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Junior Lawyers Division

The law firm of the future

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Founded by former Norton Rose Fulbright corporate solicitor, Chris White, Aspiring Solicitors is a unique organisation committed to increasing diversity throughout the legal profession.

Emma Dickinson provides an overview of the ILFM annual conference 2013.

On 15 November 2013 I was pleased to be able to attend the 35th annual conference of the Institute of Financial and Legal Management (ILFM) at the Law Society in London. I regularly write articles for the ILFM magazine, Legal Abacus, and I was therefore pleased to be able to attend the conference and learn more about ILFM and meet more members of the ILFM team.

The ILFM conference is held annually, with the aim of bringing together a variety of financial and legal professionals within the legal industry who have responsibility for practice management. Delegates have the opportunity to network and discuss topics that are shaping the future in legal finance and practice management and any day-to-day challenges that they face. The nature of the topics discussed meant that there was a wide range of different institutions represented or participating in the conference, including accountants, insurers, software providers, and banks.

After a short networking opportunity over coffee, the formal conference programme started with a speech welcoming delegates by the chairman of ILFM, Richard Hill.

The age of the non-lawyer and rise of professional management

Richard Hill’s introduction was followed by the keynote speaker of the day, Professor Stephen Mason, director of the Legal Services Institute.

Mason started by noting that legal practices are now regulated businesses. There is a current trend towards incorporated legal businesses, rather than the traditional model of legal partnerships. In his opinion, the age of the lawyer is in decline because of several recent changes in the legal market, including:

1.Increase in the role and status of “support” services in legal practices.

2.Increase in diversity in legal functions (such as, for example, costs draughtsmen, CILEX qualified professionals, in-house advocates, and solicitor advocates).

3.Increase in non-legal professional adviser functions within firms (for example, healthcare professionals, police advisors and town planners) who are ‘adding value’ to legal advice given.

In Mason’s view, this will naturally lead to more multidisciplinary partnerships in the future. There is a relatively low level of multidisciplinary partnerships at present, but Mason stated that this was because of the current culture and, in particular, a lack of entrepreneurial spirit and reluctance by existing power holders to give up that power. In his opinion, a move towards such multidisciplinary partnerships will happen slowly. It is likely that non-lawyer new entrants into the legal market will be the ultimate drivers of this change. Therefore, this will not be at the larger firms, but is likely to be consumer driven. Mason also noted that, for younger people, raising investment is difficult in the current climate, which may be why some potential entrants to the market have not yet been able to have a strong impact.

4.Diversity in ownership of legal practices following the implementation of the Legal Services Act has increased. Mason noted in particular the advent of share-option schemes within law firms.

5.Increase in non-executive roles within legal practices.

6.Increase in management in law firms.

Mason noted that lots of law firms have failed recently due to bad management. In his opinion, management is becoming more important because of the increasing cost and complexity associated with regulation, with the result that more (and better) management is needed. Margins are also leaner, with the result that more efficient management is needed. As things become more complex, there is a rise in non-lawyer professional management.

When economic circumstances become difficult, marketing and training are among the first parts of a business that are cut, but these should be recognised as being part of management within a legal practice.

Mason’s predictions for the future included the development of a strong and growing transfer and recruitment market for professional law firm managers.

These managers will not need to be lawyers because being or not being a lawyer is not a determination of an individual’s ethics. Businesses will need effective decision making to be appropriate to the business structure. Therefore the individual’s merit, rather than their background, will be a key determinative factor. Mason considered the recent Legal Services Board consultation and the proposal that chairs of regulatory bodies must be non-lawyers. He stated that the merits of the individual (rather than their background) should be the determinative factor.

Mason predicted that, in the future, directors will be the new power holders of legal practices because ownership and shareholding will no longer be where control of legal practices lies. Lawyers who want to retain or gain control of their legal businesses will therefore have to become directors and managers because there will be lots of incorporated legal businesses in the future.

Mason proposed that the profession in the future will need:

1.Professional managers;
2.Training that is serious, sophisticated and sustained for those managers; and
3.Recognition for those professional managers, including rewards and opportunities.

To progress in the future, Mason recommended that junior employees develop credibility by doing a good job, demonstrating that they are adding value to the business and becoming indispensable to management.

Junior lawyers considering alternative legal careers and their future career progression may consider Mason’s comments regarding alternative careers and increasing diversity of non-legal roles within the profession with interest.

How do accountants fit in the new self-reporting environment - overview of the COFA

The second speaker of the day was Ian Smith, chair of the Solicitors Special Interest Group for the Institute of Chartered Accountants in England & Wales (ICAEW).

Ian Smith noted that the current legal landscape had been difficult, with 2012 and 2013 being particularly difficult years, since this was when a lot of changes came into force. Difficulties he highlighted included:

  • The global recession during 2007 / 2008.
  • The difficulties surrounding the introduction of MySRA and online practising certificates.
  • The introduction of outcomes-focused regulation (OFR) in October 2011.
  • The Jackson Reforms and the Legal Aid Sentencing and Punishment of Offenders Act (LASPO).
  • Introduction of road traffic accident (RTA) portal fees.
  • Quality schemes (which some legal practices love but others hate).
  • Assigned risk pools and professional indemnity insurance (PII) renewal difficulties.

