Increasing competition, rather than Brexit, is the biggest challenge facing the West’s law firms, according to new research by accountancy group Smith & Williamson.
Its 2018 Law Firm Survey, developed in association with The Lawyer, reveals that negotiating the competitive landscape remains the top priority as opposed to the UK’s impending exit from the EU. 
Some 32% of respondents now regard Brexit as a threat to their business, compared to just under three-quarters who expect to face a slight or significant increase in competition over the next 12 months.
Law firms expect increased levels of competition both from existing rivals and niche players over the next three, as well as from new entrants including the Big Four accountancy firms.
Smith & Williamson canvassed the opinions of senior executives at the UK’s Top 100 law firms, many of which have offices in Bristol, on their attitudes to a range of key issues affecting the market.
It found that mergers and acquisitions remain an unpopular choice for expansion, with law firms preferring to make selective hires of top performing teams.
Technology spend is increasing among all survey respondents but is focused on incremental efficiency improvements, rather than business transformation such as investment in artificial intelligence.
Meanwhile, new entrants are intensifying an already fierce “war for talent.” Salary pressure is still rising as US law firms continue to lead the way and rivals are addressing this with increasing specialisation and geographic expansion.
Smith & Williamson partner and head of professional services in Bristol, Fiona Westwood, pictured, said law firms expect their main sources of competition over the next three years to come from current direct competitors – as well as online service providers, in-house resource and niche firms.
“Our research has unearthed a self-confident profession that sees genuine opportunity amid the current uncertainty, but nevertheless needs to fight for the very best people in an increasingly tough marketplace,” she said.
“Law firms face increasing competition, both from their traditional rivals and from new entrants, such as the Big Four accountancy firms. The strongest firms have focused on identifying their key strengths, articulating them to clients and improving service delivery.
“No doubt the continued downward pressure on fees, compounded by increases in associate salaries and increased demand for legal technology solutions, are factors that have led firms to feel that the legal market remains a highly competitive landscape.”
Fiona said that tackling ‘lock-up’ – outstanding payments owed to law firms by clients, along with unbilled work – remains a priority for many, but that far from improving, the amounts owed have now reached record levels.
“This leaves firms vulnerable to cash flow problems and bad debts, but there are solutions for those firms willing to take the problem in hand,” she said.
“We have been running this annual survey for many years and, in that time, law firms have always stated they will be focusing on improving lock-up. Yet during this period, the amount of money that firms have in both work in progress (WIP) and unpaid bills has increased year-on-year.
“The legal profession may need to find more creative solutions to preserve productivity and profit margins in the face of a wave of mounting business pressures, as sustaining a competitive edge becomes more challenging.
“Without real change, firms face losing clients, reducing fees for those they retain, plus increasing costs for doing so. Nevertheless, the legal market still holds vast opportunities for those firms that prove most adaptable.”
