In 2021, law firms saw a return to overall high levels of revenue growth that we have not seen since 2007. (Citi Private Bank 2022) Certainly, the pandemic changed the way firms orchestrated client work and how lawyers conducted business. With the increase in demand, there is an increase in need for highly skilled and qualified attorney applicant pool. For the first time in over a decade, we are having an attorney talent crisis. Thus, the recent trend by large law firms in increasing compensation and the post-pandemic demand by attorneys (and staff) on the hybrid work environment.
In the most recent Citi Private Bank report, the key trends to watch in 2022 are:
Getting the Hybrid Model Right
As firms settle on the right mix of in-office and remote work, there are three main considerations for law firm leaders:
(1) what is best for the firm; (2) what is best for clients; and (3) what lawyers and staff want. Given the current talent war, the dominant consideration this year will be item 3. Whichever way firms decide to go, they will need to be intentional in how they approach developing their people. You may want to consider getting partners and associates in on the same days and making time to focus on office collaboration.
Leverage Growth
There continues to be a strong emphasis on increasing the number of income partners, of counsels and associates.
Associate retention continues to be a big challenge, with 78% of firms reporting a higher attrition level in 2021 compared with 2019. The mobility in first-and second-year associates is particularly easy since they have had only the pandemic to work in, and training by videoconferencing hasn’t made them stick. Attorneys at any level are at risk if the firm neglects the discussion of their career prospects.
Equity Partner Growth
Large firms will pick up steam on promoting attorneys to equity partners. With that, 83% of firms reporting an increase in their equity partners are making changes to their compensation models to retain and attract talent. While some firms have made no changes, others are shifting to a merit-based system.
Continued Focus on Operational Efficiencies
The focus will continue to be on operational efficiencies in 2022: (1)Many firms will be rethinking space – while many firms plan to reduce their square footage as leases come up for renewal, around 30% still choose not to reduce square footage. Collaborative spaces are trending. (2) Firms will also continue to focus on technology, especially practice management tools. The focus will be on systems that support knowledge management, client relationship management, billing and collections, and contribution analysis.
(3) Firms will continue to reduce administrative support expenses, but there will be a growth in pricing specialists, business development professionals and technology staff, as well as project managers and billing and collections teams. (4) Firms will likely continue to invest in business development activities but will be more mindful of client travel expenses. Clients now know that meetings can be conducted via video conferencing and will demand it.
Continued Growth in Alternative Fee Arrangements (AFAs)
According to the report, there will be continued growth in AFAs though it is likely to remain a relatively small proportion of law firms’ revenue. The greatest significance of AFAs is that there is an expanding number of firms that will be reporting more than 20% of their revenue from AFAs.
We hope that you found this summary insightful. For the full report, consult https://www.privatebank.citibank.com/insights/citi-hildebrandt-client-advisory