In particular, firms that hire contract lawyers or rely more on cheaper paralegals for routine work will benefit, RBS said.
This strategy was exemplified last year by the London office of Quinn Emanuel Urquhart & Sullivan, a US-headquartered firm. Its average profit per equity partner in 2012 stood at £2.5m, one of the highest in the City.
This was partly due to an itinerant team of Russian-speaking temporary staff drafted in to work on the $1bn legal battle between its client Oleg Deripaska and Michael Cherney, which eventually settled confidentially.
“Demand for legal services remains constrained. Accompanied by a continuing level of fee-earner overcapacity relative to the demand for legal services, pressure continues on billing rates, margins and profitability,” said James Tsolakis, RBS’s head of legal services lending.
“Recognising that profit growth is not increasing at the same rate as turnover, the pursuit of higher value instructions combined with effective cost management must be continuing themes driving law firm strategy and future profitability.”
Law firms were hard hit by the financial crisis, which dried up the lucrative pipeline of mergers and acquisitions and banking advice that large City firms had hitherto relied upon. Unprecedented job cuts followed.
At the high-street end of the market, forces such as the liberalisation of the profession, an overhaul of the personal injury market and cuts to the government’s Legal Aid budget have forced changes.
Some smaller solicitors have gone out of business, some are consolidating and some being taken over by larger companies.
Larger firms are also merging, with RBS forecasting more takeovers among domestic firms and internationally as firms pursue growth.
See: The Financial Times