Corporate, Real Estate & Litigation Expected to Feed Growth; Impact of Lateral Hires Prompts Succession Planning
The long-awaited results are in. While pollsters nationwide are monitoring each state’s primary elections, WithumSmith+Brown (Withum) is examining the latest trends and market conditions within the law profession resulting from its 2016 Annual NJ Top 50 Law Firm Survey.
“In general, respondents appear to be less optimistic than years past and of the opinion that growth will be flat this year,” said Bill Sansone, CPA, partner, who has more than 30 years of accounting experience and specializes in law firms. “This aligns with current industry conditions characterized by intense competition, the emergence of fixed-fee arrangements and lateral movement of attorneys.”
The audit, tax and advisory firm, which has six offices – including its headquarters – in New Jersey, recently tallied the survey responses solicited from managing partners, executive directors, CFOs and other executive-level decision makers. Key results include:
- 56% expect fee income to increase over 2015
- 60% expect realization to mirror 2015
- 60% expect to take on lateral hires
- 20% expect to merge with another firm
- 56.52% anticipate corporate law to record the most growth, followed by real estate and litigation (both 52.17%)
- 60.9% expect partner compensation/income to increase over 2015
- 55% do not have a succession plan
- 63.2% expect the economy to slowly increase over the next year
According to Withum, these results can be applied to the Philadelphia market, which is very similar to the New Jersey market. In the following commentary, Sansone addresses these emerging trends:
“The advent of bank-endorsed ‘preferred legal providers’ and savvy clients seeking to minimize open-ended charges associated with hourly fees have been the catalyst for even greater competition vying for legal work. Ten years ago, clients were billed on an hourly basis and they paid accordingly. That’s how it was done. Today, clients shop around, so to speak, for up-front, fixed-rate fees to eliminate any guess work or fluctuation. This, along with preferred bank-endorsed legal provider lists and reciprocal referrals, has significantly altered the manner in which law firms are now doing business.”
“We saw a huge jump up from less than 10% of respondents in 2014 and 2015 to more than 40% of respondents in 2016 implementing a succession plan. Why? The laterals are gaining traction in terms of the numbers that are migrating firm to firm, in the same or similar capacity. Without mandatory retirement ages and decreased hands-on client interaction among older partners, greater responsibility for the day-to-day client service is passed on to the 40-something associates without the promise of collecting any bonus commensurate with his or her efforts.
“As a result, the laterals are leaving in droves and many clients are going with them in lieu of starting over with a new point person. To counteract this mass exodus, firms are implementing succession plans. Since law firms are operationally and culturally unique, current mandatory retirement ages typically vary and exceed age benchmarks in other industries.”
“In this area, the needle went one way – well over 80% of this year’s respondents expect to increase spending on data protection and technology upgrades. From ID theft to international work, technology is perceived as the gate that needs to be fortified. Thanks to sophisticated e-billing analysis technology employed by clients, law firms also are now obliged to align with these procedural guidelines. If they don’t conform, bills are rejected and sent back – delaying processing time and payment.”
To view the 2016 Annual NJ Top 50 Law Firm Survey infographic, click here.
About WithumSmith+Brown, PC
Founded in 1974, WithumSmith+Brown, PC ranks in the top 30 largest public accounting and consulting firms in the country with six offices in New Jersey (including its Princeton headquarters); New York City, NY; Philadelphia, PA; Boston, MA; Orlando, FL; Aspen, CO; and Cayman Island. For more information, please visitwww.withum.com.