Street level insights

As we are all very much aware, the legal profession in Scotland has been through a roller-coaster ride over the last few years. With legal aid reforms, the housing market downturn, economic challenges and now the introduction of alternative business structures, lawyers in 2012 face a real challenge and for some a real struggle.

But why do some struggle whilst others thrive in hard times?

Through a special industry report, focused on understanding where the land lies for small high street firms in Scotland and how practitioners see the current state of play, LawCloud has assimilated feedback from a diverse selection of its clients, giving an insight into how some of its high street practitioners are adapting and coping with the emerging landscape.

Challenging climate

All seem to agree that the current climate, for lawyers in Scotland, in the main, is tough but holding up. The market seems challenging and responses from our survey are very mixed.

“It is like what it was 20 years ago – a flurry of activity, then very quiet. It is better than it has been in the last four years. Niche sectors such as family law, executries and civil court work in general are good; property is very poor. People are keen to move and to buy but they are stifled by the lending situation. Commercial work again is very slow”, comments a high street partner.

Another says: “There are parts of the residential property market which are healthy, other parts which are not. The first time buyers are buying new-build properties as builders are able to offer incentives. This has no benefit to the general market as new-build sales do not generate a chain reaction of sales. The market in the north east of Scotland seems healthy enough to £200k. Above that it is still stale. Firms appear to have never been busier so far as family law is concerned, as there are more separations than ever before.”

From a commercial law aspect it seems to be a little better. Firms sound busier and dispute resolution work appears to be booming, corporate is better. However comments included “Property is dead.”

In saying that, a Glasgow firm commented: “We are surprisingly busy at the moment, but transactions are taking longer to complete, they seem more complicated and clients are very cost-conscious indeed.”

Meanwhile an Edinburgh property firm suggests: “I think the Edinburgh market is saturated with too many properties at present, and could do with a solid two months of what we are witnessing just now so we can have a bit of a clearout of stock. The banks are causing all the main issues we are dealing with in the practical workings of conveyancing.”

An assessment of the past 12 months suggests that there is an increasing level of business compared with 12 months prior; however although most firms appear to have steadied, they are still feeling the pinch, and feedback suggests that SLAB lawyers are down 20% in general.

What's in, what's not

The most profitable work types for small law firms appears to be executries, powers of attorney and wills, which seem not to have suffered adversely over the last 12 months.

Comments include: “Chamber based work is now very important. Legal aid, criminal and civil, is diminishing because of Government refusal to raise hourly fee rates”; and “No change to court fees. If anything our court work is becoming less profitable as a result of cuts to legal aid etc. There are more cases being done to earn the same money as before.”

Insolvency, corporate, commercial litigation, dispute resolution and general business law remain strong.

So far as confidence goes, whilst some feel it is improving, others comment on stability but with ongoing fragility.

Firms have commented: “I think it is still very much a roller coaster. Property picked up slightly in the spring but has gone flat again. I feel that people are still very cautious about spending money. This is across the board, with the elderly also being very conservative.”

“They are getting no better really. Money supply is tight and people are frightened. Overall however, perhaps a little better. There will, as predicted, be a post-Olympics slump for the rest of the year.”

Self help

Practical measures that firms have taken to cope with market conditions include:

• Developing depth of team, working hard at relationship building with clients, looking at new markets and spending more on marketing are all effective tools. Improving online presence through social media, and increasing web rankings on Google, are also seen to be the way forward.
• Raising your profile through articles and publications online is seen to be a good, inexpensive means of positioning yourself as a trusted expert in niche fields.
• Focusing on niche sectors and cutting out work from markets that the firm clearly can’t compete in seems to be an overall theme, perhaps concentrating on areas that need local solicitors and a bespoke approach.
• Reviewing and adjusting overheads regularly is a clearly successful strategy, although most firms have now already trimmed down to a manageable size to cope with the current conditions.

Essentially it’s about “doing more of what you are good at” and “strengthening your presence as an expert in that field in your local niche market”.

Whilst many firms have been approached by other about merging and some have already taken that step, the majority prefer their own Independence.

Typical comments include: “We do not want to merge. We have been approached but decided that it was not for us. We have a very streamlined organisation and to merge we feel would compromise that. Whilst you might benefit from gaining a will bank, for example, you lose out by having to take on a fair amount of ‘dead wood’.”

A number of firms outsource to save costs and gain peace of mind in areas such as cashroom, compliance, IT, and transcription/typing. This helps to reduce risk and reduces burden on remaining staff. This is becoming a more pertinent investigation on the agenda that firms are open to.

