Bright future in private client work

Solicitors in Scotland work in a changing and increasingly challenging environment, running harder and faster each year even to stand still. This is especially so at present for those serving the private client.

This article examines some of the current trends and pressures facing private client practitioners and suggests how private client work might develop over the next few years in response to these.

Much of what follows will be truer of city than of rural practices, though the latter will not be immune from the resultant fallout. Some trends are presently confined to Glasgow and Edinburgh. Will they spread to Aberdeen, Dundee and Inverness in time?

Among the serious challenges facing private client practitioners, whether in large ‘all service’ firms, specialist private client practices or general practices, are:  (a) substantial numbers of experienced partners approaching retirement; (b)

difficulty in recruiting good young solicitors into private client practice; (c) pressures on the profitability of residential conveyancing and legally aided work; and (d), in Glasgow and Edinburgh especially, the trend of larger firms jettisoning private client work to compete for the top end commercial work, with or without a substantial ‘parent’.

This latter trend is highly topical, following the announcement by Maclay Murray and Spens and McGrigor Donald on 20th November that the latter’s Private Capital unit was moving to Maclays. Kirk Murdoch, managing partner of McGrigors, was quoted as saying: “For some time now, our growth has been concentrated on our corporate and commercial practice and, while we have valued our private client work, we did not see it as an area for investment and expansion”. It is widely rumoured that the move is a precursor to McGrigors joining KPMG’s KLegal stable.

This most recent development will not be the last.

Specialisation and competition in the commercial market has been increasing for many years. First, niche commercial firms emerged – Dickson Minto, Dorman Jeffrey (now part of Andersen Legal) and Semple Fraser obvious examples. More recently some large corporate firms have shrugged off the ‘all service’ image to focus exclusively on commercial work – Burness appears to have made that deliberate choice, Shepherd & Wedderburn has in effect done so with the departure of Robin Fulton to Turcan Connell, and both Dundas and Wilson and the ‘old’ Bird Semple have done so in the course of absorption by Andersen Legal and DLA respectively.

McGrigor Donald may be involved in the same process. If it does join KLegal, will the remaining large independent corporate firms, most obviously Maclays and Shepherds, eventually decide to seek a major accounting or English legal parent too?

These developments reflect more than just continuing technical specialisation. They also highlight the relative marginalisation of private client work within large corporate firms in recent years, both in terms of personnel numbers and fee income.

Large corporate firms necessarily have significant overheads. They need to maintain prestigious city centre offices, to recruit and retain good people in a highly competitive market, to incur the marketing and PR expenditure necessary to maintain brand awareness with tendering and panel arrangements becoming the norm, and to develop and maintain IT systems able to service a sophisticated and demanding client base. It is no surprise that even well-to-do private clients, who pay their legal fees from after tax income and without recovery of VAT, are less able to pay the hourly charge out rates required by such overheads and that the influence of the partners who serve them should have waned within their firms.

This trend seems set to continue. In future, most private client work, even at the top end of the scale, is unlikely to be delivered by large ‘all service’ but predominantly commercial firms. So how will it be done and are there opportunities here for imaginative private client solicitors? In my view there are.

One need look no further than the rapid growth of Turcan Connell in Edinburgh, since its establishment in 1997 when Dundas and Wilson joined the Andersen Legal stable. From the original five D & W partners the firm has grown to 14 in four years, attracting the Burness private client partners, Robin Fulton from Shepherd & Wedderburn and others, to become one of the natural first choices for private client work in the east of Scotland.

Whether this success will be mirrored in the west and elsewhere remains to be seen. Looking around the private client departments of some of the other large, ‘all service’ but predominantly corporate, firms in Glasgow, most with a relatively few, older, private client partners, it seems likely that this trend will sooner rather than later displace at least some of them. In that event a west of Scotland equivalent of Turcan Connell may well emerge. My own firm intends to be at the heart of that development.

