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NatWest Legal Finances Benchmarking Report 2019

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The following is the Executive Summary of the full report that you can download from the NatWest website.

Executive Summary

This year’s report consolidates the financial performance of 148 legal firms employing 10,500 people, covering the financial year end 2018 and also reviews the actual performance predicted by firms during the year.

The combined fee income of the firms in the survey is £1bn. The combined profits were £284m and cover 980 equity partners. The information is broken down both by region and size which results in some interesting findings and trends.

In a year when Brexit has continued to dominate our thoughts and resulted in significant uncertainty to both the economic and political landscape, it is pleasing to see that, despite headwinds, the legal sector continues to demonstrate growth at a rate consistent with previous years.

There are a number of key thematics which continue to impact the sector including the threat of cyber attacks, the adoption of AI, the increasing trend of Alternative Business Structures, the challenge of attracting and retaining talent and of course Brexit. This year the survey asks respondents how their own firm is likely to be impacted by these themes. What is clear is that there is a significant variance of views – what one firm might see as a threat could be viewed as an opportunity by another.

The report highlights that average fees per equity partner now stands at £608,000, a further increase of over 7%, or £40,000, from the prior year which materially outstrips inflation. Average fees per fee earner were £134,000, a modest £2,000 increase from the previous year, demonstrating how difficult it is for firms to increase revenue per lawyer.

The average profit per equity partner (PEP) now stands at £128,000 which is £20,000 higher than the figure reported in the 2018 survey. The average profit margin has fallen from 22% to 21% this year, the third year in succession we have seen a decline. This shows that the growth in PEP is coming from an increase in volume which has been reduced by a fall in efficiency.

It is too easy for firms to focus on fees earned as opposed to PEP, and improving margins, efficiency and lawyer productivity should be front and centre of our thoughts. A thorough analysis of the type and profitability of work undertaken is key to addressing this steady decline in margin.

The report shows a further improvement in total lockup to 99 days. This represents somewhat of a landmark for the sector given it’s the first time since the survey commenced seven years ago that this number has been sub-100 days. While it is encouraging to see gains being made in this area, there is still room for significant improvement and the report poses some interesting questions which all firms should ask themselves.

In this year’s report we wanted to reflect on the longer term trends in the legal sector by producing a seven year summary of the key metrics taken from previous benchmarking reports. The results do show some interesting longer-term trends and I would encourage firms to consider their own performance over this prolonged period as part of any benchmarking exercise.

The UK legal sector continues to be hugely important within NatWest. We have a long and proud history of supporting legal firms throughout the UK in developing a successful and sustainable business. Our specialist Relationship Directors understand the Professional Services sector and benefit from accredited training and regular sector updates. If you would like to speak to one of our team, please get in touch.

Dave Weaver
Commercial Head of Professional Services