Concern over profit margins
City law firms have expressed concern about their profit margins due to increasing pressure from clients to lower their fees, according to a recent survey of finance directors at top-100 firms.
More than half of finance directors say pressure from clients to discount fees will pose a high risk to profitability. They are also concerned about the slowdown in corporate work, while a surprising one in five finance directors views increased competition created by the Legal Services Act as a high risk.
Generally, the Legal Services Act, which permits external ownership and investment in law firms, has been seen as a threat to high street firms rather than the Square Mile.
According to Sweet & Maxwell, which conducted the survey, City firms may be concerned that the commoditised elements of their practices could suffer from the extra competition, or that investment of private equity money in smaller commercial law firms may increase competition for higher margin work.
Managing director Teri Hawksworth says: “The big question is how high up the league table of law firms the ripples from the Legal Services Act spread. While none of the Magic Circle firms we spoke to identify the Act as a risk, we are seeing more firms outside the top 10 paying more serious attention to its impact.”
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