鈥淲e want people to spend at least 50% of their contractual working time in the office, the main reason being to protect the culture of the firm because that鈥檚 built on relationships between people and that鈥檚 more difficult if people are working remotely.鈥�

Lawyers want to spend less time on admin tasks

Nearly three-quarters (70%) of respondents said they spend between 20-50% of their time on admin work, while 12% said they spend more than 50% of their time on admin work.

The majority of lawyers would rather spend their time on more business critical tasks. Almost two-thirds (63%) said they would like to spend more of their working hours on client work and just under half (43%) said they would like to spend more time finding new clients.

Learning new skills or upskilling as a team was also in high demand, at 34%, while a quarter of respondents also expressed interest in doing more strategy and planning work.

Unsurprisingly, only 5% of respondents said they want to spend more time doing admin tasks.

Law firms that manage to adequately address this challenge, which is widespread across the legal sector, will not only be more efficient and profitable - they'll also create a better experience for their employees, increasing job satisfaction rates.

"I have a team that takes care of my administrative tasks, but I still spend around 25% of my time on these 鈥� it鈥檇 be great to cut that down if possible."

鈥淭he policy is, if you鈥檙e somebody who is in a higher position, where you can look after your own work, there鈥檚 more appetite for the business to allow those people to have the hybrid working."

Law firms still rely on referrals, but online channels are growing

The most effective method of generating leads is through referrals 鈥� that鈥檚 according to more than half of the survey respondents who revealed this to be their number source. Another popular method was upselling and cross-selling opportunities. Interestingly, online search and social media were also significant contributors to leads.

Legal directories scored the lowest ranking, with more than a quarter listing this method as the least effective.

鈥淭he website is seen more as a means of verification of our credentials as it were.  A lot of our works comes in, as it does for many lawyers I'm sure, through referrals and recommendations and word of mouth.鈥�

"At the moment we鈥檝e got no more time to sell 鈥� but that means there鈥檚 room for expansion because there鈥檚 actually loads we could be doing to attract clients."

鈥淲hen you look at analytics the posts that always get the biggest reach and response are ones which deal with people.  So either profiles of individuals in our teams or general conversations about what our people think about things.鈥�

Clients now expect more for less

A high number of respondents (58%) said that clients are more likely to expect the same or a greater level of service for less than they were 12 months ago. Client expectations are also higher, with 45% of respondents stating this to be the case.

The lines between work and personal life also appear to be increasingly blurred, with 41% saying clients expect them to be available online out of office hours. However, only a quarter (26%) admitted that it interferes with their personal life.

Yet, as work-life balance was ranked as the most important factor for finding a new job, the true impact that the growing demands of clients is having on lawyers' personal lives is likely to be significantly higher than many are letting on.

鈥淚 think clients now assume that we鈥檙e just available all the time because during lockdown I think they got into bad habits. There鈥檚 no 鈥榟e鈥檚 left for the day鈥� or 鈥榟e鈥檚 not working today鈥� or 鈥榮he鈥檚 in a meeting鈥�.鈥�

"We talk to people a lot about people managing client鈥檚 expectations, explaining to them right at the start what kind of response they鈥檙e going to get. I think if you鈥檙e clear with clients early on then most of them are quite okay about it.鈥�

"Our conversion rate on referrals is 80%. Our conversion rate on Google advertising website enquiries is under 20% so you can imagine. It鈥檚 not time-effective or cost- effective to be sifting through those enquiries really.鈥�

鈥淲e bring a lot of our clients in through our website, which is where people can ask for a free case assessment and speak to a solicitor for 10/15 minutes about their problems.鈥�

鈥淚 think clients expect an instant response and that鈥檚 probably because over the last two years more of them have been buying online where they get an instant response or they are getting an online chat or something that happens straight away."