Law firm profits to be hit by bartering

FINANCIAL directors at the UK’s top law firms have said their profitability is under threat by clients which are increasingly applying pressure to reduce fees, according to recent research.

Legal publisher Sweet & Maxwell found that 60 per cent of financial directors at the UK’s top 100 firms said that downward pressure from major clients, including banks and large corporates, to trim down fees will have a negative impact on profits this year.

This is the first time law firms have been faced with hard line bartering from clients to lower fees and move away from the traditional hourly billing model, according to Sweet & Maxwell.

Instead, clients looking to cut legal spend have asked law firms to move towards “fixed fee” billing, causing the legal sector to re-think its current business model.

“This is undoubtedly a challenge that law firms need to respond to but it is also an opportunity for those firms that can find innovative ways of meeting their needs,” said managing partner Neville Eisenberg at law firm Berwin Leighton Paisner.

Extra costs accumulated by advising clients on a fixed fee basis poses the second greatest threat to profitability this year according to almost half of the UK’s financial directors. The number marks a significant increase from 2009 when only 12 per cent saw it as a risk.