2018 was the best year in a decade for revenue growth, and U.S. law firms can expect to see another year of steady growth in 2019, according to a recent report from Citi Private Bank’s Law Firm Group. The report, based on surveys of nearly 200 American law firms, found that revenues grew an average of 6.3 percent in the first three quarters of 2018, far exceeding the growth rate from the same period of the previous year. Most of the revenue increases were at firms occupying the largest and smallest ends of the spectrum, with mid-sized firms being squeezed. The report anticipates the following shifts to the legal landscape in the coming months:
2018 was the busiest year on record for law firm mergers, and 2019 will likely see a lot of activity among mid-sized firms. The mergers will probably be larger firms acquiring mid-sized firms as well as mid-sized firms seeking merger partners.
Right-sizing may finally be paying off – After several years of right-sizing their practices, streamlining operations, consolidating duties and developing new revenue streams, many firms are reaping the rewards with increases in revenue growth and a more agile staff. Firms will continue to explore ways of maximizing potential through innovative staffing. The majority of firms reported that they planned to increase their temporary/contract personnel and two-thirds said they would increase their ranks of permanent low-cost employees.
Partner retirements require better succession planning – With more baby boomers retiring, law firms need to anticipate the challenges caused by the departures. Firms must proactively transition the client relationships or risk losing clients to other law firms. The more a firm engages with a client before a partner retires, the more likely it is that the client will remain with the firm. Many firms incentivize this transition and tie retirement benefits to the successful development of their former clients.
The skills and attributes demanded of today’s associates go beyond strong technical skills, but also include the need to be business-minded, creative thinkers, with project management skills. Most law firms are seeking candidates who are entrepreneurial and commercially savvy, and able to integrate technology into the delivery of legal services.
A surprising percentage of associates no longer aspire to be equity partners. Instead, many would prefer to pursue an array of different career and lifestyle alternatives. Ironically, the possibility of achieving equity partner is likely to increase over the next few years as retirement numbers outpace hires.
The shift toward alternative fee arrangements (AFAs) is growing at a rapid pace and is primarily driven by client demand. In 2017, survey respondents reported that AFA represented nearly 19 percent of firm revenue and the number continues to increase. Looking forward, law firm leaders believe the shift towards AFAs will continue with zero survey respondents anticipating a fall in AFA usage. Firms will continue to maximize the use of contract attorneys, legal support staff and technology to deliver competitively priced services to clients.
To see the full report, click here.