Top 100 UK firms see average fee income grow over past financial year, study finds
Talent shortages and macroeconomic challenges expected to weigh in year ahead, according to PwC survey
The top 100 UK law firms saw fee income grow by 9% on average over the past financial year, though many firms are bracing for a tougher period ahead, according to PwC’s annual Law Firm Survey.
The survey showed that top 10 firms saw a double-digit rise in fee income, clocking in at 10.2% – more than double the 4.5% fee income growth they had forecast. Growth was relatively more sluggish among the top 11-25 firms, averaging 6.3%. Firms ranked 26-50 saw the biggest jump in fee income, rising 12.5%. A majority of firms also saw profits increase over the same period, with 65% of top 100 firms reporting year-on-year growth.
The rise in fee income was supported by a boom in M&A activity and a pick up in demand across practice areas such as litigation, employment, refinancing, restructuring and insolvency. Firms have also benefited financially from the shift to hybrid working and lower associated operating costs, though the ongoing ‘war for talent’ means higher salary costs continue to weigh on profitability.
Kate Wolstenholme, leader of PwC UK’s law firms advisory group, said: “Despite a very strong year, law firms now face some headwinds from continuing macroeconomic and geopolitical uncertainty, with high inflation, tightening of credit markets and the energy crisis creating a shift in business confidence. Firms may need to look beyond pricing to non-core cost reduction, improvements in operating model and technology innovation to combat those challenges.”
As many as 88% of top 100 firms say they are concerned that a shortage of talent will prevent them from achieving their targets in the next financial year, with some lawyers experiencing unsustainable levels of work over the past 12 months.
Leon Hutchinson, co-editor of PwC’s Law Firm Survey report, said: “Following the end of the last pandemic lockdown earlier this year, we have seen partners and fee earners on the move. This, linked with shortage of supply, has added to staff cost inflation that all firms are experiencing”
Hutchinson added that continuing to increase pay is not a sustainable option, with law firms expected to look at other approaches such as improving work-life balance, offering a remote or hybrid working model or ensuring ESG policies are aligned with lawyers’ own values. Only 25% of firms have an ESG policy in place, the survey found, though around half have largely formulated their strategies.
Firms are also increasingly worried about cyber risk, in part because it is becoming harder to insure against. Four in every five firms list cyber risk as a significant concern, with top 10 firms flagging it as their second biggest issue behind macroeconomic volatility. Those firms are spending 55% more on cybersecurity year on year, with firms across the top 100 increasingly hiring dedicated cybersecurity staff to help mitigate cyber risks.