02 October 2012

UK firms fret over fee pressure

Mounting pressure from clients to slash fees is the greatest risk to law firm profitability, more than half of UK practices have told researches in a survey published yesterday.

By James Barnes

Client pressure a 'high risk' to profitability

Legal profession researchers Sweet & Maxwell found that 58 per cent of finance directors at top 100 firms say that pressure from clients to discount fees will pose a high risk to profitability, up from 54 per cent in 2011.
Other factors highlighted include the continued slowdown in corporate work -- ranked a high risk by 54 per cent of firms (46 per cent in 2011), and, more surprisingly, increased competition created by the Legal Services Act, which is rated as a high risk by 19 per cent of respondents.

Cost overruns

More than 40 per cent of the firms surveyed added that they view cost overruns on fixed fee work as a high risk to profitability.
‘The Legal Services Act is aimed at increasing competition and choice in the legal market and some will judge the success of the act on whether it leads to a tangible increase in service levels, or a pressure on fees,’ commented Teri Hawksworth managing director of Thomson Reuters Sweet & Maxwell.
‘The big question is how high up the league table of law firms the ripples from the Legal Services Act spread. While none of the magic circle firms we spoke to identify the act as a risk, we are seeing more firms outside the top 10 paying more serious attention to its impact.’

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