Are you adapting?

Looking to the future, views are very mixed but the general impression is that it will improve slowly and that there are still opportunities for those motivated to adapt and find them.

Comments from firms in the property sector include: “Depends on the mortgage market – what is really needed is for a shakeout, with realistic rather than cheap mortgages”; and “I think we will see a slight improvement; however I feel it is really in the hands of the banks.”

Regarding the Legal Services Act and ABS, few seem to be overly concerned, though some are reserving judgment with a watchful eye.

One firm commented: “In the short term I am not concerned, but in the longer term I think some smaller firms will be squeezed out of the market or have their market share reduced.”

Suggestions for future opportunities seem to be reasonably positive.

Niche, bespoke, private client, personal service and efficiency seem to be the key words. Sharing resources, merging, using technology are also considerations. Legal services for an ageing population has been cited as another interesting aspect.

Feedback included: “I think small firms have to concentrate on service levels and developing and enhancing client loyalty”, along with “Being known for expertise in niche areas”.

I’m drawn to: “Be the best you can be at what you are good at.”

So far as how the Law Society of Scotland can help, feedback includes:

“More lobbying to lenders re panels and trying to cut down on regulation”; “Some positive spin in the press. Employ a decent spin doctor. The profession gets battered from all angles”; “Cut cost of levies!”, along with “LSS needs to come off the fence and show leadership.”

A consultant's perspective

A former lawyer and experienced legal management consultant, Brian O’Neill comments that his clients fall into two categories: (1) clients who are forward looking and who have decided that they want to grow their business; and (2) those who are absolutely paralysed with fear and foreboding and have no idea what the future holds.

The good news is that there seem to be fewer of the latter and more of the former.

Brian goes on to say: “Of those who are forward looking, they each acknowledge that the residential conveyancing market is what it is – that it’s not going to grow to any great volumes any time soon; and that lenders are struggling for liquidity and are imposing almost impossible conditions (particularly in relation to deposits) on first time purchasers. Alongside this, second home movers who purchased close to the ‘high’ of 2006 may not have sufficient equity to fund deposits on a new purchase even if they were fortunate enough to sell at a reasonable price.”

He observes: “Some firms are taking the opportunity to market to their existing client base to promote other services, keeping in touch with clients and cross selling things like powers of attorney.”

A part of the difficulty seems to be that “There will be partners and/or senior associates or assistants who have a client following but are working in a firm that has no ambition and no idea what do to in the current climate and no idea where it’s going – or there are sole practitioners who want to scale down (or want out) and this is represented by the growing number of mergers and acquisition activity that we are seeing.”

He suggests that “With regard to ABS, I still think that it’s simply not on the radar of most firms in Scotland – they are aware that it’s there but have not really thought about how the advent of these organisations is likely to affect them. I don’t think many are aware that organisations like the Co-op are already registered in England and have started promoting their services in Scotland (although for Scottish matters they will use a solicitor on their panel). This type of competition will surely shake up the legal profession but I don’t think it has fully been appreciated to what extent.”

All firms agreed that technology plays a key part in helping them to maximise efficiencies through time saving tools and utilities, saving them costs by reducing the need for admin and support staff, tracking financial performance through comprehensive reporting suites and KPIs, managing risk through good record keeping along with notifications and early warning systems, and communicating better with clients through email, SMS and mailshotting capabilities.

Brian O'Neill adds: “A strong relationship with your technology provider along with a more modern cashroom and case management system will help you better manage your business and this is essential when running a law business in the 21st century. Good IT training, solid support and future proofed technologies are all factors in this fast changing world. Keeping on top of regulation is increasingly demanding and a good IT system should help you to organise yourself so that you can sail through the dreaded Law Society of Scotland inspections.”

Overview

Overall, there is clearly a fragile landscape, although feedback does suggest that things are holding up and are marginally improving.

If firms can do their best to be flexible, modernise and adapt with the times by examining their “business of law” and utilising solid IT systems well, then they will be well placed to retain clients, promote themselves better and protect their hard earned market share against the external buoyant and unpredictable market forces along with competition from ABS and further.

If the Law Society of Scotland can keep promoting the “solicitor” brand in Scotland well and support the profession by managing costs and regulations, confidence will be maintained, there will be no reason for clients to breach a hard earned loyalty with their local law firm, and the legal profession will continue to thrive as it has done for many years.

Warren Wander is the founder and managing director of LawWare Ltd and more recently has launched LawCloud. He has spent all his working life in the software development field and  believes passionately that technology is there to help improve quality of life.