While any successful firm must invest in its premises, people and infrastructure, overheads in private client work are lower than in corporate. The key investment is in the development and maintenance of close and lasting relationships with clients and their families. That has more to do with attitude and effort than marketing or PR spend. Freed of the burden of competing with corporate colleagues for the support and resources of large firm management boards, specialist private client practitioners can make a good living and have more control over their professional destinies.

Many positive factors encourage the growth of specialist private client firms, particularly those dealing with the acquisition, management and tax efficient onward transmission of family wealth.

There is more wealth about. The spread of occupational pension schemes, the growth in home ownership, and the general rise in living standards mean that more and more Scots have family wealth to manage and eventually pass on to their children, creating opportunities for residential conveyancing, wills, tax planning and trust and executry administration.

The greying of the population means that more older clients need help with their financial affairs, help scattered family members often can’t provide, creating an increased role for the family solicitor.

The prevalence of divorce, separation and cohabitation means there are more, and more complex, family units needing advice on asset protection, investment, trust arrangements, etc.

When large corporate firms abandon private client work, that work doesn’t go away. Their former clients still need the advice, usually at quite a high level of expertise. Where are they to get it?

Every plc chairman and MD still needs a will, has an elderly parent, needs to mitigate the IHT problem which his success has brought him, etc. If he can no longer get that advice from the Dundas and Wilsons and McGrigor Donalds, where is he to get it?

For the moment, some large commercial firms retain a private client department. Maclays appears, in taking in the McGrigor Donald Private Capital Unit, to be committing to its department for the foreseeable future; but where will the new breed of pure corporate firm refer the chairman or MD for his personal advice – hardly to a predominantly corporate rival, with the risk that the corporate work might follow him there!

This dilemma is partly what is fuelling the success of firms like Turcan Connell and my own. Corporate firms can refer well-to-do business clients to them for private work without the risk of losing the client’s corporate business.

At the other end of the scale, small general practice solicitors and small to medium sized accountancy firms are happier to refer clients to a specialist private client firm on a consultancy basis than to the private client department of a major predominantly commercial firm, to whom they may lose the client’s other business. In an increasingly litigious world, they know that it is dangerous to stray into areas requiring specialist tax, trust or succession, knowledge which a small general practice may not possess.

The opportunities are more obvious in relation to the acquisition, protection, management and transmission of family wealth. Legal Aid will continue to be a hard row to hoe, as will much personal litigation, unless significant sums are involved, though even here there are signs of firms seeking competitive advantage through specialisation – such as Bonnar & Co. in Airdrie who specialise in personal injuries work and Batters & Co. in Glasgow who deal exclusively with licensing.

In my view the key is specialist expertise in areas which can make a real difference to financial outcomes or help solve significant family problems with financial consequences. I find that clients are happy to pay realistic fees for such expert advice.

Despite what I have said about overheads, successful private client practice will continue to require investment of time, knowledge and money in training, the development of IT systems, recruitment, etc. to meet the needs of an increasingly sophisticated clientele. Cost containment through up to the minute equipment and software and new methods of service delivery, particularly e-commerce, will be vital.

But for those with the imagination and courage to grasp the emerging opportunities and the commitment to developing the new expert private client firms who will serve the top end work in future, there will be significant rewards. A good living will be only one of these. As important will be greater control of one’s professional destiny and the respect and support of like minded colleagues who appreciate the complexity of the work at the top end and the expertise and ingenuity required to do it well.

This in turn will help solve the major recruitment and succession problems facing many private client departments at present. Such new firms will offer an attractive career alternative to talented young lawyers, not all of whom can become the rising stars of Megalawyers Inc. or necessarily relish the long hours, late night settlement culture which nowadays prevails in 1st Division commercial work. The development and maintenance of the close personal relationships which successful private client work requires may seem more worthwhile than a higher income but higher stress lifestyle and burnout at 40.

I am certainly optimistic about the opportunities which are emerging for a different way of serving our private clients and the increased professional satisfaction which I believe they can offer.

These views are necessarily personal and partial, but I hope they will help to stimulate discussion and debate about our fast changing part of the profession and perhaps encourage some of those presently concerned about their future role in their present firm to take their destinies into their own hands. Come on in, the water’s lovely!