Despite a number of challenges, legal businesses around the world will continue to grow in 2018, albeit modestly.
The prediction comes from a client advisory by Citi Private Bank, which looked at the state of the legal industry with Hildebrandt Consulting.
“It remains one of the most profitable personal services businesses in the world,” the bank advised. “That said, we expect to see further consolidation and some law firm dissolutions as weaker firms lose their ability to compete.”
Citi predicted that revenue and profit per equity partner growth “will remain in the mid-single-digit range” this year. However, some firms will perform better than others, which will drive consolidation in the industry, it said.
A number market forces will weigh down turnover growth, Citi said. Global macro uncertainty will continue to lessen how well law firms can predict demand levels. The slow-growth environment has also created a hyper-competitive market, it said.
The market is further complicated by the burgeoning presence of alternative legal service providers, which are growing rapidly, the note said. These providers, which include the Big Four accounting firms, are eating into low-value areas of legal work, thereby reducing demand growth for traditional firms.
Big Four accounting firms have recently made significant moves in the legal market. As an example, Stuart Fuller, the former global managing partner of King & Wood Mallesons, was recently named the new head of KPMG Law, proving the sincerity of the Big Four firm’s legal industry ambitions. Other alternative providers have steadily been growing, hiring big names from major law firms.
Technology also poses a challenge to law firms this year, Citi said. Of particular interest will be artificial intelligence and cybersecurity breaches. With the challenges, however, come opportunities.
“We believe that the firms who harness the emerging technologies and who focus on protecting their clients and themselves from cybersecurity breaches will be even stronger in the future,” Citi wrote.
The financial institution also remains positive about the ability of law firms to adapt.
“While there are those who suggest that law firms cannot adapt to the shifting demands of clients and the changing competitive environment, we take a different view,” Citi said. “We believe that law firms have historically been resilient in the face of changing market conditions and while change has come slowly, the law firm of 20 years ago bears little resemblance to the law firm of today.”