 

Smith predicted that the present difficulties will not give way to better times in a few years because the increase in regulation across several industries (including the legal profession) means that it is simply more difficult to do business now. Zccording to the SRA, 40 per cent of firms currently have cash-flow difficulties. 700 are currently under review by the SRA and half of those firms were found to be under financial stress. Financial management is a growing problem, with everyone in the legal services being put under more pressure.

His formula for legal practices that want to survive in the future is:

 

Risk Management +Financial Stability +Client Care =Survival

 

Smith then discussed OFR in more detail. Although the majority of this was aimed at COLPs (Compliance officer for legal practice) and COFAs (Compliance officer for finance and administration) within legal practices, several points should be of interest to junior lawyers. For example, Chapter 10 of the SRA Code of Conduct applies equally to everyone who works in an SRA-regulated legal practice and imposes a general duty to report any serious financial difficulty or serious misconduct, although this is often more easily said than done. If individuals have questions about reporting, the SRA website and the SRA helpline can provide advice.

It was not necessary to create complex systems to comply with OFR, but it was important to document what was being done (including decisions made) and check it against the Principles and Indicative Behaviours in the Code of Conduct. If, for any reason, an individual fails to perform an Indicative Behaviour, the reasons for this should be documented.

After Smith’s talk, there was a break for lunch, where delegates had the chance to network and review exhibits from DPS, SOS, Quill Pinpoint, and Riliance Software Ltd.

The SRA risk framework

We then returned to our seats and were welcomed back by Richard Hill, who introduced the next speaker, Andrew Garbutt, Director of Risk at the SRA.

Andrew Garbutt explained that the SRA risk team receives approximately 6,000 contacts a month, approximately 50 per cent of which are received from the public and 50 per cent from the profession. Most contacts don’t have evidence to support the allegations put to the SRA. Those contacts that are not an issue or are irrelevant to the risk team are triaged, but there are roughly 1200 calls a month that are relevant to regulatory issues, which need to be resolved. A report on financial difficulty in law firms (PDF) detailing this was published by the SRA in November 2013.

Every legal practice has a risk assessment profile that assesses their risks and individual factors. After a risk assessment is completed, the profile is allocated a score and resulting colour and, if relevant, forwarded for action to be taken (for example, by SRA intervention if necessary). The SRA recently published a severity survey, providing more information on how they calculates risk and any results that will change the risk assessment process in the future.

The SRA is currently building a new and more detailed version of the firm risk profile. Education and training will be incorporated into the risk assessment process because, at the moment, lawyers are not being trained to run businesses, which creates a potential risk that those businesses may run into difficulties in the future.

A risk outlook for 2013 has recently been published by the SRA to show the baseline assessment of risk in the market.

Current risks identified by the SRA include:

  • Lack of a diverse and representative profession, which has a negative effect on business. Garbutt stated that the SRA aims to use research and education to tackle this in the future, for example following the Legal Education and Training Review.
  • Financial difficulty among firms.
  • Dishonest use or misuse of client money or assets (the team gets approximately 140 reports per month regarding this).
  • Failure to cooperate or comply with notification and information requirements.

 

Emerging risks identified by the SRA include:

  • Lack of adequate succession planning. This is something of particular interest to junior lawyers: a failure to allow for junior professionals to progress to more senior roles means that they may have difficulty developing in their careers.
  • Poor standard of service or advice, particularly where this involved vulnerable consumers.
  • Inadequate systems and controls over the transfer of money. (This is a particular issue in the UK legal market, which continues to be a target for money laundering.)

 

Potential risks identified by the SRA include:

  • Improper or abusive litigation (such as PPI or airline compensation claims).
  • Lack of due diligence over outsourcing arrangements. (For example, the SRA published an analysis on difficulties surrounding cloud computing (PDF) recently, highlighting the difficulties of complying with regulation as technology develops.)
  • ‘Contagion’ within corporate groups. This is an emerging problem, since more businesses become incorporated, once one subsidiary or ‘arm’ of the business is affected, other parts or branches could be affected, even if they are in different jurisdictions.
  • As business structures increase in complexity, a lack of transparency is creating potential future difficulties in regulation. Garbutt noted that, by way of example, this is often why there are delays before an ABS can be approved by the SRA.

 

How can software help with compliance roles? The evolution of IT software to assist and manage risk

The final speaker of the day was Brian Rogers, director of Regulation & Compliance at Riliance, who discussed how computer software can assist legal practices in complying with regulatory objectives.

Richard Hill closed the formal proceedings, and networking drinks with wine and nibbles followed.

Find out more about the ILFM on their website

 

Emma Dickinson, JLD executive committee, 2011-2013

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