The evolution of new-model firms and the opportunities for consultant lawyers

The pandemic has achieved more in a year in terms of pushing the legal profession to adopt modern ways of working than would probably have taken another decade or so to reach. What has surprised many firms is the extraordinary success of working largely online in dispersed locations. This realisation looks set to provoke the widespread adoption of new law business models across the UK legal industry.

The latest research from investment bank Arden claims the Covid-19 pandemic has exposed the “poor management and outdated operating models of many law firms”. It predicts that the consultant business model will become dominant among high street and mid-market law firms with around a third of UK lawyers working in such models in five years’ time. In fact, it could be argued that many lawyers have been working as consultants for the past year – without some of the best benefits!

I find this prediction fascinating. Back in 2009, when I launched one of the first new-model law firms in the UK, few thought such models would take off at all. At the time, the “virtual law firm” structure enabled lawyers, particularly those with a good following, to work more independently within a clear regulatory infrastructure with access to all back-office support services that they would need.  Within this fee-share arrangement they generally took home 70% of their fee income – in marked contrast to the traditional model, where the partnership pockets 100% of the fee income and pays its lawyers a salary, which equates to about 25% of the lawyer’s annual billing target. This new breed of law firm was largely seen as a novelty, especially given its significant departure from the traditional law firm financial model.

Flexible and supportive structure centred on agile working

We designed a firm which operated as a flexible and supportive structure for consultant lawyers who discovered that when the administrative, regulatory and cost burdens were lifted, they could really focus on delivering their expertise to clients. Clients liked the clearer transparency over costs and the direct access to senior legal expertise.

Our model was always centred on agile working – giving lawyers complete freedom to work when and where they wanted – with the resultant saving on expensive property overheads bringing added value to clients. Yet, as we evolved, we saw the advantages of carefully opening office facilities in key legal centres to provide collaborative workspace and meeting rooms. A number of new-model law firms like us dropped the “virtual” tag, combining the best of flexible working with a meaningful office hub.

Pre-pandemic, the profession was considering new ways of working

Even before the pandemic, some firms were tentatively considering new ways of working as a positive response to both new technology and the increased premium many talented lawyers now place on quality of life. Negative factors such as the rising cost of compliance and professional indemnity insurance were also forcing smaller firms to consider significant change.

At the other end of the market, the Big Four auditing firms with legal practices had streamlined their own working models launching new breeds of law firms into the market. City and national law firms also realised that significant cost savings could be made.  Linklaters recently announced it would be offering voluntary redundancy packages to some 225 secretaries and personal assistants as a result of its move to remote working and Allen and Overy has confirmed it will make significant savings as a result of reducing its physical office presence.

For lawyers keen on greater freedom and flexibility, becoming a consultant has never been easier. However, the ever-growing variety of offers means that lawyers are having to pay much closer attention to the detail.

Being a consultant lawyer requires self-motivation and a dedication to providing high levels of service. Different models involve varying levels of risk, with some consultants receiving a salary while others are paid a percentage of their fee income. The most common arrangement is the 70/30 split in favour of the lawyer.  Out of this 30%, the firm will have a range of overheads to meet and will also want to make a profit.  It is for this reason that many of the consultant models will offer you less by way of services, to ensure its business remains sustainable.  Putting it another way, it’s not possible to have nearly 90% of the fee income without something giving!

What you should expect from your fee share 

A full regulatory and compliance infrastructure, supported with Cloud-based finance/cashiering and IT systems, PII and legal ‘know how’ should be standard. However, if you’re used to the central services of a big firm, it may be just as important for you to have ‘free to use’ office facilities, skilled marketing and business development resource, a comprehensive induction and transition programme and access to high-quality admin, secretarial and paralegal services.

As a result, some firms will begin lawyers on a 50/50 fee share split where their annual billings are below £100k. Newer entrants into this space are advertising compelling arrangements of 80-85% of fee income paid to lawyers but as this means the firm receives only 15-20% of the fee income, it should be of no surprise that the lawyer will be expected to pick up more costs e.g. paying separately for marketing services, know-how, offices and in some cases PI insurance.

Under the surface, all new-model firms are not the same and I would advise any would-be consultant to be thorough in their own due diligence.  Understand the structure you will be working in, the levels of freedom you want, what is included in terms of resources and support provided, but, most importantly, the culture of the firm. Speak to lawyers already working there, understand what gives reassurance and value to your clients.  Also what does the firm and its brand stand for and what are its long-term goals.

To survive or thrive?

We have genuinely found that to thrive, consultant lawyers need a firm which fosters genuine collegiality and close collaboration between all its lawyers without the diktat of central hierarchies, office politics and billing targets.

A slow shift towards flexible working and self-employment has been markedly accelerated by the pandemic and there are sizeable numbers of lawyers who want to keep it that way. As the tide of coronavirus restrictions slowly recedes, it will reveal an industry at the crossroads of a fundamental transformation. It will be very interesting watching the direction both firms and lawyers take in the future.